National Assembly for Wales

There's one paper to note under item 2. If we could note that paper, if everybody's content with that. 

And then we'll move on to our first substantive item here this morning, which is part of the scrutiny of the Welsh Government draft budget for 2024-25. For you to be aware, this meeting is being broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual. And for our witnesses, the transcript will be sent to you, just for accuracy as well. And here's Rhianon arriving now, so that's good—we're at a full complement. Bore da. If I could ask our witnesses to introduce yourselves and your roles. If we could start with Richard, please. Bear with us a second just to unmute. There we are. Excellent. Thank you.

Good morning. I'm Richard Hughes, chair of the Office for Budget Responsibility.

Good morning. And Professor David Miles.

I'm David Miles, and I take the lead on economic analysis at the OBR.

Fantastic. And Tom—Tom Josephs.

Hello. I'm Tom Josephs, and I take the lead on the fiscal analysis at the OBR.

Fantastic. Well, thank you very much, and welcome, and a happy new year to the three of you. We appreciate you coming in, and your insight is always interesting for us as a Finance Committee. I'd like to look to start with the impact of the cuts in national insurance, the decline in income tax liabilities in Wales compared to the UK, and some other of your forecasts. Can you explain how the cuts to national insurance contributions announced in the UK Government's 2023 autumn budget impact on UK income tax forecasts and how this is factored into your forecasts for WRIT, the Welsh rates of income tax? I don't know who would like to start with that. It is that you, Richard?

The short answer is that it boosts the Welsh rate of income tax via both its direct and indirect effects, but Tom might want to say more about quite how the mechanics of that work.

Okay, thank you. Tom.

Yes, I'm very happy to do that. Thank you very much. So, as I know you are aware, the way we forecast Welsh income tax is that we take a UK-wide forecast of income tax and then apply the Welsh share of income tax to that. The impacts of the national insurance contribution cuts that were announced at the autumn statement, as Richard says, on income tax, are primarily that we have assumed that they lead to an increase in labour supply, and as a result of that increase in labour supply, with more people working or people working longer hours, that boosts income tax receipts, and a portion of that boost to income tax receipts increases the Welsh income tax forecast. 

There is also in the forecast, as well as the impact of the cuts to national insurance, the impact of other measures that the Government announced in the autumn, and, actually, in the March budget, which we have also assumed boosts labour supply. So, various welfare reform measures that the UK Government announced, and also measures to support childcare, which we similarly assumed boosts labour supply and therefore increased income tax in the UK and in Wales. 

David might want to say a bit more about how we make those assumptions around the labour supply impacts of the NICs cuts, if you're interested in that. 

Okay. Maybe with our demographic being older, generally, in Wales, is that taken into account when you're doing that? David, I don't know if you want to reflect a little bit on that as well. 

Yes. The national insurance cuts really affect pretty much everybody that's working, or a very high percentage of people that are working, so that cuts across all age groups and genders, and that's why the impact, although it's a relatively small in pounds amount of money, and on any individual it might only be a marginal impact on having a slight incentive to work a bit more—because it affects so many people, nearly everybody that's working, it turns into a meaningful number for the UK as a whole, something of the order of 90,000-odd more people, full-time equivalent, working by the end of the forecast than had there been no change in the national insurance. And that's spread pretty evenly across people of, as I say, all genders, people of all ages, so that's an across-the-board thing. 

And then some of the other measures, basically aspects of welfare and work capability assessments, they add a bit less to labour supply, but another 30,000-odd by the end of the forecast horizon. So, these are—. In an aggregate labour force for the UK of 33 million people or so, these are not enormous effects, but they're not trivial, and I suppose the relevance to the Senedd's budget is that any increase in labour supply that increases income tax has a positive effect on revenues in Wales.

So, you've noticed that the income tax liabilities per person in Wales compared to the UK has been declining, though, in relative terms, so how concerning is that decline and what factors would need to be addressed to reverse that trend? And maybe you could talk about whether or not that will have an impact on the block grant adjustment. 

So, it is—

Not necessarily yourself—whoever is best placed to answer that, really. 

Sure. I can kick off but I'm sure Tom and David may want to come in as well. As you may have noted in the paper that we put out last year, which looked in much more detail at—. It was called 'Developments in devolved income tax', which looked in much more detail at trends in Scottish and Welsh income taxes over time. It was the case that in both Wales and in Scotland, the Welsh and Scottish share of the income tax take had been falling throughout the 2010s, which is obviously of concern to the Welsh Parliament and Government, and also an issue for us as forecasters about whether we would assume that that trend persisted. 

I think the issue is that over the last few years, that trend has actually stabilised, and that decline was arrested for the last three or four years, which means, from a forecasting perspective, had we looked at this four or five years ago, it would have said, 'There's a long-term trend of a decline in tax share of income for Wales and Scotland.' More recently, because that trend has basically been arrested and stalled, as a forecaster it probably makes less sense for us to think that that trend is for some reason going to resume. I think Tom might want to say a bit more about what was driving that decline over the recent past, and what might have driven factors that caused it to stabilise more recently. But I think, for us, it probably wasn’t a neutral assumption to assume a continuing decline in the share of the income tax take for Wales, given that we haven’t seen that for the last few years.

And have you seen that now turning a corner so that it's actually ticking up the long way, or is it just maintaining that parity, if you like?

It seems to be just flat in the last few years. 

Okay, thank you. Tom, did you want to suggest—?

Thank you. Maybe just a couple of things to add. So, in terms of the drivers that we saw over the 2010s for this relative decline in the Welsh share of income tax, it very much primarily related to employment income and, within employment income, mainly driven by relatively lower earnings growth in Wales compared to the rest of the UK, and that was compounded by the progressive nature of the income tax regime, which therefore meant that with lower earnings there was also a gap in the average effective tax rate paid by each taxpayer in Wales compared to the UK, because of that slightly lower earnings growth.

We did look in some detail to try and assess what might be driving that. So, we did some analysis of the sectoral composition of earnings to look at whether it was differences in the composition of economic activity between Wales and the rest of the UK. We also looked at the age distribution of the workforce and we also looked at qualifications—so, relative qualifications of the Welsh workforce versus the rest of the UK. And we did find some effects from those factors, but not the primary effect, if you like, from those factors. Most of the gaps seemed to be within sectors or within qualification bands rather than between bands. But that is an area that we will do some more analysis on and keep monitoring to see whether that can tell us any more about the likely evolution of the Welsh share in future. 

Has the freezing of the thresholds had some of that stabilising effect, and that's why we're probably catching up, if you like, or stabilised?

That may be a factor, and, again, that is something that we are going to do some more work on this year, hopefully ahead of the February update that we produced. So, in particular looking at the increases to the personal allowance in the 2010s and then the freezing of the personal allowance more recently, and the impact that might have had on income tax per person in Wales versus the rest of the UK, reflecting the fact that the distribution of incomes in Wales is skewed a bit more towards the lower end, relative to the rest of the UK, and therefore the Welsh share is likely to be more sensitive to changes to the personal allowance, relative to the rest of the UK. So, the fact that we had increases in the personal allowance through the 2010s may have disproportionately taken more workers out of the tax system in Wales, and obviously the freezes might have the opposite effect going forward. But, yes, we are planning to do some more work on that, because it does depend on looking in quite some detail at the actual distribution of earnings around the personal allowance, so obviously it’s only with someone who’s actually pulled over the allowance threshold that the effect takes place. 

Okay, thank you very much. I've got a couple of hopefully quick questions. You mentioned that WRIT forecasts are up an average of £231 million relative to your March forecasts. Can you elaborate a bit more on the reasons for this? I don't know—Tom, do you want to come back on that?

Yes. So, by far the biggest reason for the increase in the forecast is the increase in the UK-wide income tax forecast, and we did see a pretty significant increase in that forecast compared to our last forecast in March, and that was primarily due to the fact that between March and the autumn we saw higher inflation than we had previously expected and we saw that inflation being more domestically driven—so, higher earnings in particular. And combined with the freezes in the personal tax threshold, that has generated pretty significant fiscal drag, so pulling more people into higher rate tax bands or pulling more people into the tax system. And that, really, is the main thing that has led to the increase in the tax forecast. So, we've seen that both in the recent outturn of income tax receipts this year, and then we've assumed or judged that that is likely to continue.

I want to bring Mike in on this just for a short supplementary. 

Your estimates, though, are incredibly important to how much we get, aren't they, in terms of our share of the income tax? You've increased it by £231 million. Will we get an extra £231 million, or will we have to wait for the outturn in 18 months or two years' time?

These numbers are the numbers that will be used in the budget setting process. Of course, what actually happens in outturn will not be known for, I think, about 18 months because there is a long lag here. And there is always a lot of uncertainty around these forecasts. And we set out a number of those areas of uncertainty in the report relating to our outlook for inflation, employment and earnings that I've talked about in particular. But I'm very happy to talk a bit more about those uncertainties, if you like. David might want to say a bit more about those from a macro perspective.

I think we're all familiar with the uncertainties, and predicting is a very difficult job to do. It's just how wrong you're going to be on your predictions and how close they come to reality. And that's not about you, it's about anybody who is making these predictions. But, put simply, we'll get an extra £231 million over and above what we would have got based upon your latest forecast.

The £231 million that you're referring to is—. I'm just trying to find that in the—

It's the average—up by an average of £231 million relative to your March forecast. 

That's over the full five years, I think, average, yes. So, there is certainly, obviously, a lot of uncertainty, particularly when you're looking over five years. As I say, this year—2023-24—we have a reasonable amount of data already on tax receipts. So, for this year, obviously, there's more confidence but still quite a lot of the year to go and we have experienced a lot of volatility in the economy even since we produced this forecast. Interest rates, for example, have moved quite considerably. So, there is, obviously, uncertainty even in the short term, but clearly it grows over the longer term when you're looking across five years. 

So, my final question—. Thanks for that, because one of the things that this committee is quite interested in is the mechanics of how it's working as well, and when you're predicting forecasts, then, obviously, as Mike said, there's uncertainty. But it's when does it become certain and how long then do we have to wait until the money actually gets into the bank account, if you like, from a very simplistic way of looking at it. So, it's that element that we're interested in. 

But, just finally from me, more about the way that you're modelling WRIT and how do you model the unemployment and inactivity within WRIT forecasts. You've talked about risks. Is there a risk there? And how that's modelled. I don't know who's best placed—. David.

Yes, sure. Well, the unemployment forecast—let's start with that one—dependent, really, on two things. One is what you think happens to labour supply—how many people want to work and then what proportion of them actually end up with a job. We've taken a view that the recent rather weak growth in the real economy across the UK is going to persist for a while, and that's partly on the back of higher interest rates from the Bank of England, which, with a lag, are feeding through. And we've seen a couple of quarters now—the second and third quarters of 2023—where GDP growth was essentially zero. So, the economy has slowed down to pretty much a standstill. And we've also seen vacancies drop quite significantly in the last few months.

It looks like the labour market is softening and we forecast a rise in unemployment. In the bigger picture of the last 30 or 40 years, the rise in unemployment that we've forecast is not enormous, and the unemployment rate comes back down three or four years down the road to stay pretty much where it is now, around 4 per cent, which historically is a low level. So, the rise in unemployment that we've forecast is meaningful in the short run, over the next 18 months or so, but actually, when there's a bit of a recovery as interest rates come down further down the road in the UK, we think that the unemployment rate falls back to its current fairly low level.

Uncertainties around that are certainly substantial, and I think they're on both sides. I mean, Tom mentioned a moment ago that, even in the short period since we put out our assessment at the time of the autumn statement toward the end of November—so, barely six weeks or so—interest rates have fallen really pretty significantly. Market expectations of what the Bank of England do are that interest rates will be 1 per cent lower over the next few years than was thought likely in November. We've also had a couple of readings on inflation, and the November number was under 4 per cent. I think we were down to 3.9 per cent for the UK consumer price inflation, and that's linked then to the market expectation that interest rates are going to be lower in the future than seemed likely back in November. So, they're pretty good news on the unemployment side. There are plenty of things on the other side of the optimism-pessimism range that could go the other way. I mean, who knows quite where the middle east situation is heading, and it may cause inflationary increases down the road in the UK, because of disruption to supply and shipping through the Red sea. So, as always, there's risk on either side of that.

Thank you very much. I'll bring Rhianon in with her questions. 

Two seconds, Chair. I'm ahead of myself. Can you give me my page number? Okay. Right. So, in terms of the modelling, how sensitive is your modelling for the productivity growth rate forecasts, and how could this impact the Welsh rates of income tax forecasts if there is a divergence, as we've alluded to, from your forecasted growth rates at the UK level?

