National Assembly for Wales

I think it's probably important to say at the outset that I had a meeting with the finance Cabinet Secretary a number of months ago, with his finance officials, where we were given an overview of the Act and the sorts of changes that we wanted to see within the budget.

Part of that discussion was a recognition that, as you've heard me say many times before, I suppose, this is a process and not an event—the cultural change required as part of the legislation is not going to happen overnight. And there were some discussions around some specific areas, therefore, that the Government might really try to focus down on in terms of budget setting. Those areas suggested by the Cabinet Secretary were procurement, decarbonisation and participatory budgeting. So, they feel, to me, to be as good a place as any to make a start.

Our engagement with Government, going forward, I have to say, wasn't necessarily with the finance officials; it was actually with the departmental officials, so, with the decarbonisation team and with the National Procurement Service in terms of procurement. Latterly, we've had some involvement with participatory budgeting, which Kate was involved in and can give you some more information on, if you would like that. I think, on that, we'd say that they're at the very early stages, and I can give you more information on the engagement that we've had with policy officials, but we haven't seen, as yet, how that has actually flowed completely to justify, I suppose, the word 'embedded' in the budget process.

Can I just ask how much resource could you and your office dedicate to this? Did you have a member of staff there for three months, or was it 10 members of staff there for six years? How were you able to dedicate your limited resources to this?

So, I had a member of my team who—well, two members of my team, actually, who have been working with the decarbonisation team over the last year or so in terms of trying to help them see the Well-being of Future Generations (Wales) Act 2015 as an asset for the way that they're approaching decarbonisation work. The importance there is—. I'm certainly not advocating this, but you could do decarbonisation, I suppose, by closing down Tata. That wouldn't be aligning with the well-being goals, because obviously it would have an impact—

No, don't.

No, exactly. So—

David's woken up, at least. [Laughter.]

The point that I'm making is that they need to see the opportunities for, and identify in the work that they're doing in terms of decarbonisation, the sort of win-win-win situations, and that's where they need to come back to the five ways of working and the well-being goals. So, my team have been working with them over the last year or so to help them to get into that space.

In terms of procurement, I've had a member of staff who's been meeting regularly with the National Procurement Service. We started there focusing on an area, which was the food contracts, and have been working with them, again, to try to make sure that they're using the five ways of working and embedding the goals in how they develop those frameworks for food contracts. There have been some positive results there.

You asked specifically about the resources in my office. As you know, we have a huge remit and a relatively small budget and number of staff. So, there have been three members of my staff, and this has probably accounted for, I don't know, maybe 10 per cent to 15 per cent of their workload over the last year or so.

Some of the things you've mentioned, going forward, including participatory budgeting, we might have more detailed questions on in a moment, but just to stay on the impact of that, if you like: when you did see the draft budget, and I don't know if you saw early versions of that or whether you saw it when it was published—a basic question, really—did you think, 'Oh, yes, we've had an impact on this', or did you think, 'This looks like a budget much like last year's budget with just a bit more words around it'?

Probably closer to the latter. However, what we're hoping is that our work with the policy officials will be filtering in in a much clearer way into the actual budget process and what comes through in terms of the budget narrative and the budget decisions next year. To be fair, in terms of decarbonisation, for example, I think it's really important that the finance Cabinet Secretary is attending the ministerial group with Lesley Griffiths. They are aligning how the carbon budgets are being developed alongside how financial budgets are being developed and, of course, that will come into place when we have our low carbon delivery plan in 2019. So, what I am pleased to see is that they're setting the foundations for that work to happen.

Can I point to where that is—and I'm using the word again—'embedded' in the budget this year? Not necessarily. There are, however, some key decisions and funding allocations within the budget that, for example, on decarbonisation, do reflect that. So, the station at Llanwern, the stuff that's happening in terms of NHS estates, the twenty-first century schools and BREEAM excellence and the like. But, I think, probably, what we are seeing at this stage is decarbonisation being a welcome, but almost consequential part of those decisions, rather than a wholesale approach to decarbonisation. But then, the plan is coming in 2019.