Maybe I'll just say something very briefly on that. One of the things that is difficult to understand in the UK, and not just in the UK but in countries generally, is the very different productivity performance over the last decade or so, relative to the longer history of the last 50 or 60 years since the end of the second world war. Productivity growth across the UK has been extraordinarily disappointing, really since the financial crisis. So, it's going back to 2008, so 15 years. Our central forecast, which is no more than an educated guess, is that productivity growth is a bit better than that very disappointing last 15 years, but nowhere near as good as the 30 or 40 years that preceded that when productivity, typically, was rising at 2 per cent a year; it's only been less than 0.5 per cent in the last 10 years. We've put the forecast, the central guess—as I say, it's not much more than an educated guess—at a bit less than 1 per cent a year over the next five or six years. Now, the risks around that are large and, in some ways, symmetric. It could be that we get a return to 1970s, 1980s, 1990s levels of productivity. In which case, it'll be more like 2 per cent than 1 per cent. So, six years down the road, levels of income will be maybe 5, 6 or 7 per cent higher than on our central forecast—that's a meaningful number—and it will generate, obviously, more tax revenue as well as higher standards of living. But it could be on the other side of it. Maybe we're being too optimistic at the OBR, as we have been for most of the last several years—

I'm glad you pointed that out. [Laughter.]

Yes.

It has been noted.

We may be too optimistic in thinking that we get a recovery in productivity that actually hasn't come since the financial crisis, and it makes a huge difference. In fact, on the very last page of our economic and fiscal outlook document—I'm just flicking to it now; it's something like page 145 for those who have the patience to get there—were some different projections for the size of public sector net debt in the UK relative to GDP for different possible scenarios. The difference between a return to historical levels of productivity growth and a continuation of recent low levels is enormous. It's a £400 billion difference in the stock of debt when you look five or six years down the road. So, it's a huge source of uncertainty, and it really matters. It's the difference between big increases in the standard of living or further stagnation in the standard of living in the UK, and it's difficult to be very confident about which of those is more likely.

Okay. I could press on that, but I'm going to move on. So, you've mentioned you're currently using the 2019-20 data from the survey of personal incomes due to the impacts of COVID on 2020-21 data. What challenges does this usage present, given the timelines of this, and when do you expect to utilise more up-to-date personal incomes data?

Shall I answer that one?

Yes, please.

Thank you. So, yes, that is the case, and that reflects the fact that 2020-21 data was, obviously, very significantly affected by COVID, and the exact way in which that affected the data is not clear. So, the judgment is that it's better to use 2019-20, for the SPI, that is. But I should say we use a lot of more recent outturn data to provide additional information to build the forecast, so—

Sorry to interrupt you, from a lay person's perspective, you're using the particular cohort of data because you think that's okay, but in other areas you've deemed that you're using more up-to-date data. Could you just explain briefly why?

There are different sources of outturn data on income tax. There's the survey of personal incomes, which is an HMRC survey of households, but there is also data that HMRC collects on a more up-to-date basis—

So, my question is: why are you using the personal incomes data from that period, but you're using more up-to-date data in other areas?

Well, essentially because the more up-to-date data is available past the COVID period. So, we have that data for this year, last year and 2021-22. That's real-time information that HMRC collects, and also data that HMRC collects on outturn tax receipts that does cover Wales, as well as the rest of UK. It's only the SPI, because that is produced with a longer lag, that we still have to rely on the pre-COVID survey for. Hopefully, to reassure you, although we are using that quite lagged source of information on SPI, we are able to complement that with lots of more recent information from elsewhere in HMRC's database.

Sorry, am I right in saying then that you look at the SPI data, but then you use the more up-to-date data to adjust that so that it becomes a more relevant and more up-to-date figure?

Exactly.

So, you're using it as a base value, and then looking at relative data points and then changing that over time.

Exactly, yes. We use all three of the information sources that I just mentioned to build the picture. So, the SPI from 2019-20 is just one of those three sources that we use. Exactly as you say, we build it up with the other sources of data.

So, just to interrupt, on that particular point that the Chair has underscored, at what point will you be moving out of the pre-COVID data, because, obviously, we could stay in the rosy past forever, couldn't we?

So, on the SPI, I think we would be—

On that.

—we would be able to move next year—

Okay.

—into the post-COVID data.

Okay, good. Okay, thank you. So, you published a working paper in October 2023, looking at devolved income tax. You noted that this paper suggests your approach, which focuses on employment income, mitigates the risks associated with your assumption that the variables that determine tax bases in Wales and the UK move broadly in parallel. And obviously, that's an important assumption, and we've touched upon this. So, can the most appropriate person elaborate on this, please? Anybody willing?

I'm happy to do that. Just looking at my colleagues. Yes, okay. So, as we were discussing previously, I think what essentially the working paper has told us is that, first of all, employment income, and trends in employment income, is by far the most important factor in looking at and assessing Welsh income tax per person relative to the UK. It also told us that there were some quite clear trends through the 2000s and 2010s up until around 2017. But then, as Richard said earlier, from around 2017 onwards, that divergence seems to have stopped, and the latest data suggests relative stability in income tax in Wales per person relative to the UK. So, that is why we have not actually changed our forecast judgment on the Welsh share going forward, but it does give us a lot of information and avenues for further investigation. So, it underlines the importance of using the most up-to-date RTI data on employment income, for example, which I was talking about, in assessing the sort of starting point for the forecast. It underlines the importance of us monitoring these trends in, for example, sectoral composition and qualifications, and in each forecast we do, assessing whether there is sufficient evidence that might lead us to change our view on the outlook.

Thank you for that. I'm going to move on because of time. I'm going to ask Mike to ask a couple of questions, and then—. Yes, we're up against time a little bit.

You have slightly downgraded residential land transaction tax forecasts for both main and additional rates. Will you be changing it again if interest rates fall?

Who wants—? David? There we are.

Yes, maybe just a quick one on that. Yes, it's certainly sensitive to that, because both the level of house prices and the level of transactions are probably positively affected if interest rates come down more than people had expected, and they could go the other way. And just as I said earlier, just in the very short period since the autumn statement back in November, there's been a pretty material change in interest rates. It's already reflected in what's happening to mortgage rates, where some big lenders have already cut their fixed rates on mortgages by really quite significant amounts just in the last few months, and that is a big factor behind the revenue we get from our tax.

Okay. Thank you very much for that. You're assuming no divergence in house prices or transactions between Wales and the UK. Is that the whole of the UK, or is that the UK excluding London and the south-east? Because there are really two markets, aren't there, the London and the south-east market, and there's the rest of the UK market, which includes Wales?

You go, Tom.

I'll cover that, yes. So, it is the case that we assume no divergence from UK-wide house price forecasts, and I think if you look at the charts that we've got in the report on this, if you have it, on pages 26 and 27, you can see that there's been a very close tracking of both prices and transactions in Wales and the UK over the past year. So, on that basis, we didn't see any case for assuming divergence in the future.

Okay, thank you very much. And finally from me: you mentioned there has been weak outturn data for commercial land transaction tax receipts since your February forecast, but don't these commercial land transaction receipts vary depending on one or two very big sales? You could have a £50 million or £60 million shopping centre sold that would double your forecast, for example. I know that you have no way of knowing if a big shopping centre or a big development worth £50 million or £60 million is going to be sold in the next year. So, I'm just saying that you've got these predictions, but will you be revising them if we do have one or more very large commercial transactions?

Yes, you're absolutely right: there's been a lot of volatility and a big recent fall in the outturn and that is because it is a concentrated market and is sensitive to high-value transactions. And, actually, reflecting that on the commercial property side, we have seen quite a divergence compared to UK wide. So, that does make forecasting very difficult, I'm afraid. But, essentially, what we do is, as soon as we have additional information, we incorporate it in the forecast and that provides the baseline for going forwards. So, while it's very difficult to predict when those big transactions will happen, as soon as they do, we incorporate them into the forecast.

Yes, okay, thank you very much.

Thank you very much, Mike. Peter.

Good morning, all. I'd like to just probe a couple of questions to understand why there is a weakening of outturn data that are used for land disposal tax. You revised the landfill disposals tax receipts down, due to weaker than expected outturn data in the first half of 2023-24, which you expect to persist across the forecast. I wondered what are the reasons for the weaker outturn data.

Yes, thank you. So, there are probably a couple of factors here. One is that generally subdued economic activity, compared to our previous forecast, may have had some impact in reducing waste. But I think the bigger effect is due to some capacity issues at some of the landfill sites, based on information that we have from the Welsh Revenue Authority and the operators. And so, on that basis, although we assume some of that shortfall persists through the forecast, we don't assume that all of it persists. So, essentially, we assume that some of that unexpected weakness will unwind over the forecast period.

Yes, that's clear. Thanks for that. I did note also that there are risks with your forecast for land disposal tax due to perhaps not getting sufficient information from the WRA. I wondered what discussions you may have had with the WRA regarding non-compliance and what impact does this lack of data have on your modelling.

Yes, so, we discussed that in the report, and that is an area that we will be doing more work with analysts in Welsh Government and the Welsh Revenue Authority on. It doesn't mean that we are not capturing any kind of non-compliance in our forecast, because, essentially, non-compliance that may be happening now is built into the baseline from which we project. So, essentially, the way the forecast methodology works in these sorts of cases is that the current level of non-compliance is assumed to remain constant through the forecast. But, as I say, we will do some further work with our colleagues to see if we can get more information on this that would allow us to develop the forecast further. 

Thank you very much.

On that point, is it a lack of information that is being held by the WRA or is it more that it's not being fed through to you? Where is that element? Is it that it's not captured, or is it just not fed into your models? How does that work?

I think it's more the former. I don't think there's any problem that we feel we have that information is sort of being withheld, if you like. We have a good working relationship with all our counterparts in Wales, so I think it's more about developing the ability to collect and assess this information.

Thank you.

That's okay.

Ask your question.

Okay. Well, one final question from me, then. I just wondered if you could clarify why you've revised your assumption that the level of standard waste not from Welsh local authorities will fall at a rate of 5 per cent, rather than 3.3 per cent. And what does this mean for LDT receipts over the forecast period?

Yes, so, this really reflects the most recent data that we have on this. My understanding is that the 5 per cent annual reduction that we are now seeing is similar to the trend we saw before COVID. Over the COVID period, that declined, but it now seems to have returned to those pre-COVID levels, so we've essentially returned our assumption to that on that basis. And that does act to slightly reduce the revenue forecast.

That makes absolute sense. Thank you.

Thank you very much. And finally from me, in your working paper, you set out several areas for future forecast development work for the OBR relating to rates and other things. Have you established potential timescales for that? Do you have a plan of action, if you like, on what you're going to be developing over time? I don't know if Richard wants to come in on that. Actually, can we just unmute Richard, please? There we are. Lovely. Thank you. 

I can say a few things and Tom might want to say more. I think there are some areas where we want to make further progress by the time of our next forecast, and Tom referred to trying to get a better understanding of the impact of the personal allowance, both increases and then freezes, on the Welsh tax take and the tax take for the other devolved administrations. So, there are areas where we're going to look to make improvements, even in our next forecast, and then there's further investigation that we want to do on what's driving the longer term divergence in incomes and tax takes between Wales and the rest of the UK, which will require further investigation and further work, including in the light of what we've been talking about before, which is updated post-COVID data from the survey of personal incomes, once that arrives, which I think will also provide us with a richer sense of what the post-pandemic situation looks like. Because a lot of our understanding really just takes us up to the pandemic, about what's happened, and then there was a lot of disruption to the detailed data that we've had on personal incomes during that period. And so we are very much looking forward to getting new and more granular outturn data to inform our view of future trends. So, there'll be some specific improvements we can make in this coming forecast, and then a longer term programme of work. Maybe what we can do is write to you about what the timescale for that work might be after this meeting, so that you can have a sense of when to expect that. 

That would be excellent. And can you just comment on how well you think your data is now disaggregated for Wales as well as England? So, quite often, it's Wales and England, but obviously we're interested in the modelling for Wales in particular. Are you confident that your data is at a level where you're able to disaggregate and look at it at that level, or are you always looking at the whole and then doing a 5 per cent cut, or whatever it might be?

Tom, do you want to say something about that?

Yes, thank you. So, in terms of outturn data on actual tax receipts, we have good disaggregated information on landfill disposals tax and the land transaction tax. As I was discussing previously, we do have a good range of data sources on income tax, although some of them are lagged quite significantly. In terms of doing the forecast from the UK-wide basis and then estimating the Welsh share for income tax, that does reflect the fact that our macro-economic modelling approach and data sources are primarily UK wide, and it does also have the advantage that it ensures we, if you like, produce a consistent forecast of the UK and Wales, but we do try and look for information specific to Wales that might lead us to adjust that, as we've done in the working paper. And there is always more we can do to try and identify useful data sources for that, which is part of the work programme that Richard was talking about.

And that's something that would be—I hesitate to say it, but—relatively easy to do if you had the data sources, to be able to produce some more sort of macro-Welsh level rather than macro-UK level modelling.

Well, I think it's—. What we can do is make specific adjustments to the Welsh share on the basis of Welsh-specific information that we get. We are not set up to produce a whole Welsh economic macro forecast, though, if that was your—.

Just interesting to find out. We've run up against the clock, I'm afraid, but thank you so much for your time this morning. Thank you for very insightful answers to our questions and, obviously, we'll look forward to getting some of that information through from you, but thanks for making yourselves available this morning. As I said before, your transcript will be out for you to be able to just check for accuracy, and, if you could come back to us with that, that would be great, but we'll hopefully see you again soon. Thank you very much. We'll just go into private for a few minutes just to change over. Thank you.

So, this is the second session. We've had a change of witnesses, and it's lovely to see the three of you. Happy new year to the three of you. If I could ask you just to introduce yourselves for the record. If we start in the room with Ed.

David.

Hi. I'm David Phillips. I'm an associate director at the Institute for Fiscal Studies, and I lead our work on devolved and local government finance.

Just in the room, could we just turn David up a little bit volume-wise? It's a little bit quiet, but we'll see if that helps. Okey-dokes. We'll start by looking at the economic context surrounding the Welsh Government's draft budget for 2024-25. What has been the overall impact of inflation on the Welsh Government's budget since the autumn of 2021, and how useful are such figures in understanding decisions made in the 2024-25 budget? Something that we've talked an awful lot about over the last 12 months is—. We've talked about £900 million, £800 million, £1.3 billion—there are all these different figures that have been flying around—and how we measure those and what impact it's having. So, maybe if we start in the room and then we'll come over to you, David, after that. Guto.

Yes, I can take that, and I guess it's—. Yes, we did put out an estimate after the autumn statement and before the budget ourselves. Yes, maybe just to start and just state the obvious, prices are much higher now than we were expecting when budgets were originally set back in the autumn of 2021. If you look at the GDP deflator measure of inflation, the economy-wide domestic measure, we were expecting about a 7 per cent increase from 2020-21 to 2024-25. That's actually increased by—well, set to increase by—15 per cent, so that's substantially higher. The increase in the CPI inflation, so, the measure of inflation of goods and services bought by households—. It was meant to increase by 8 per cent; it's now set to increase by 20 per cent over that three-year period. And, of course, that's obviously eroded the real-terms value of the Welsh Government budget as it was set in cash terms. It should be said that that's been offset by additional funding and additional spending in England on health, schools, childcare and business rates support in England. I think the settlement has increased, in cash terms, by about £820 million, but that hasn't fully offset the impact of higher inflation. So, again, using the GDP deflator measure of inflation—one measure— that hit to the overall budget is about £800 million, we think. Using the CPI measure of inflation, it's about £1.5 billion. Again, not to confuse things too much, that's a slightly different figure from the Welsh Government's figure of £1.3 billion that they use for CPI inflation. And the reason for that is that we've put it in current prices. So, our figure reflects the amount of funding—additional funding—that the Welsh Government would require next year to offset the hit from higher inflation, whereas the Welsh Government's figure of £1.3 billion was in the context of 2021-22 prices, so, the unexpected inflationary hit from 2021 in that base year. So, yes, it's just a slight difference. 

So, before I come over to David, what do you think the best metric is? Obviously, you've gone off one, and the Government go off another, and it's—. What gives the best indication, in your view, of where we're at?

So, I guess that both are valid, I suppose, and I guess it is a range and it's not a precise—. It won't be a precise estimate of the actual hit, because, obviously, Governments spend differently to households; a lot of it goes on public sector pay, so it's going to be different from the CPI inflation figure. But some elements of the budget—energy costs, for instance, on public services, procurement costs et cetera, can vary substantially from the GDP deflator. So, it's probably in the range between £800 million and £1.5 billion. And I guess—. We wouldn't really know what a precise estimate of the inflationary hit is, and, I guess, in terms of what basis, whether it's current prices or 2021 prices, I think both are valid, depending on what exactly you're looking at. We were looking at it from the perspective of how much additional funding the Welsh Government would need to get back to the real-terms value of the budget they were expecting, back three years ago, when it set its budget.

I'll come to David in a second, but I think Rhianon just wants to come in shortly.

Very briefly. That's very clear, how you've put it. Really, you would just give the two figures based upon the year that you're looking at, isn't it? But in terms of the additionality of funding based on consequentials that we've talked about—business rates, childcare and health—and that £820-odd million additionality, how does that, if at all, factor into the CPI and the deflationary indicator? Have you got an analysis of—? We've mentioned 20 per cent, then 15 per cent, but where would that scale input into that? Could you do that? Could you give us that analysis?

If I understand correctly, the £800 million sort of offset—

Yes, additionality. I know I'm asking you to give me apples and pears, but—

Yes. So, additional funding, but it's offset about half of the hit using the GDP measure of inflation. It's offset less of the hit if you measure it using CPI inflation. So, if—

Yes, it's households, yes. 

It's about £800 million additional funding that they've got next year compared to the original value of the settlement in cash terms, but that's offset about half of the hit. 

So, is it then possible to go—? When you're talking about the £1.5 billion based on, earlier, and £1.3 billion—is it then possible to work that figure, into not the consumer price index, but the deflationary indicator? Or is that impossible to do?

Is the £800 million in 2024 prices, sort of cash terms, from—?

Yes. 

So, it's effectively reducing from our £1.5 billion estimate for 2024 prices. It's simply a subtraction from that. 

Okay. 

So, yes, that's where the kind of half comes from. 

I think David might want to come in. And come in on this, and, maybe, your views on the whole situation. 

Yes, I'm not quite sure I fully understand the question, but the way I think about this is, if there had been no top-up to the Welsh Government's budget, the hit according to the GDP deflator would be about £1.6 billion, but, because there's been that extra £800 million or so of funding, that has been reduced down to £800 million; it'd be about £2.3 billion on the CPI inflation, but the extra funding reduced it down to about £1.5 billion. So, that's the way that I see things.

Okay, so you do understand the question; that's what I was asking.

And your thoughts on the different measures and the different ways that it has been depicted, I suppose, in discourse.

I agree that across the public sector as a whole inflation faced probably does lie somewhere between the GDP deflator and CPI inflation. That's because energy costs and food costs, much of which are imported, make up and contribute to the CPI, but aren't in the GDP deflator because it's only domestic inflation, where they make up a smaller share of the Government's budget than households' budgets, but not a zero share. Also, earnings growth lies between those two things, and that's an important part of the public sector's inflationary costs. So, I think those two factors—some energy costs, but less than households', and wage costs lying between the two—mean that, across the public sector as a whole, the appropriate figure for inflation would, probably, lie between them, hence the hit between that £800 million and £1.5 billion level.

But that's not going to be the same for all public services, because different public services have different baskets of goods that they're purchasing. Certainly, looking at England, at least, it appears that councils are facing rates of inflation for their non-education services that are actually exceeding CPI inflation, and that appears to be especially true for specialist children's social care placements, home-to-school transport for pupils with special educational needs and temporary accommodation. It might also reflect the fact that for commissioned services, like large parts of social care, where you're buying it in from private sector providers, contracted prices are often updated based on the prior autumn's inflation figures. So, the prices in 2023-24 would have been updated based on inflation in, say, October 2022, when, actually, CPI inflation was at its highest, at over 11 per cent, and RPI inflation was, I think, at 16 or 15 per cent.

So, in parts of the public sector, inflation can lag because it's based on backwards-looking measures of inflation that are used to set contracts. So, whilst I agree that across the public sector as a whole the correct figure probably lies between the CPI and GDP deflator, there'll be pockets where it could be below the GDP deflator but also pockets where it's above it, and potentially quite substantially above it. And, as I said, experience from England suggests that parts of local government—the non-education parts of local government—could be seeing above-average levels of inflation.

Looking at the extra money that was made available to transport and the NHS back in October, what impact has that had on other departments? You mentioned some departments there, David. What impact has that had on the cost pressures in 2023-24 in the other—? So, by shifting it from other departments into health and into transport—Transport for Wales in particular—what has been the impact? Have you done any of that analysis at all? We'll start with David, and then we'll come to Ed and Guto.

Looking at the impact of inflation first of all, back this time last year, inflation in 2023-24 was expected to be about 3 per cent, according to the GDP deflator; it's now expected to be about 6 per cent, so three percentage points higher, roughly double the rate of inflation. That would mean that it would be more difficult for services that haven't seen a top-up to fund their activities. The cost of goods and services they're buying will probably be higher; also, I think wage increases have been higher. But not only have their budgets not been compensated for the increases in prices, they've also, in some instances, seen their budgets cut to actually do those top-ups for, as you said, health and Transport for Wales.

I've looked at the areas that they've made cutbacks to. I've not looked at what those impacts actually on the ground are. The document the Welsh Government put out had some high-level information about where the cuts would fall, where things have been prioritised, but I think the fully detailed information is coming out in the spring budget revision in February, so I expect to see more detailed information there. 

One particular issue will be on capital spending, because obviously part of this is funded by a planned capital-to-resource switch, and on capital funding, actually, there's been no top-up since the 2021 spending review in terms of capital spending plans. So, that budget was already expected to be substantially lower in real terms than planned. Whilst there's been this £800 million top-up for resource spending, there's been no top-up for capital, so the pressure was already building there, and the switch from capital to resource will add to that pressure on the capital budgets. 

And capital was overprescribed as well. I seem to remember the finance Minister talking about that as well. Any thoughts on this, Ed?

Sure. I think, when we're considering the budget in the round on this, and which services have had a bigger hit because of the impact of cost pressures and inflation, if we take it as the NHS, local government and then everything else, which is the one that is taking more of a hit compared with the other two, if you look at NHS spending on the one hand, that was initially set at £9.4 billion for 2024-25 back in October 2021, and that's now going to be £10.3 billion. In other words, the Welsh Government has found an additional £852 million, and this more than offsets the impact of higher inflation on the NHS budget, if you use the GDP deflator measure. As a result, obviously, it's where, in the budget, the money's being found to make that additional investment. 

The settlement for local government has been topped up by £269 million, and that still leaves about a £145 million hit from the impact of higher inflation. It's about two thirds topped up in terms of the hit from higher inflation, so it doesn't meet all of the pressures, but it's somewhat protected in terms of the big hit. And that, of course, means that everything else in the budget is taking more of a proportionate hit from the impact of higher inflation. That's probably about £600 million, the impact of that, if you think about it in terms of the main components for the budget and where the impact of inflation is being felt.

Peter.

I just wondered if there was some sort of surprise that there was such—. Recognising that the inflationary pressures were well known in advance of the setting of last year's budget, did it seem quite surprising that not long after we set the budget we had to make such massive adjustments? What was your analysis of that scenario?

A lot of the inflationary hit was already known when the 2023-24 budget was set, especially the first supplementary budget during the summer. It seemed like almost only a month afterwards you had the statement saying that they were looking for in-year budget mitigations. In terms of the process, in terms of transparency around the process, I think perhaps having a detailed breakdown in a supplementary budget would have been a better way of providing the detail on the cuts being made in-year, rather than the very high-level document that was published in October. Going back to the figures in terms of the inflationary hit, the figure that the Welsh Government was using of £900 million, I don't think—. That provides the context. It's important context for the budget, but perhaps it isn't fully indicative of the actual decisions that the Welsh Government was having to make during the summer. It perhaps wasn't particularly useful. There wasn't a £900 million hole in the budget needing to be filled. It is statistical analysis of the change since the autumn, some of which, as you said, was already known when that final budget was set initially.

If I can come in very quickly, to some extent with the Welsh Government, you actually see inside the sausage-making machine a bit more than you do with the UK Government. Obviously if there's a transfer across major departments in the UK, you'd expect there to be some kind of announcement there. But actually, when there are transfers within, say, the department of health or the department of education or within the department of levelling up, those won't get the same scrutiny, perhaps, as you would in the Welsh Government, where there are quite detailed budget plans published down to very detailed levels. I think it is worth noting that some of the same sorts of decisions might be going on within UK Government departments, but it's harder to see some of that, because at budget time and at major fiscal events, all you have is the departmental level budget, not the detailed sublines of the budget, like you do get with the Welsh Government's supplementary and draft budgets.

We talked a little bit earlier about inflation and the impact of that on certain departments, and the lag in particular of some contracts, retrospectively, looking back at what inflation was. Obviously, inflation is reducing, and reducing fairly rapidly at the moment. What impacts will that have on this budget round and then, possibly, the next budget rounds? Have you given that any thought or are there any departments that are going to be particularly hit by some of those stark changes, if you like, as inflation drops? Any thoughts? Guto.

As David alluded to earlier, one of the biggest drivers of costs for the public sector is public sector pay, and I imagine that public sector workers will be expecting pay raises probably exceeding the lower levels of inflation that we've seen, given that they've been taking the hit in terms of real-terms pay cuts. In terms of average earnings next year, I think, off the top of my head, it's about 3 per cent, so you'd expect that increase, at least, for public sector workers next year. And going forward beyond that, I suppose the context is very tight public sector departmental spending totals being carried forward, which will create very difficult budget decisions having to be made beyond 2024-25, unless there are significant changes in the departmental spending plans.

If I can come in on that as well, I think the coming year will still be pretty difficult for many departments, even though inflation is coming down. Firstly, of course, on the wages side, we've got another near 10 per cent increase in the national living wage coming in in April, so that will mean particularly big increases for things like social care costs and things like childcare as well, which is often quite a low-paid industry. Inflation in October was 4.6 per cent, according to the CPI; it was 6.7 per cent in September. So again, that'll be higher than inflation in the coming year. So, if those are being used to uprate the contract values for social care contracts and other outsourced contracts, that'll still be above inflation levels. So, I'd expect those services where a lot of things are contracted out and where there's a lot of low-paid workers—social care, childcare—to be the areas that are facing particular challenges in the coming year, given minimum wage and the impact of lagged inflation not coming down as much in-year inflation. Of course, those areas that have seen cuts in the 2024-25 budget to channel more money to the NHS include things like the social care workforce, childcare and play, mental health—there's a whole range of areas there that have seen cutbacks. So, I think it will still be a difficult year, despite inflation coming down, because of minimum wage and that lagged impact of inflation.