I suppose what I'm trying to get at here is how much of this would have happened with the Environment (Wales) Act 2016, for example, anyway. Where is the real impact of the future generations Act in particular, and your role under that Act, and the links to 'Prosperity for All', and driving that forward? So, I suppose our initial take is that it's still very difficult to see that this particular Act is really steering the ship of government in a different direction. There are certainly initiatives. There are policy things being taken forward, and some of them are very encouraging, but as a whole, it still looks much like last year's budget, which looked much like the year before's budget. 

So, in terms of the narrative, and I think this is what you were alluding to in part, we've identified a much greater frequency of reference to the future generations Act. Just referring to the future generations Act and saying the words doesn't mean necessarily you're actually doing it. So, we recognise that. It's difficult for us to see in the budget documents that we've got here whether it is just saying or it's actually doing. There are some concerns that I have looking through the budget document. So, for example, under the health, well-being and sport portfolio, the document says, 

'We have used the Well-being of Future Generations Act to help frame our budget plans for NHS investment. As the Health Foundation noted in their 2016 report, long term sustainability of the NHS is dependent on continued growth in the efficiency of services',

and so on, and so on. They go on to say they've been:

'Applying the collaborative way of working, the Welsh Government has led the initiative to improve efficiency in health spending, through the establishment of an Efficiency, Healthcare Improvement and Value Group'. 

And one of the examples that they give then of what this group has done is the recent guidance to NHS staff on action to reduce the costs to the NHS of temporary medical staff. Now, my concern about that is that I think the definition that they're using of sustainability there is sustainability of the funding model of the current system that we have. That is not the definition of sustainability that is in the well-being of future generations Act. So, you can see here—

I would call that a supermarket definition, as when supermarkets use definitions of sustainability. That's what they mean.

Yes, quite possibly, and the definition of sustainability is set out in statute. We still have a huge job of work to do, and the Government themselves, in terms of the way that they are communicating this through to their departments, their officials, and the leadership that's being shown within the civil service. To be fair, I know that, across the Cabinet, there is a lot of leadership being shown, but this is going to take a long time when you're starting from that kind of base. 

And I think that is the impact of the Act, which is the question that you're asking. We've expressed some concerns in relation to what we'd hoped to see more clearly within those documents, but even if the wording within that is perfect, it's how they're walking the talk going forward. Given that some of this work has been taking place in parallel—so all that foundation building with the decarbonisation team that's been taking place over the last 12 months and how that, over the next 12 months to two years, becomes more obvious in some of these narratives going forward—we wouldn't necessarily expect to see all of that having an immediate impact. We absolutely will be watching to see how they're walking the talk and those changes are taking place going forward.

Procurement: Welsh Government might say that that's actually then about you spending the budget once it's set, so, again, watching how those things are playing out will be crucial, and participatory budgeting, I think, has been at far too early a stage to have that immediate impact. But this legislation is absolutely about that longer term gain, isn't it, and that culture change, which will take so much time?

Mike Hedges on this. 

I think decarbonisation has been the policy for decades, and Ed Miliband did an awful lot of good work nationally, and members of the Welsh Government did very good work locally. So, I'm not sure that decarbonisation is a recent—. 'Because of the future generations Act, we're going to decarbonise'—I think it's something that's been going on for some time. I know, Chair, that you have taken a great interest in it over a long period of time. 

My questions are, really: I've seen the budget of the environment in detail. What line in there have I seen with money either going up or down due to the future generations Act? How does the future generations Act square with what I've seen of the budget, where money's been chopped off everybody else and given to health for health to give to the health boards and health boards to give to hospitals? Same as last year, same as the year before, same as the year before that. That's a general—. If it's about the future generations Act, why is the environment department taking such a substantial hit?

So, I would say that that is of concern. However, obviously, the future generations Act is about the social, economic, environmental and cultural well-being of Wales. There are a number of initiatives, and this is another point that I wanted to make in terms of the integration across Government. So, in the economy and infrastructure budget lines:

'our plans include investment of £28.2 million over the next three years in the energy and environment sector to ensure Wales is at the forefront of the transition to a low-carbon and low-waste economy'.