Thank you. You mentioned earlier that the capital budget hasn't really been affected, plus we talked about that it was overprescribed anyway, and also the potential switch from capital to revenue. Have you looked at the cumulative effect of that on the infrastructure projects the Government have been looking at, and that infrastructure plan that was there? Is there any analysis you could share with us on that side of things?

We haven't seen the latest update on the infrastructure plan. We saw that last year. But I'm sure that will be coming. As you mentioned, there's been no additional top up to the capital budget from the initial plans and in terms of the inflationary hit—that means about a 7 per cent to 11 per cent hit in terms of the real-terms value of capital spending. Because we've got this continuing roll forward of the impact of that cash-terms freeze, it significantly erodes the value of the budget, and we think that, by 2028-29, the Welsh Government's core block grant for core capital spending could fall by about 15 per cent in real terms. And that, of course, compounds the issue that we've had of construction inflation costs. In the past few years, we've seen, and David mentioned inflationary pressures on things like adult and child social care—. We saw, on the capital side, very considerable double-digit inflationary pressures on construction inflation, and particularly schools construction had been particularly impacted. So, when you think of these big, particularly transport infrastructure, projects, that is where you'd be really concerned about the declining value, in real terms, of the investment. We saw on the Heads of the Valleys road, the recent opening of Brynmawr to Gilwern, going over £100 million over budget—a massive cost increase over the original projection. With Transport for Wales and the metro project, of course, we've got the impact of construction inflation, but also the fact that the Welsh Government is now subsiding the value of lost revenue on the ticket side, so there's almost a double impact of issues like that, both on the revenue and on the capital side. If I were in the Welsh Government budget office, I'd be grateful that we didn't fund the M4 relief road. I think that would have been quite a dashboard klaxon at the moment, in terms of the construction inflation pressures at the moment, and what we've seen on the cost overruns on the Heads of the Valleys road.

Okay. I'll bring Mike in.

Diolch, Cadeirydd. Welsh Government wants to do lots of things, many of which it's having difficulty doing. It wants to invest to meet its ambitions to meet net zero, it wants to mitigate climate change, and it wants to ensure adequate housing is being built, especially affordable housing. Is there a role for transaction capital in that?

[Inaudible.] [Laughter.] Guto, or Ed?

So, by transaction—

Or David.

Sorry, go on.

No, David.

So, by transactions capital, you mean financial transactions capital of the kind that's previously been used to fund housing-market interventions?

Yes.

Well, traditionally, that did play a role in investment for housing. Clearly, there are limits placed on the amount that can be done through the UK Government's departmental expenditure limits for financial transactions capital. I've not looked into the detail about how effective that type of capital spending was at generating real additional supply. I know, on the housing market side of things, there was a concern that, actually, you were just boosting demand rather than actually increasing supply, and was hence pushing up costs. But whether a better designed scheme could address those sorts of issues, I'm not sure.

Given all those different objectives it's got on net zero, climate change and on housing, I think the Welsh Government will have to really ruthlessly prioritise its capital budgets. I think on housing it can also think about what it can do on the planning side of things so that it supports the development of the private sector housing. And I'd also say that one way it can maximise capital investment in Wales is by creating an enabling environment that allows local government to feel confident to maximise their use of their prudential borrowing powers. Now, obviously, what we've seen in England is them cutting back on borrowing, partly because of the higher interest rates for new borrowing we're seeing. I'm sure that's probably happening in Wales as well, but central Government can help maximise the use of those by, as far as possible, providing clarity on future funding so that councils feel confident that they have the resource funding to cover the capital repayment costs, and also to support councils' efforts to diversify their revenue streams, I think, whilst maintaining oversight of the risks involved. You don't want councils racking up unmanageable debts on commercial operations or commercial property. But I think those two things—more clarity for local government and more flexibility—will help them maximise prudential borrowing, which is an important source of actual capital investment, especially for things like schools and local transport schemes.

Yes, okay. Thank you very much, David. If you could perhaps write to us about the use of financial transaction capital in housing, and I agree with you entirely—the use of Help to Buy has only pushed up house prices because you've put money into the demand side without increasing the supply side. But, moving on from that, there are certain areas, excluding the big two that were mentioned by somebody, I think it was probably Ed Poole, earlier—excluding those two, there are certain other areas that are in the untouchable area. I'll give you four—I could probably give you more—rail, enterprise zones, basic farm payments, and the other one that you've just talked about, Help to Buy. These are the untouchables in the Welsh Government, and, although they are not big compared to health or local government, they do take out money that could be used by either of those. Do you have any comments or views on the untouchables? 

Who wants to go first? 

I can just—. On rail, for example, obviously, as you know, the rail infrastructure budget is not devolved, and so over the previous decades the Welsh Government has had to use its own funds to make investments in the Ebbw valley railway and the Vale of Glamorgan line. On Transport for Wales, on the operation side, since the pandemic, of course, there's been a massive hit on the ridership, particularly in terms of business and commuting ridership. So, just like most other operating companies in the UK, but not all, there's been additional subsidy because, obviously, somebody has to make up the gap between passenger ticket revenue and the money that rail operating companies need to operate. I think there is certainly more that can be done.

There is a small number—not a majority, but a small number—of rail operating companies elsewhere in the UK that have returned to pre-pandemic levels of ridership. That hasn't happened in Wales, so I think there's a lot of work that needs to be done. But I think in the current—. Assuming that—. And I don't think there's a case to return TfW's current rail operation to a private provider; I think we've tried that. I think at the moment, they're holding the fort, if you like, in terms of being able to top up the lost passenger income, but there needs to be more to bring people back, to reduce the Government subsidy. 

Or to reduce the number of trains running at any one time. 

Possibly. I'm not a train operations expert, but I do think, in the current model, there aren't many obvious choices. Reducing the trains, obviously, would have a knock-on impact on how many people wish to use them in the first place. So, yes, there are always trade-offs on things like that. 

David, any comments? 

Yes. So, on those particular areas, they're not areas I've looked at in any detail. I've seen that the farm payments have been frozen in cash terms. I guess, of course, that is a real-terms cut. More significantly in the rural area, there's been a big, big cut in planned spending on rural development. There is a question about the balance between these two different elements of the funding regime for replacement of the common agricultural policy going forwards. In a tight budgetary context, if the basic farm payments are seen as sacrosanct, that does limit the ability to shift funding more towards the sustainability and economic development front in rural areas.

On rail, one thing I'd note is that, yes, as Ed was saying, it's not actually unusual that rail passenger numbers are still down on pre-pandemic levels in Wales. It’s true of many parts of the UK, and when I looked at the statistics for the period to, I think it was, June to September 2023, TfW was sort of middle, slightly below middle, of the pack in the extent to which it has caught up. But one thing I think is interesting is that, when speaking to Scottish Government officials and looking at the Scottish Government budget, ScotRail is also in that middle-of-the-pack sort of range, but they haven’t had to make the same sorts of big in-year top-ups to the ScotRail operational subsidy. So, I think there’s a question there about to what extent is this because of differences in operational assumptions about growth on, if you like, the financial planning looking ahead, or whether that is stuff that has happened post pandemic, or it goes back to pre-pandemic passenger number projections by bidding winners. Or is it that there’s something more beyond just the passenger numbers going on? Is there something going on with regard to the well-known issues in Valleys line services on delays, on, actually, collection of fares, when you’ve got lots of people doing replacement buses instead of the trains?

So, I think the rail issue is one where it is worth digging further into, because it’s common across the UK that passenger numbers haven’t recovered, but certainly when you’re looking at Scotland, what is different about Wales is this big in-year top-up, which you don’t see in Scotland, and of course that has meant some big in-year changes to other departments to find that extra £100-odd million this year and next year as well for TfW. But I wouldn’t want to make any suggestions about what the Welsh Government should be doing on the funding for these areas. I think we all have our own pet areas where we would say, ‘Oh, I’m not sure I’ll spend money there.’ I’m not sure that’s really my role in this committee. 

But more spending on rail means less spending on buses, which are used by more people. But that's just a comment, David. I don't want you to reply to that.

You and I have had this discussion several times over the last several years. Again, the Welsh Government always talk about preventative expenditure to reduce future demand for services. Do you notice anything in this budget that is moving more towards the preventative agenda?

I might come back first on that point about rail and buses. So, I did do a quick back-of-the-envelope calculation. So, given the planned subsidy levels for 2024-25, and likely passenger numbers in that year, the subsidy per passenger journey for TfW—well, you’re up to a £13 or £14 per journey subsidy, just to put that in context.

On the issue with regard to preventative measures, I think, actually, if you look at the narrative around where things have been changing, if you look within the health budget, for example, there has been a shift of funding away from some public health initiatives—substance misuse, some of the mental health schemes, and within that are also issues to do with play and childcare. That funding’s been reduced to provide top-ups to the core NHS budget. So, I think, in many instances, actually, in order to provide funding for those core, front-line services, some of the services you might think as being more linked to preventative actions have been cut back. What you’d hope is that, within both the remaining preventative budgets and within the core NHS budget, the core local government budget and so on, funding is being prioritised on those areas that have the greatest impacts and greatest benefits in terms of improving people’s lives and outcomes, which is often those things that are at an earlier stage in intervention.

So, looking at the budget, it looks like there’s been a shift from the preventative spending to the acute end of the spending, but what goes on underneath that in terms of the activities that these different operators are doing, focusing on those with the highest bang for their buck, which is often, you know, more at the preventative end, I think that will be important as well.

Thank you very much, David. Finally from me, we had before COVID and after COVID, and lots of things have changed in the post-COVID world, including how people work and including demand for services. We've also had the demographic changes, which were predicted in the last century, of a growing elderly population, creating demand for health and social services by the increasing elderly population. Does this draft budget provide support to transform services and to ensure that these changes, which are beyond governmental control, are actually being met?

It's also about in terms of how—. Yes, demand has changed for public services from before the pandemic to now. Obviously, if we look specifically at healthcare, if you look at spending, in cash terms it's up about over a third next year from 2019-20. In real terms, that's about a 13 per cent increase in health spending in real terms. And if you look, there are more resources available for the NHS, but activity rates or activity in the NHS hasn't really grown by as much, which suggests, again, as you said, that there are demand changes, and also, in terms of the productivity of the NHS, how much healthcare that budget provides perhaps hasn't been increasing, suggesting, maybe, that the pandemic has had a longer term hit on the productivity in the health service.

Well, we had that problem before, didn't we? There was the Nuffield report in the early 2010s that showed productivity in terms of health, including consultants and—[correction: consultants and nurses]. They had lots more money, the money went up, but the productivity went down, and in Wales more than either Northern Ireland, Scotland or England. The question I'm asking, and I asked the Minister yesterday, which I didn't get an answer to, and I'll be asking again—I hope I'll get an answer at some stage—is: what are we expecting for this additional money in health? If they're shovelling in money, how many more cataract operations? How many more hip replacements? How many more of each operation type are we expecting for this type of money? Should we be asking that question or is it just me off on one of mine?

No, I think it's a more than reasonable question when the productivity, as you say, hasn't risen and—. In fact, I was talking to David this very week and I'm sure David will be able to talk about this point as well on NHS productivity. I think what really needs to happen is the pipeline of new staff being trained over a long period of time, and a medium and long-term plan for expanding capacity. This kind of stop-start on money is really difficult in these types of services. And given that there are large numbers of people trained in Wales, large numbers leave once they graduate from medical schools, so the NHS is looking in international markets for staff to join the Welsh NHS. The expectation of long-term investments will continue. We've been talking about how the NHS is the beneficiary of the budget as a whole. You'll be wanting to have that very long-term pipeline on new capacity and on staff recruitment. That, I think, is the only way that you can reduce the amount of time that people are staying in hospital beds that don't necessarily need to be there, for example.

David, did you want to comment further on that? And then I'll come to Peter then, after that.

Yes, so I think, talking about demand, clearly there is a growing elderly population, there are higher morbidities, and that is going to be increasing demand for healthcare over time. But the points being raised here about what's happening to inputs and, if you like, outputs—activities in the NHS—I think is really quite important. So, I've not done any of the number crunching for Wales, but colleagues at the IFS have looked at both England and Scotland, and the figures are actually quite stark. So, in England, for example, NHS staff numbers are up about 15 per cent since prior to the pandemic, since 2019, but the amount of activity in hospitals, so out-patients and in-patients, both emergency and non-emergency, hasn't really increased at all. And that means that you've got, effectively, at a high level, it looks like something like a 13 or 14 per cent drop in productivity. Now, there are some things, looking beneath that, as it does seem, for example, that patients who have incidental COVID, so those who have something else wrong with them but also have COVID, they end up being in hospital for longer, it takes longer to treat them, and that sort of reduces the throughput through hospitals. It also seems that the complexity of cases has gone up a little bit, but it does seem that there is still, at least somewhat, an underlying productivity issue in the NHS, and understanding what has driven that is, I think, quite important.

And, of course, in Wales—and I mentioned this in my last evidence—already it was the case that hospital stays were quite substantially longer than in England, perhaps sometimes for good reasons, but also, again, that does reduce the throughput of people through the hospital system. So, I think it is important to not just think about NHS funding, but NHS productivity and NHS operations as well. As it becomes a bigger and bigger share of the Welsh Government's budget, it becomes more important that it's delivering effectively, which also matters, of course, to people's health as well.

The other thing I'd add on demand, again, talking to English councils, is what they've suggested is that it's not really that the demand, like the number of people requiring, say, children's social care or adult social care, has gone up massively, but it's two factors: it's the complexity of cases and also the cost of providers, especially in these specialist placements for children's services. I'm not sure if that's an issue in Wales to the same extent, but in England there have been huge, huge increases in the costs of placements for very troubled children, as, for example, the market has become more concentrated, with private equity buying up a lot of the providers and pushing up costs.

Just very briefly back to you, David: 'For Wales, see England' on those issues.

There we are. I'll come over to Peter.

Thanks. Just on that last point, I think David is absolutely right, and I think we do need an independent assessment of how we utilise the money. It's no good to keep throwing money at something without knowing that it's being used to the best effect, and I think Government should really think about that, especially with our health service as it is.

But moving on to my issues, Wales Fiscal Analysis, before the Government draft budget and the provisional local government settlement, you predicted, I think, pressures in local government of somewhere around £470 million, moving forward. I just wondered what your thoughts are on how that position has changed in view of the draft budget settlement, the local government settlement—3.1 per cent, you could argue that that's a significant real terms cut for them with their new burdens and everything else that will be flowing through. So, I wonder, firstly, whether you think that the draft budget situation has made that situation worse or better. And how, perhaps, do you think that might affect non-statutory services in local government and those important organisations that are supported by local government, voluntary organisations and things?

In terms of our projections before the budget, of that budget gap, it's worth noting that our projection is using 2021 as the baseline for spending and then we project based on our assumptions around spending pressures and then compare that with the funding. So, there has been a significant increase in funding for local government. And as Ed mentioned, there was a top-up in the last budget for the local government settlement, so offsetting some of the impact from higher inflation.

But then, the work that we did in October and then updated to reflect earnings growth—so, projected earnings growth next year and the increase in inflation, the increase in the GDP deflator, which is going to increase costs—based on the indicative spending plans that the Welsh Government had for local government, we estimated that at around a £470 million shortfall next year. I don't think that would have changed dramatically with the draft budget. We haven't looked in detail in terms of the specific grant funding, and that might change with the final Government settlement. There are some cuts to specific grant funding, like homelessness funding, which some councils have pointed towards, and the social care workforce grant, maybe, as well, that was being cut, and that might have an impact on local authority budgets and that funding gap.

I guess the point that we made in the October report that we put out is that that funding gap has been growing over recent years, and local authorities have been drawing down on the reserves that they built up during the previous two years. So, there are big draw-downs on the reserves that local government have to fund day-to-day spending, and I think next year, in 2024-25, they'll be able to do that again on a Wales-wide level. Obviously, that will vary by local authority, their ability to do that.

But I guess the crucial point then is that after 2024-25 that isn't a longer term solution to that growing funding gap, and, based on the indicative spending plans of the UK Government and what that means for the Welsh Government, that funding gap is going to increase over the next years. You are going to see, perhaps, in terms of next year, it's likely that council tax will increase faster. We saw, I think, 5.8 per cent this year. Something similar or even greater would probably be the baseline assumption for next year for a lot of councils across Wales, to try and fill those funding gaps, and then, going forward, you'd imagine that council tax increases will carry on as well.

No council is going to want to cut discretionary services if they don't have to. They'll find all ways, council tax, reserves, everything, but there'll come a point, because of the imbalance in the way that the funding is distributed across local authorities, some councils have got more fat than others, significantly, and some can do it longer than others, and there's a disparity then in the offer for the local government family, I feel.

I just wonder what impact will increases in pay awards and the real living wage have on the affordability of delivering social care and school education, because those are the key areas we are seeing some huge pressures in. I made a point in the Chamber yesterday, how social care is such a fundamental issue to sorting out the health issues. How are the councils going to manage that with a 3.1 per cent and the additional pressures?

I think David alluded to it earlier, that it's especially lower paid workers in those sorts of sectors that are going to see faster than 3.1 per cent increases in pay pressures, so, yes, that's definitely something to consider in terms of the additional pressures on specific local government services.

Okay. Did David want to come in?

Sorry, go on.

David, did you want to come in on that?

On local government more generally, I was going to say that one of the interesting things that, again, I discussed with Guto and Ed before today's session was just how things differ in the 2020s compared with the 2010s if you look at, I would say, the contrast between England and Wales. So, in the 2010s, Wales cut local government by less so it could increase health by less. What we've seen in the 2020s now, and I think this budget continues that trend, is that now NHS spending is growing more quickly in Wales than in England, but that means the reversal on local government, with local government spending under more pressure in Wales than in England, although, of course, from a higher baseline level. So, I think in the coming year, for example, if all councils put up council tax by 5 per cent, the increase for English local government school spending will be about 4.5 per cent, and that comes to about 3.5 per cent in Wales, and that's following on from an even bigger difference in the current financial year, where school local government spending in England has increased by about 7 per cent in cash terms. That is an important context. We saw a lower prioritisation of health in the 2010s allowed local government to see smaller cuts, but in the 2020s, this shift towards NHS funding has meant more difficult decisions for local government in Wales.

I think that's helpful, and it's a shame there hadn't there been a smoother approach over the decade instead of this up and down. Actually, it brings me on nicely to the next question, because I know that the Minister shared in the committee here that she was expecting to see a 4 per cent increase in the NHS budget here, yet that compares quite drastically—. Well, it’s a far better uplift than we’ve seen in England, at 1 per cent. I think the question is obvious: do you see the disparity between these two figures? What’s your view on that?

If I can take that, I think it’s difficult to precisely look at core NHS services, because of the way the budget was presented and because the detailed budget lines weren't presented post the October update on the financial position. But I think the best guess that we have is that any core NHS spending—so, the core NHS and the targeted NHS services, excluding the ‘A Healthier Wales’ budget line—is going to grow by about 5 per cent from this year to next year, in cash terms, obviously. And again, as you said, that is substantially higher than the 1 per cent increase that’s been set in England. The UK Government in the autumn statement included further funding this year for NHS pay deals in England for 2023-24, but not for 2024-25. The UK Government does have substantial reserves in its spending plans, which I think will be interesting in terms of the Welsh Government; of course, the UK Government has to allocate those reserves to departments in England before that triggers consequentials for the Welsh Government. But you’d imagine that there will be more consequentials on their way. I can’t imagine that the UK Government will only increase NHS spending in England by 1 per cent next year, considering that NHS pay is going to be substantially higher than that, and they have to fund this year’s pay deal. I imagine from the Welsh Government perspective that they can’t bank on it, but there will be additional consequentials coming down the line, which is interesting, in that they have almost allocated those consequentials already, taking money out of other areas of the budget. It'll be interesting to see what they do with the additional funding, if and when it does come further down the line.

Of course, there will be an election as well, which might influence announcements, I’m sure. So—

If we move on to the funding constraints, maybe.

Given the funding outlook for future years, are there any programmes or policies that the Welsh Government could reconsider in the longer term on affordability grounds?

This of course is where the budget is at its most political in terms of what programmes you would want to cut. I think we’ve talked already about the long-term pressures on the health service and the need to have a long-term plan for capacity building, both on the workforce side and on the infrastructure side. The real problem is—and I don’t have an easy answer on this—as we’ve talked on the rail service, there are always trade-offs involved, so you can of course make savings in terms of the operation, but that will have a knock-on effect on a whole other load of policies. The other one, of course, as Mike Hedges talked about, is buses. Of course, more than half of the journeys that passengers take on buses in Wales are funded by the Welsh Government through the concessionary bus pass. You could, of course, say, ‘Well, in tough times, we might want to reduce spending on concessionary fares', but that has then a knock-on effect on the viability of bus services themselves. So, there are always these trade-offs that mean that you could of course make savings in different aspects of the budget, but that has both financial and policy impacts later on.

Thanks for that. One last—

Sorry. Just on that, from the budget documentation that’s been provided, have you made any insights into where the Government has made priorities for revenue funding and where those difficult decisions have been made already? Rather than speculating on the future, where are those tough decisions, and what are they, in your view? What are the most tough decisions that they have made?

There are in the narrative a few lines saying that they’ll be focusing on non-devolved areas where they have been spending money and where the UK Government haven’t been spending money and the Welsh Government have been topping up. From what I can see, I think the only area that they’ve actually highlighted in terms of the cuts is the police community support officers. I can't really see anywhere else in the budget where they've found cuts to non-devolved areas. I might be wrong in that, but from my first glance through the budget, we couldn't find those. But in terms of the difficult areas, it's almost everywhere outside of health and Transport for Wales. Outside core NHS and Transport for Wales, I think the cut is about £422 million.

I think it'll be interesting, when the written ministerial statements come out in detail and you go through by portfolio where some of the impact or the model's impact of where these cuts might come, because in some areas, the budget narrative claims that some of these are demand-led cuts. So, for instance, the childcare offer—the £11 million reduction in childcare spending is supposedly because of a lack of demand, but perhaps that highlights the issue with the take-up and how the service is delivered rather than an actual shortfall in the demand for childcare, which I can't imagine exists. So, yes, I think there'll be more information coming out that will require detailed scrutiny of each of those areas.

Can I come in briefly as well? I actually think the Welsh Government has done a pretty good job here in being upfront in the areas where it has made, if you like, difficult decisions, certainly if we compare to documentation for UK Government budgets or Scottish Government budgets, which still often highlight, ‘We’re investing x million pounds in such and such’, without telling you that that’s down from ‘y million pounds’ the previous year. I think it does actually do a reasonably good job in highlighting areas where there have been difficult decisions in order to increase funding for the NHS and for Transport for Wales, as has just been said.

I agree with Guto that, actually, there is a bit less on these areas where they’re saying that demand or take-up is less—well, why is that the case? Childcare is one of them. Another one is the demand for cost-of-living grants for students. Why is that lower? Is that because, actually, the threshold is less generous now in a higher-inflation context where families’ incomes have gone up and, therefore, fewer qualify for the top loans? Is it because there is something going on with applications to universities among people with lower incomes? It’s not entirely clear from this what’s driving that.

I think there are some areas where a little bit more information could be provided there. I think, actually, paragraph 58 in the budget document is also quite interesting, because it does talk about where charges, fees and things in Wales are currently lower, and it mentions dental care, domiciliary care, tuition fees. It says:

'If we decide to increase charges, proposals will be brought forward for consultation.'

This to me brings to mind a little bit some of the comments in the Scottish Government’s medium-term financial strategy, which highlights areas where there are maybe more universal offers, or more generous offers, compared to England on services and says that in tough budgeting contexts, those sorts of things might need to be considered to make sure that resources are targeted at those who have the greatest need or the most acute needs or lowest resources.

So, I think that there are little hints within the budget that areas around charging and areas around the public service offer are under consideration in the Welsh Government, as they should be when you need to think about how you’re prioritising money in a tight budgetary context.

I think many of the pressures and cuts are going to be transferred for local government to administer. I've already seen draft budgets coming out of councils and quite horrendous costs that have got to be passed on.

My final question is this: do you have any views on areas that perhaps the OBR should focus on to improve our Welsh forecast, wider than the memorandum of understanding that we currently have with them? Is there more scope for us to get a deeper analysis out of them?

In terms of the methodology itself, I think it's pretty sound, and I think they should be commended for the working paper that they published in October that drills down in more detail in terms of what in the past, historically, has driven the differences in the tax base performance. I think that's the crucial point, the relative trends in Wales compared with England and Northern Ireland, the rest of the UK, which drive the block grant adjustments. And that obviously has the actual impact on the budget. So, I think the working paper from October was really well done.

In terms of the document that they published alongside the budget, I think there are two things that I would maybe ask the OBR to do. First of all, maybe to concentrate on the changes from December to December, rather than March to December, because that's what was in the previous budget. And so the budgetary change is really from the forecast from December to December. So, that's where any changes to the spending power of the Welsh Government come from. And secondly, I think I'd like just more detail on the forecast for comparable UK Government revenues and perhaps an outline of the block grant adjustments and how those are changing so that we can have a proper detailed analysis and narrative around how and why Wales is doing better at the moment than during the absence of tax devolution, because it's quite stark. There was a £67 million improvement in the net tax position of the Welsh Government from December last year. So, a big improvement. Overall, it's about £294 million. That's almost a 1p increase in the basic rate of income tax. So, when you're talking about difficult decisions, it would have been much more difficult in the absence of tax devolution. So, understanding where that additional funding has come from is really important, I think.

That's helpful. Thank you.