So, that's to be welcomed. It's welcome that we're seeing that action in the economy department rather than just the environment department. 

Also, then, in the environment department, in rural affairs,

'in this budget we're allocating an additional £1 million to support the decarbonisation and clean energy agenda, bringing total investment to £2.6 million'.

Now, I guess that's also good to see, but I suppose my question there would be, 'How are those two budget lines in two different departments aligned?', because they sound like they're doing the same thing. So, if we were looking at this in a cross-Government way, would we not be bringing those two things together? I don't have enough detail in the budget as set out at the moment to see whether that is actually happening. 

So, yes, the environment department and a number of departments have taken a hit, I guess, in terms of the challenges that are in health, and there's a whole other discussion that maybe we'll get on to in that regard. But I think that what we want to see is those actions in different departments. It's good that we're seeing that there; we want to see, however, how it's a co-ordinated, integrated cross-Government approach, rather than just pockets of bits and bobs all over the place. 

Very briefly, you've talked about environment and culture. I know that if you include museums into culture—in Neath Port Talbot the Cefn Coed Colliery Museum is under threat, and I know museums and a whole range of cultural areas are under threat from the cuts in local government. I know that environment was under threat in local government. I would say that perhaps we've gone backwards rather than forwards this year when we look at what actually ends up happening on the ground, and that we were probably better off looking after future generations last year than we will be this year, and if we continue making cuts to local government, for example, and environment budgets, then next year.   

I think that's an argument that you could make. The Government have taken some difficult spending decisions. It's not clear, I have to say—again, maybe this is something that we might get on to later—from the impact assessment how those different things have been weighed up, and that is an issue going forward. Until we see that, we can't really understand how that decision-making process has taken place. 

Of course, you saw last year's—. Sorry, that's all, Chair. 

Thank you. We'll move on with Jane Hutt, please. 

It sounds as though, really, the engagement you've had is more about the framework for decision making with the budget, rather than specific allocations in terms of well-being. Would you say that's the case at this stage? 

Yes. 

And we've heard about how much engagement you have had, not just with the Cabinet Secretary for Finance, but also through officials as well and other Cabinet Ministers. What about engagement with the wider public sector? It's good to see that in developing your priorities you have engaged with a whole range of individuals, organisations and the public sector. So, have you sought the opinions of the wider public sector in terms of advising the Welsh Government or the impacts in terms of the draft budget?   

Not specifically in terms of the draft budget, but, yes, in terms of the work that we've been doing on those areas—procurement, decarbonisation. So, for example, on procurement we've been engaging with Waste and Resources Action Programme Cymru, a non-governmental organisation that focuses on reducing waste, Business in the Community, Constructing Excellence in Wales—a whole range of stakeholders. We've been doing some work with Constructing Excellence in Wales in particular around the circular economy, and with construction companies and the likes in terms of how they can get ready, if you like, for embedding the future generations Act in the work that they're doing with a view to—. You know, you want the policy positions coming down having embedded the future generations Act through procurement policy in Welsh Government, and then you want the supply end to be at a point where they're understanding what they're going to need to do and be ready. So, we've been working with them.  

In terms of the six priority areas that I've set out, it's not my expectation that I should see some huge investment in those areas because I've said that they're the six areas that I'm focusing on. They're the six areas that I'm focusing on in terms of working with others, and we've worked with a huge range of different stakeholders and partners to start thinking about what the key challenge is, and perhaps what some of the key solutions are in those six areas that I've established, but not in the context of this draft budget. 

Your work with public services boards, obviously, is pertinent to this, in terms of future prospects of being able to engage with them in terms of budget issues and well-being objectives.

There's a further piece of work that needs to be done, which we are in the middle of at the moment. So, as you know, individual public bodies set their objectives last year. Public services boards are only just finalising their well-being plans now. We're doing a piece of mapping work as to how the individual public body objectives fit with the PSB objectives, and how they fit with the Welsh Government's priorities. And, really, what you would want to see is a clear line of sight, and I suppose that would get back, in some ways, to Mike's point that we want to see those well-being objectives flowing through, so that the decisions that are actually happening on the ground aren't contrary to what we're all actually trying to achieve. I'm not seeing in this budget yet—but as I said, to be fair, it's because the PSBs haven't finalised their plans as part of it—that clear line of sight as to how Welsh Government spending priorities, their well-being objectives, are flowing through to the rest of the public sector. But I think that's something on which I would like to see a much clearer line of sight in the narratives for next year. 