Great. Rhianon. I'm conscious that we've gone over time, but as long as we've got another five or 10 minutes, then I'm sure—. We're finding this fascinating, so—

Yes, it has been very interesting, actually. I'm going to turn to more around tax policy in the draft budget and proposals around future changes. Wales Fiscal Analysis suggested, or posited, that the overall net effect of tax devolution as we've been talking about is still consistently positive across the spending review period and going forward. What further light can be shed, or detail, on the scale and impact of this on the Welsh Government's budget, particularly now for 2024-25 and ongoing? Who would like to go first—briefly?

I can go again.

Guto's on a roll. [Laughter.]

It's quite difficult to know where that additional funding is coming from. As I said, it's £294 million now, and I don't think it'll increase dramatically. But part of that is the reconciliation for forecast areas in 2021-22, and I think following on from a Finance Committee recommendation last year, I think it's annex D in the budget documents that does a really good job of explaining the breakdown between actual revenues and reconciliations, and breaking down the two areas. So, I think that was a welcome addition to the budget, detailing—. So, in terms of going forward, the underlying positive impact without reconciliation is set to increase slightly, I think, over coming years, but without the positive reconciliations that we saw this year and last year. 

Thank you. I'm going to move on. How is the recent UK income tax policy to freeze thresholds impacting on the Welsh rates of income tax base, both now and in the future, relative to the UK, and how does that feed through the devolved funding process? David, do you want to go first?

Can I come in on that first? I think I'll then hand over to Guto, who has probably done some number crunching on that. You'd expect the freeze in thresholds to benefit the Welsh Government's net tax position. That's because, by freezing the threshold, you actually have the biggest impact on the amount of tax paid by those people in the range of income just above those thresholds. Proportionally, the tax revenues from those groups increased by more. And because of the Welsh income distribution being shifted to the left, shifted to lower incomes than in England and Northern Ireland, more of the revenue from each tax band comes from that lower proportion, the lower parts of that tax band. So, you'd expect the boost to revenues from that part to matter more for the Welsh Government's overall revenues from each tax band. So, I would expect that freezes in thresholds are one of the factors contributing to the stronger sort of performance of the Welsh revenues compared to the block grant adjustments—so, the positive net impact of income tax.

Okay, thank you. Anything else?

Yes. I obviously agree with all of that and also, at the top end, the additional rate threshold was reduced to 125, and we'd always talked before about—£125,000—. We'd talked in the past about there being a very, very small number of taxpayers in Wales who were paying the additional rate—about 5,000 across the whole of Wales. With the reduction in the threshold, that will significantly increase that number.

And I suppose it makes the—. In terms of the tax powers that the Welsh Government has, it makes the higher and additional rate—powers over the higher and additional rate—slightly more useful. You'd raise more revenue now from any—. If you did increase the higher rate and the additional rate, you'd raise slightly more revenues. On the other hand, in terms of the basic rate revenues, you will start—. If you did, it's slightly less progressive than it would have been to raise the basic rate of income tax compared to what it would have been a few years ago. It's still a progressive way of raising revenues for public services, but it's slightly less progressive than it would have been a few years ago maybe.

This is a simple question, in a sense: is there a view on whether the evidence currently available is sufficient to estimate with enough accuracy, really, at the root of this, the impact of changing Welsh income tax rates in Wales? Is that a simple 'yes' or 'no', or—?

The Welsh Government, the Treasury, produces ready reckoners that show the mechanical impact of this; we would broadly think that that's useful for measure. I think all of our work shows—and just to reiterate what Guto was mentioning—that, if there is a need to raise revenue within the budget, raising revenue via income tax is more progressive than doing it in the current way, which is to have it, effectively, raised through the council tax. In terms of the hit on individual incomes, the more progressive way of raising revenue is via income tax, rather than via council tax.

Okay. And do you concur or otherwise, David?

Yes. I would say that the information available to estimate revenue impacts and distributional impacts of Welsh income tax is pretty good. Clearly, there is uncertainty about the outlook for revenue. So, you know, what the impact is of increasing the rate by 1p in the pound in five years' time will depend on what the tax base is in five years' time. That's somewhat uncertain; that's the case for the UK as a whole. I would also add that behavioural effects, there's a lot of uncertainty around those, especially at the top end, but, because Wales has 10p of each band, it's only exposed to behavioural impacts on that 10p of each band, not the full, say, 45p of the top band. And that means that Welsh revenue is less exposed to behavioural response than, say, Scottish revenues. So, I think that the revenue impacts are less uncertain for Wales than they are for Scotland, where the behavioural effects just are much more important because they bear the whole behavioural effect, not just a proportion, like Wales does.

I think that's interesting, yes.

So, the aspect of cross-border behavioural changes would have less of an impact because of that?

Because of that. Because, basically, Wales gets all the mechanical revenue effects from having a higher rate, but only bears the behavioural part on the proportion of the tax take that's devolved, the behavioural impacts are smaller. Although that could be offset by the fact that you'd expect there to be more migration across the English-Welsh border than the, say, English-Scottish border, because it's much more densely populated, the English-Welsh border, than the English-Scottish border.

Thank you very much. I think I'm going to bring it to an end there. We've run a little bit over time and we do appreciate your time and do appreciate your sessions with us; they're always very informative. There will be a transcript for you just to check accuracy. I will take a very, very short break just to bring in our next witnesses. Diolch yn fawr iawn i chi. Thank you.

Thank you very much for joining us. I wonder if you would introduce yourselves for the record. If we start with Jessica, please.

Good morning. My name's Jessica Laimann. I'm the policy and public affairs manager at Women's Equality Network Wales, but today giving evidence on behalf of the Wales Women's Budget Group and the Women's Equality Network, who've worked on this together.

Wonderful. Croeso. And Victoria.

Hello. I'm Victoria Winckler and I'm director of the Bevan Foundation.

Fantastic. Thank you very much, both, for coming. At the start of a session like this, I just want to note that we've had apologies from Simon Hatch, director of Citizens Advice Cymru, who was due to attend this morning, but unfortunately Simon hasn't been able to make it today. So, I hope everything is okay with him.

As I've said before, this session is going out live, and obviously there'll be a transcript for you at the end, to check for accuracy. We're discussing the Welsh Government's draft budget for 2024-25. I'd like to start by looking at how the increasing cost of living is reflected in the draft budget and Welsh Government progress in implementing the committee's recommendations. So, if we can start with—. The Welsh Government has said it's continuing to provide help to the most affected by the crisis we face, or as a priority for reprioritising funds in the draft budget for 2023-24. What do you think about this and about how the Welsh Government reprioritised funding for 2023-24 and what impact did it have on supporting people with the increasing cost of living? Victoria, you're on my screen, so I'll go with you first, if I can.

Okay. I think the first thing is that I think we would recognise that the Welsh Government was faced with a very difficult position and some very difficult choices that it had to make mid year, and I'm sure nobody likes to have to halt or scale back things that you, only a few months ago, had been committed to. Nevertheless, I think we'd emphasise that the Welsh Government did make choices, and it chose to prioritise the NHS and Transport for Wales, rather than some of the other measures that it was taking. Given that, we do welcome the fact that the discretionary assistance fund was protected—there were concerns that it may not be—and also things like the roll-out of universal free school meals for primary school pupils and discretionary housing payments. When everything's up for a trim, we were pleased that those didn't get it. But, nevertheless, we were very sorry to see that some of the other measures that the Welsh Government had previously been committed to went, such as the free school meals in the holidays, that there will be no winter fuel support scheme, and that some of the ideas that were emerging from the cost-of-living expert group, which I was a member of, basically suddenly hit the brick wall that there was no funding. So, as a result, people have gone into a very, very difficult winter for households, especially low-income households, without the kind of support that was there in previous years, even though the circumstances are arguably tougher. So, it is and will continue to be a very difficult winter.

Yes. Jessica.

Yes. Thank you. I think we can fully agree with the point that we appreciate how extremely challenging the circumstances are, and also we're generally supportive of the spirit of prioritising public services like the NHS and transport.

From a gender perspective, we know that public services are incredibly important, but we're also concerned that the funding in some of those areas is not sufficient, especially at the level of local authorities, where we see many services that are most critical to women, such as social care, childcare and housing, and this is really important, because we know that women are more likely to rely on these services, they're more likely to work within them, and they're also more likely to become providers of last resort when these services are cut. So, if we're still seeing cuts to these provisions, women are likely to bear the brunt of that.

Aside from that, there are also two specific areas in the reprioritisation in 2023-24 that we are particularly concerned about from a gender perspective, because they effectively resulted in cuts to childcare and cuts to the equality, inclusion and human rights budget. Just to say, we find this especially worrying because these decisions have set a trend that is now being continued in the draft budget for 2024-25.

On childcare, the Welsh Government has cut £16.1 million from the budget for early years childcare and play activities, and the justification that was provided in doing that was that the forecasted demand for the childcare offer was lower than previously expected. But we know, we definitely know, that there is a critical need for affordable childcare in Wales. High childcare costs are compounding the financial pressures for families and they're pushing parents, especially single mothers, into debt and poverty. So, we would argue that this reduction in the amount indicates, most likely, a mismatch between what families need and what has actually been available, and cutting the budget is certainly the wrong reaction to that. 

On the other issue, on funding around equality and human rights, we have seen that the social justice budget was cut by £7 million, which is broadly in proportion to the cuts that we've seen in other budgets. But, the majority of this £7 million—about 60 per cent—falls into just one expenditure group, which is equality, inclusion and human rights, and that group only accounts for around 13 per cent of the social justice budget. So, on the face of it, this is quite worrying, because this budget funds a range of important equality and human rights programmes, and also third sector equality organisations. We still don't know which programmes will be affected, but the decision comes at a time when we need to be especially vigilant about protecting equality and human rights, in particular as the third sector, which plays such a key role in this, is seeing a rapid capacity loss, and that's especially true for the women's sector.

Thank you. So, when the Minister was saying in the statement—. She commented that the cost-of-living crisis is not over; I'd say that you'd probably both agree with that. Have you seen any easing of things within your organisations or for the people you speak to, and, I suppose, if you had these decisions to make, what different decisions would you make, or would you concur with what the Minister has outlined, or would you prioritise other areas? Jessica, you were talking a little bit about that in that point, so would you concur that the cost-of-living crisis isn't over? Are you seeing any easing, and how would you spend the money differently, if you like, if you were the finance Minister?

Well, unfortunately, the answer to the first part of the question is, 'No, we're not seeing an easing of these pressures.' Women in Wales continue to be hit harder by the impacts of the cost-of-living crisis, and this is to do with their unequal position in the labour market. So, in that context, as I've mentioned, any real-terms or actual cuts to public services are very concerning. We must continue to work on the underlying causes that make women more vulnerable to these effects as well as providing short-term hardship support. 

In terms of prioritisation and how we would have acted differently, I've already mentioned that we broadly agree with the commitment to protect front-line services, because these are so important for women. We are concerned, as I've said, for 2023-24 that it is not enough to stop services from being cut. I think Wales Fiscal Analysis have said that they estimate a gap of £354 million in the local government sector in the coming financial year, so we're worried that we're going to see cuts to provisions that will disproportionately affect women. We're also worried about seeing increases in council tax, which have inequitable outcomes for people on lower incomes, many of whom are women.

In terms of how we might have prioritised things differently, it's quite a difficult question to answer, I think, with the level of information that we have. So, I think we would certainly not have prioritised money away from childcare, given the impact that that has, not just on gender equality but on other areas as well, such as employment, poverty and also child poverty. But, in addition to what we've seen in 2023-24, another significant amount has been cut from the childcare offer on the same grounds as previously, that the demand is lower than anticipated, which is something we disagree with—that the reaction to that should be to cut that budget.

I think, overall, we have to accept that some cuts are inevitable, but the devil is in the detail, so to be able to give a definite answer we would need to have more information than we currently have. We know that for the draft budget that has to do with the timescale set by Westminster. However, we do not even have that level of detail for the update to the 2023-24 financial position that was made in October, which is extremely disappointing and impedes proper scrutiny, I think, from our end.

Okay, thank you. Rhianon wanted to come in quickly, just before I come to Victoria.

Yes. I mean, obviously, in terms of where Wales is, I'm sure that everybody would agree that we would not want to be in a position of making cuts, but we all have to do that across departments.

You mentioned two things there, Jessica, which I'm very interested in. Obviously, in terms of the childcare cuts, the reasoning has been that the uptake has been slow, so my question around that was: does the model need to change, if that's the case, because we all know of the need? And, in terms of the wider aspect around the improved strategic impact assessments and the whole holistic lens of gender budgeting, we only have a couple of little pilots at the moment, which are very welcome. Do you think that if we'd operated with a gender budgeting lens holistically across this budget that you would've seen these types of cuts in terms of the areas that you've mentioned specifically, Jessica?

Yes, I think, absolutely. Just on the first point around childcare, as I said, we know that there is a dire need for affordable childcare. According to research published by Oxfam Cymru just last year under the Make Care Fair campaign, 43 per cent of parents have not been able to pay for other essential costs after childcare and over two thirds had to reduce their working hours due to a lack of childcare. In terms of the forecasted update being lower than expected, we think there is potentially a mismatch, which could be for a number of reasons. We know that the childcare offer is currently only available for three and four-year-olds. We know that the eligibility criteria exclude families on the lowest incomes. And we also know that there are significant gaps in provision, for instance, for parents working atypical hours, for disabled children and for those living in rural areas. So, I think all of this shows that the Welsh Government should really seriously consider whether the way the offer is designed and operated is preventing parents from accessing it, and the decision to cut childcare funding rather than redoubling efforts to ensure that it's working for families is extremely disappointing.

And then, just coming to the second point, which was on the gender budgeting pilots, it's completely correct that it's a really critical tool that could help us restructure spending decisions in a way that takes account of gender impacts and helps us eliminate inequitable outcomes. And it's so important in this context, because equality concerns are all too often deprioritised in the context of budget cuts, but this is when they should be really essential. The Welsh Government has rightly committed to implementing gender budgeting and has commenced this work through three pilots: the personal learning accounts, the young person's guarantee and E-Move. They're all scheduled to conclude in 2022-23 and, after some delay, we have seen an external evaluation of the first pilot, which was the personal learning accounts, and it was quite comprehensive—there were some really important learnings and recommendations in there that could be applied in a practical context. Some measure that could be improved were around things like the timing of the implementation and the building of staff expertise. But we're really unclear about how these findings were then used to inform the other two pilots that followed and how they've helped the Welsh Government's understanding of how gender budgeting can be successfully applied in a wider context, which we think is really critical. We're still awaiting the evaluation of the other two pilots and, at the moment, we're completely in the dark as to how this work is progressing. The thing we are concerned about at this moment, just to say, is this work becoming siloed because, really, it has to be mainstreamed, it has to be implemented across the whole budgeting process. And I think the Wales Women's Budget Group in particular would be really delighted to work with Welsh Government officials to ensure that this piece of work is progressed.

Thank you very much. So, going back to Victoria, you were nodding away when we were saying that the crisis isn't over, but are you seeing any easing anywhere? And then, what would you do differently, I suppose, within the context of what we're dealing with?

Absolutely no easing. Both people we work with and organisations that we work with all report significant levels of severe hardship amongst families on low incomes, including, increasingly, working households. And the groups that we work with are telling us about unprecedented demand for their services, and demand that's become very complex. So, people no longer have just one problem—say, for example, debt—they might have multiple problems in terms of debt, insecure housing, benefits problems and so on and so forth. So, there has been no easing at all and, if anything, the outlook over the next few years is even worse, because the UK Government's cost-of-living payments will disappear and there are not many signs of inflation falling significantly over the next few years and wages catching up. It is really, really tough, and because it's not in the headlines in the press any more, that is not to say that the people we would say are on the bottom half of the income spectrum are not still being severely squeezed.

What would we do? Well, I think one of the things that really stands out from the 2024-25 draft budget is there's been a shift to crisis expenditure, which is understandable, but it also means that the expenditure on the things that address the root causes of poverty and inequality has been cut, or had a real-terms cut if not an actual cash cut. So, what we see as the areas of spending that are preventative of poverty and inequality are housing, making sure we have a supply of genuinely affordable homes that are most probably social or co-operatively owned homes, making sure that the Welsh housing stock is energy efficient, so people aren't literally burning money and seeing pounds go up the chimney; increasing the employability and skills of the workforce, so more people are not reliant on benefits for their income; and extending good-quality part-time childcare from the age of nine months or one when statutory maternity leave ends, so that enables parents to work and gives children a good start in life. And yet those are the areas that have had some of the biggest cuts.

Now, if that is for just a one-off year, possibly that's liveable with, but our concern is the way that budgets work is that they're incremental and that we have lost that investment in the things that we know help to prevent poverty and inequality. We also know that those things—very low income, poor housing—are actually factors that increase demand on the NHS. So, it's not an either/or, it's an and/and. If you want to solve Wales's health problems, not only do you need to invest in the NHS, but you also need to invest in ending the factors that contribute to people's ill health as well.

You mentioned you're part of the cost-of-living expert group, I think, and making the 29 recommendations. Do you think that the group's work has had an impact on how this budget has been put together?

If it has, it's hard to see.

Okay. Fair enough. Thank you very much. Finally from me, the First Minister said that the Welsh Government does not have the funding to fulfil the 29 recommendations made by the cost-of-living expert group. Is it clear from the draft budget which recommendations the Welsh Government is going to implement? You alluded to it there, or didn't allude to it at all, really, that it was very difficult to see. But, I suppose, the impact of that—. What are the consequences? If you don't prioritise those areas, what will the tangible consequences be to those families?

The first thing I would say is not all the recommendations of that group involved expenditure or significant amounts of expenditure. Some of the things were deliberately developed to be budget neutral in some ways, and even the ones that involved upfront expenditure, we demonstrated that they would generate long-term savings, and the most obvious one was in respect of homelessness. If you can stop people being homeless or reduce the time they spend in temporary accommodation, then you will save a lot of money in both housing costs and also health consequences as well. So, not everything had a big ticket attached to it.

Some of the recommendations were short term, so they were to help households deal with the pressure on their budgets this winter, and we are seeing the consequences in the number of people turning up at foodbanks in arrears with their rent, and so on and so forth. We also, though, try to develop longer term measures, longer term recommendations, and it may well be that those will re-emerge in future budgets. I can't stress enough how important it is that the Welsh Government takes a longer term approach in our view, because with a year-on-year approach, you just get this sort of incremental—what's the right word?—you get this incremental kind of entrenchment, I suppose, of the spending decisions that are basically about the short term, whereas, to us, the Welsh Government should be thinking, 'What do we want Wales to be like in 10 years' time? What are the levers that will get us to that better Wales and what will that cost?' And then think, 'Well, actually, what have we got? Where do we get the money from to do everything we want to do? How can we adapt and change?' For understandable reasons, I don't think we've got that approach yet.

Does that mean, then, taking braver decisions?

It partly does, yes. Yes.

I know it’s subjective. Jessica, I don’t know if you wanted to comment at all on some of what Victoria’s been talking about, or if you’ve got any other insight.

No, I think we can agree with that. Things like housing, and childcare especially, we know have long-term effects in terms of entrenching women [correction: entrenching women's inequality]. If they have young children below the age of three or four, they are not currently eligible for the childcare offer and only have very limited childcare under Flying Start. This is when the decisions are made to work part time, to leave employment altogether, and that can become entrenched, and the impact of that is something that affects their earnings in the long term or over their whole lifetime. So, I think it’s about taking a bit more of a long-term perspective alongside the immediate crisis support that is also needed, because the rest of those problems aren’t going to go away; they’re going to stack up and lead to more costs in the long term.

Thank you very much. Peter, I’ll come to you.

Thank you, Chair. Victoria, the Welsh Government were due to publish their implementation plans for the Welsh benefits charter at the end of 2023. I know, in January last year, you told us that charters are helpful but they have a fairly short shelf-life and don’t drive the reluctant to change. What else can the Welsh Government do to deliver a unified benefits system?

We await the charter with interest. It does have a role to play, but, to repeat myself, it won’t achieve the change that we need on its own. I understand that implementation arrangements were discussed in November by the Welsh Government and the Welsh Local Government Association at the partnership council, and that arrangements are now being put in place to take forward at least some of the recommendations that the Bevan Foundation has made. What I would stress is that this needs to be done at pace, and we need a clear timetable for when these changes will happen that will make a difference to ordinary people.

I think we would want to see all seven means-tested grants and allowances included in the system, whereas we understand that only some of them will be included at least in the first phase of the roll-out, and we also want to see a greater incentive and, indeed, potentially, compulsion for public bodies to include their grants and allowances in this system. As I understand it, at least the first steps will be voluntary for local authorities, so we could well have a Welsh benefits system that actually only has a handful of people participating in it.

Although we understand that it's complex and it's not something that can be done overnight, because it involves data, it involves technology, it involves staff training and so on and so forth, all those changes—. And we've seen how long universal credit has taken to roll out. We do accept that it's not something that's going to happen overnight, but for that very reason, that's why we need a real bit of oomph, drive, ambition and pace to make it happen, because otherwise it'll all just go in the 'too difficult' box and we'll be here a year on still talking about it, and it really needs to happen quite quickly.

Thank you, Victoria. That's helpful. We've noted that urgency. To both of you, and focusing specifically on the winter fuel scheme and the removal of that, I'm assuming from previous questions that that probably has driven more clientele to you. Do you think that the draft budget—and I know the answer to this, I think—provides sufficient support to householders who relied on that specific scheme?

The two-letter answer is 'no'. I think what that scheme did was provide some short-term relief for households both on low incomes and with low energy efficiency. What would be ideal would be to see people's energy costs reduced through greater home energy efficiency or home energy generation. And yet the programme that we have, the Warm Homes programme, has been very slow to come into fruition and is at a much smaller scale than we would like. I think we did a back-of-the-envelope calculation that estimated that it will take about 400 years for households in fuel poverty to be covered by that programme. So, while it is right to try to move away from a scheme in which you're subsidising people to burn fossil fuels, what we don't see is enough of a scale of an alternative of insulation and different means of energy production.

I don't know, Jessica, if you've got any reflections on that as well.

We fully agree with that. We think that the Warm Homes programme needs to be rolled out as a matter of urgency at a larger scale than what we're seeing at the moment. I think I would just like to add from an equality perspective that, with the issue of fuel poverty, we know that women, and especially mothers, are a lot of the time the shock absorbers of poverty. So, when it comes to making those incredibly heartbreaking decisions between food and heating, it is, a lot of the time, women who are going to make them, and to their own detriment.

If I could just come back, we also know that there's a great deal of evidence that shows that living in a cold, damp home contributes to respiratory illness, asthma, heart attacks and has a bad effect on mental health as well. So, if you want to prevent not just poverty but prevent and try and reduce demand on the health service, then it is good economic sense to spend on your home and on an energy efficiency programme.

Thank you, both. That's very helpful. Just a last question from me, Chair, and it's looking at the discretionary assistance fund. It will be maintained, we know from this budget, at about £38.5 million. Is this sufficient to meet the pressures faced by Welsh households? If not, what more could have been done to address those concerns, given the pressure on resources?

Shall I go?

Victoria, you go first, yes.

The discretionary assistance fund has been a lifeline, and I absolutely warmly welcome the fact that it’s being maintained. Even though that maintenance is probably a real-terms cut, it has nevertheless been vitally important to many, many people in preventing near destitution.

If you look at the figures for the year to date, there have been some quite interesting changes within the discretionary assistance fund. It covers emergency payments to households as well as payments to enable people to live independently. And if we look at the emergency payments, which, if you like, is the cost-of-living element of the DAF, we actually see, this financial year, fewer payments and lower spending, compared with the same period for the last financial year. I'm not sure what's driving that. What we don't have is data on the number of people applying to the discretionary assistance fund and being turned down.FootnoteLink

The effect of that is actually that DAF is being managed. We're halfway through the financial year and it's just about spent half of its resources. So, clearly, someone has got an eye on the expenditure profile, which is as it should be. But that reduction in the number and value and expenditure on emergency assistance payments suggests to me, given the demand that we know is out there, that there is a shortfall, in that people who were potentially previously eligible for emergency payments are now not getting them. We don't know that, because we haven't got the data on the number of applications, but it does suggest that there's a significant squeeze on both the discretionary assistance fund and on households that might have previously got help.

Jessica, anything to add?

Yes. I think we can agree with that. One thing that would be interesting from a gender perspective, and this is something we've asked for before, is to have a gender breakdown of the analysis of who receives these payments. It's currently only broken down by age, and I think it would be really important for us to understand how many women are accessing this fund, if it's reaching women, and if there's a gender difference in demand, which I think we would expect there to be. As well as the level of funding and if it's reaching everybody who needs it, I think there's also a concern around the process of how payments are made, because they're currently made at a household level, and there's a risk that this is undermining women's access to an independent income and increasing their vulnerability to financial abuse as well as financial dependency on an abuser. So, we recommend, as well as the level of funding, ensuring it reaches everybody also, and that the Welsh Government looks at the process for how these payments are being made. 

Thank you. Thank you, Chair.

Thank you, Peter. Rhianon.

Thank you very much, Chair. I know that my colleague Mike Hedges is going to pick up the points in terms of the mainstreaming of gender budgeting and, as we know, nearly half of OECD countries have implemented it or are on the way to doing so. Could you just outline very briefly what you think is the reasoning behind the low take-up in the childcare offer?

As I've already said, I think there's some data we have, but in other areas we can only speculate based on what the people we are talking to are telling us. As I mentioned, the only ones eligible currently are parents of three and four-year-olds, and we know that, by that time, a lot of time the decisions about who stays at home and who reduces working hours have already been made. We know that the childcare offer is only for 30 hours, which is not enough to cover full-time employment; that would have to be in the region of 50 hours. We know that there are massive shortfalls in certain areas, that people aren't able to get childcare at the times and places where they effectively need it. This is to do, from what I understand, with the situation that the sector is in, where we see the closure of various provision, we see low profit margins and also the people working there being on very low pay and leaving for jobs in other areas, such as cashiers or in social care. So, these are areas that need to be looked at, and they need to be looked at in a systematic way.

I think the way to go is to put money behind ensuring that those things are being addressed and to improve the offer in a way that works for families. We know that the current roll-out is under the Flying Start scheme, which we think is great, because it doesn't have the same income requirements that the childcare offer has, so it's actually available to parents on lower incomes, but it's very limited hours. It's only 12.5 hours per week. So, I think what we need to see is childcare that is more high-quality childcare that reaches those groups and that is at a scale that actually supports parental employment.

Thank you. My final question is really around the third sector cuts, and I've already mentioned that this is not a position that the Welsh Government would want to be in. What can the Welsh Government do to support the third sector? Obviously, we've had the closure of Chwarae Teg, and, then, obviously, we've already mentioned, haven't we, Jessica, the equalities, social justice and human rights budget cuts, I think that's £4.1 billion—sorry, million. So, what is the general thought process—? I wish it were, but it's not that. What are your general thoughts on that? I think we've touched upon this briefly, haven't we, at the start of the session. Victoria, do you want to go first, and then Jessica, very briefly?

I think it's very difficult for groups in some sectors to adjust to reductions in grant funding from the Welsh Government, and that clearly is something very difficult for those groups who are facing that. That said, I think the question of the extent to which third sector groups should rely on Welsh Government funding is a moot point. There are many, many charities, including the Bevan Foundation and lots and lots of small charities across Wales, who receive little or no Welsh Government funding at all, and I think we need to be careful in this debate about what the role of the Welsh Government is and what the role of the third sector is.

Thank you. Jessica, I don't know if you've got any comments on either of the points. 

I would like to add to that that, with the loss of EU funding and rising costs, we are all under pressure to diversify funding streams and, as Victoria rightly said, to look for funding outside the Welsh Government, which might be attractive for a number of reasons. But the women's sector particularly is in a very difficult situation around that, because it is already severely underfunded. The Rosa foundation has done some research around this recently that showed that only 1.8 per cent of the total grants that were awarded to charities in the UK in 2021 went to women and girls-focused activity, and not even all of that went to organisations that work specifically on women and girls. The incredibly sad loss of Chwarae Teg is symptomatic of that. We know that lots of other charities had to actively reduce staff numbers in recent years. We are just very worried. We mentioned that, as well as the short-term crisis battling that's going on, we need to continue to work on the long-term structural causes. The third sector, and especially the equality sector, provides some critical expertise and work around that. I think this is not something that we can put on the back burner when the going gets tough. So, if the Welsh Government wants to recognise the vital importance of this, it has to provide appropriate funding and support.

Thank you. Diolch.

I'll carry on from where Rhianon thought I was going to carry on. What does the Welsh Government need to do to move from its pilot to mainstream gender budgeting tools in future budgets, and will that help?

The answer to your second part is 'yes'; we know it will help. There's evidence that shows that this helps to mitigate inequitable outcomes and leads to better budget allocations. I think in order to mainstream that, the first step is that we need to have the information on the evaluation of the pilots that have been done, and that has to be published without delay so that we can all understand where we are, and then we can take the next steps to ensure it's mainstreamed across other areas.

Thank you very much. This is to Victoria. I can't remember if it's in here or somewhere else where you've written about it, but you do believe that free school meals need to be extended into secondary schools and you do believe free school meals ought to be provided across holidays. I'm in complete agreement with you on that; it's affecting the poorest in society. Where in the Welsh Government would you take the money from to fund it?

I think, if I may be so bold, I would frame that question in a different way. What we know is that the eligibility threshold, the income threshold, for free school meals has been frozen since 2019. The Welsh Government has questioned the UK Government about thresholds being frozen, and I think it needs to itself consider unfreezing the eligibility threshold for free school meals in secondary school. At the moment, that means that the value of a free school meal—the eligibility threshold, sorry—is around £2,000 less than it should be, and it means that any household where a parent works more than 12 hours a week is not eligible for a secondary school free school meal. So, we are now providing funding—the free meal—to the very, very poorest, which is, basically, families with non-working parents.

If we want to tackle the long-term problems around poverty, around inequality, around poor health, then providing decent nutrition for secondary school pupils is as important as it is for primary school pupils. We did some calculations for the cost-of-living group, which I can provide to the committee later, which showed that extending eligibility in secondary schools for children whose parents receive universal credit, which is therefore a higher threshold, would be a relatively modest cost. And that funding could have been covered rather than reprioritising some of the expenditure in 2023-24. And it is about—. It's a policy decision about where you put your money and the long-term benefits of that, and I am not going to say, 'Take it from that, take it from this', but it is about—as the Welsh Government's had to do—making difficult choices. 

But you have to take it from somewhere. It's not as if—. If you start off with the assumption, 'We have an infinite sum of money and we want to do all the things we want to do', it's an ideal answer. But if you want to provide money for that—and I want to provide money for that, and I've actually given yesterday a series of areas I would take money from, not necessarily very popular with at least half the Members in here—I think we need to have, if we're having these debates, we need people to engage and say, 'I want to give more one more £1 to this; I want to take £1 off that', otherwise we just end up with a very long list wish list. 

On that point, the Bevan Foundation has talked about the fiscal choices that the Government can make in setting the budget priorities. Do you think that the Welsh Government has utilised its powers to the best effect to ensure that the draft budget meets the financial needs of Wales?

I think this budget narrative had a better balance, in my view, between where it wants to spend and how it raises its revenue. In the past, it's almost been treated as if, 'We've got this allocation; this is how we're going to spend it.' So, I think there has been evidence of consideration being given to revenue-generating income. I think what I would say is that, even within that, there are—perhaps not for 2024-25, but for the future—opportunities to generate more income that, the Welsh Government, we would urge them to explore more fully, for example, around income tax. When I was in front of the committee this time last year, we urged the Welsh Government to explore not just the rate of income tax, but to request powers around bands and around varying the bands, similar to the Scottish Government, which then makes it a more effective tool. I notice that, while some of the thresholds on existing devolved taxes have been uprated with inflation, not all have. And, again, this is something that you might expect to be done almost on a routine basis, that you manage your tax base. I'd like to see steps taken to grow the tax base in Wales, and also to continue the exploration of the potential of new devolved taxes. 

So, in the current devolution settlement, it is very difficult for the Welsh Government to pursue an approach that's based on a mix of expenditure on public services and help for households—if you like, an anti-austerity agenda—while we have a UK Government with a very different agenda. And that's a product of the settlement that we have. But, within that, I think there is still potential for a more ambitious, perhaps, and challenging approach to the budget than we've seen today.

And finally from me, the socioeconomic duty was introduced to deliver better outcomes for those who experience socioeconomic disadvantage. It came in in 2021. What impact do you think the duty is having? Do you think there’s sufficient evidence that Welsh Ministers are taking the duty into consideration when making budgetary decisions? To cut a long story short, is enough being done by the Welsh Government to help those who are living in poverty or with the lowest family incomes?

The duty is potentially useful, but I think, like all duties on public bodies, has it limits, and the socioeconomic duty is no different to the other equality duties on public bodies. It can make organisations think, but it doesn't necessarily change their decisions or change their allocation of resources.

I think the socioeconomic duty is difficult because it was introduced immediately post pandemic, and the Welsh Government had a pretty light-touch approach. I don't yet see it making a great deal of difference. I think public bodies feel burdened by duties, and it's sometimes difficult to balance the requirements on them of different duties. There are some using it more effectively than others. I don't see a lot of evidence in this budget that that duty has shaped decisions, otherwise we would probably not see things like reductions in the childcare offer, reductions in funding for post-16 learning, reductions in expenditure on bus services, for example, all of which are things that are of particular importance to people on low incomes.

Jessica, anything to add?

Yes. Again, I'm inclined to agree with that. I think the duty has the potential to make a difference, and there’s obviously an important gender dimension again to that, due to women’s unequal position in the labour market. I think there are pockets of good practice. During the pandemic, we've seen that the Welsh Government's decision to introduce statutory sick pay enhancement for care workers was informed by that duty, and it was done in connection with considering gender inequality as well, because it was observed in the impact assessment that most care workers were women on minimum wage who did not receive occupational sick pay. So, I think that's a good example where those two things have combined to actually recognise those intersecting disadvantages that can have such a severe impact on individuals. But I agree with Victoria; with the public sector equality duty, we have very sadly seen that this is being considered more of a tick-box exercise in many areas. If we see pockets of good practice, maybe there's a potential to encourage some of that through better support, guidance and accountability mechanisms. So, I wouldn't give up on these tools, but I think more has to be done maybe to revive them and ensure accountability around them being used.

Thank you. I've got a couple of questions to finish off. I went to a presentation by Cymorth Cymru and, as part of that, Llamau have come out and said that, without an uplift to the housing support grant, there'd be a real risk of services collapsing. What are the implications of potential collapse in the housing support services for users and those services? And where does an increase in housing support grant rank among your priorities, given the pressures on Welsh Government? Jessica.

Maybe if I can start on that, I think, from our perspective, it's an absolutely vital safety net for some of the most vulnerable in our society. We know, again, from the perspective of women, that these services are critical, especially for women who are at risk of homelessness or are fleeing domestic abuse. Welsh Women's Aid have observed that a lack of a secure home is often the biggest barrier to leaving abusive relationships, so the housing support grant has really been a massive help in tackling that barrier, by funding refuges and other safe forms of accommodation, and the collapse of these services would be highly detrimental. Without safe alternative accommodation, survivors of violence would be forced to remain in abusive situations a lot of the time, and that would be endangering their safety, their well-being and recovery, with all the associated long-term costs that we would expect to see from that. So, the effect of the intensive inflationary pressures that we're seeing, as well as increases in demand—the support is still there, but the level of funding has not been increased to account for that, so that is highly regrettable and very worrying from a gender equality perspective.

I suppose you'd concur, Victoria, on that.

Absolutely. There is a homelessness crisis at the moment from unprecedented demand and an acute shortage of housing supply. The services that are provided with this grant are a really important safety net. Again, it's another example of needing both to meet the crisis demand but also, in the long term, the answer lies in more secure tenancies and also a greater supply of housing that's genuinely affordable.

And something that goes a little bit alongside that, especially with post-16 education, is the education maintenance allowance. I know Mike talked about it in the budget debate last year. There was an uplift from £30 to £40 per week. What other measures could help with post-16 education and learners? We talked about making sure that people have an adequate education to be able to improve their job opportunities and that sort of thing. What sort of other things, to go alongside the EMA, would help, and have you got any comments on maybe talking about the apprenticeship schemes and that sort of thing, that seem to have been cut or reprioritised? 

Yes, 'reprioritised', it's a nice word, isn't it? Nicer than 'cut'. So, we really welcome the uplift to EMA and we look forward to the Minister's review of arrangements for EMA going forward. The uplift to EMA still leaves the other big element, the other big tool in the Welsh Government's toolbox, untouched, and that's the Welsh Government learning grant. That has all the same problems that EMA had, which is that the eligibility thresholds have been frozen and the value of the grant has been frozen. I cannot imagine any adult wanting to study or being able to study when the grant towards their living costs is barely £1,000 a year. So, it seems to me, if we're serious about getting adults back into learning and giving them some financial support, that that is the next thing to be looked at. The changes that are proposed in terms of higher education for undergraduate degrees we'd welcome. For postgrad, I think it's a real shame that we're moving towards loans only, as proposed, but I would—. If you had to choose between postgrads and the Welsh Government learning grant, I would choose the Welsh Government learning grant, because it is a stepping stone for low-income learners to get on and look up.

On apprenticeships, it's not clear whether the reduction in spending on apprenticeships reflects lower than forecast take-up or whether there are other reasons going on. I think the question of low take-up, if it is low take-up, needs to be looked at, because it's not clear why that is, whether there's not the supply of apprenticeships from employers or whether it's not having enough people willing to participate. We know that there are real gender and equality issues and age issues in the current profile of apprenticeships, so I would—. It's not something we've got expertise in, but we would suggest it's something to look at.

Peter, did you want to just come in on that?

Yes. Just reflecting on something that was said, I suppose it plays into the childcare discussion again, about if you've got, say, a single mum who wants to access education or NVQ or whatever levels, it's fundamental to be able to have access to childcare to enable that. You'd obviously agree with that.

Absolutely.

Yes. Excellent.

Yes, absolutely. I think, under the expansion of the childcare offer to those in education and training, this will now be accessible to at least some people in post-16 education. I think maybe it's even more baffling, in light of that, to see the forecasted demand go down instead of up. Maybe more work needs to be done there to ensure that people know about this opportunity and it's accessible to them where needed. And just to add, in terms of other things that could improve, especially access for mothers to these education opportunities, it's to look at flexible delivery and modular approaches, which could make it easier to combine accessing education with looking after your children.

Yes. Yes.

Well, that brings us to time. Thank you so much for your contributions today. It's been, again, fascinating and great to talk to you, and thanks for coming along. As I said, there will be a transcript available for you to check for accuracy, and please come back to us if there's anything that isn't accurate. So, yes, diolch yn fawr iawn. 

We'll now move into private, hopefully, according to Standing Order 17.42, that the committee resolves now to exclude the public from the remainder of the meeting, if everybody is content. Yes, lovely. So, thank you very much. Diolch yn fawr iawn.