Thank you.

Okay. Can we turn to Nick Ramsay, please?

Diolch. Morning, commissioner. If I can just pick up on the last point you made there about procurement and how you get that process to flow through policy-wise—in terms of procurement policy, how do you—? Is it possible to make that happen without increasing the procurement cost on those public bodies, or is an increase in costs all part of it?

I think that it is possible to do it without increasing cost on public bodies, but I think it's also important to say that what we're doing, or what we need to do is to look at the long-term cost. So, I think I've probably mentioned to you previously issues around fleet, for example. So, it's going to be more expensive to buy electric vehicles upfront. That might mean if you need to procure 20 vehicles, you might only be able to procure 16, but, actually, the longer term cost savings, in terms of both your carbon emissions—and that's where we need to look at value in its broadest sense—but also in terms of your actual monetary savings over the long term, are going to balance out. And so we do need to be shifting our thinking in the public sector to that kind of long-term cost savings. 

Another key challenge around that is looking at the cost or value in its most holistic sense. So, there are some really good examples, and this is an area where, actually, the cost was the same. Public Health Wales have done an excellent piece of procurement work around the procurement exercises that they needed to do when they were merging their offices. So, they merged from I think it was seven offices down into one or two. They needed new furniture to kit out of the office and so on, and so on. They spent the same amount of money that they were planning to spend on a traditional, if you like, procurement exercise, but—and I've got some of the information here—they procured—. So, it was Rype Office who led their consortium. They actually got an office chair that usually costs around £300—they got a higher specification office chair for the same amount of money and it was recycled by seeking out an organisation who did that. They contracted with organisations who employ people who have been long-term unemployed. There's a number of environmental and carbon reduction savings because all of the furniture that they had was recycled. The social value was almost 2,500 hours, employed hours, for eight people who had previously had barriers to work. Three people were found full-time work as a result. Greenstream Flooring, which is one of the companies that they contracted with—part of their social enterprise is to provide low-cost or free flooring for households in poverty. They did all of that, spending the same amount of money that they would have spent on a traditional procurement exercise. So, I think where there's a will, there's a way.

So, if it's properly planned and you have that objective at the start rather than trying to build it in afterwards—

Yes, absolutely.

You've just answered my next question, which was going to be about the code of practice for ethical employment, which I think you've just answered quite fully.

Okay. I think, on the code of practice for ethical employment, we're really pleased to see that. However, there's one caveat for us there, which is that that shouldn't be promoted over and above action that needs to be taken in terms of any of the other well-being goals. So, it's good to have that, but what that is driving is contributions, probably, to a more equal Wales and a globally responsible Wales, but we can't forget that, actually, in procurement practice and policy, we also need to be contributing to the other five well-being goals.

So, that code of practice doesn't necessarily take into account the goals of the future generations legislation.

It doesn't necessarily take into account all of the goals. It has a focus on particular goals, which is welcome, but it's not the whole thing.

And participatory budgeting—can you tell us how this is important?

I'm going to ask Kate to come in on that.

I saw the glance across to Kate.

This is an area that the Minister was keen to explore and we've very much seen it as an opportunity to explore and apply the five ways of working and sustainable development principles to the budgeting process, and specifically, obviously, in this case, better involvement, which, as you'll be well aware, the commissioner has been an active champion of. So, we were invited to observe the first of the pilots a few weeks ago to provide some feedback to the strategic budgeting team on that. We've got a colleague from the team who's attending another next week. Our team is then going to be joining together a group of critical friends from other organisations to meet with that team to explore ways in which we can build on the work so far.

I think what's been helpful—and it is very early days for this piece of work—is the response of that team to see this not just as a tokenistic exercise, but as part of a much longer-term ongoing piece of work. They've been drawing on a range of evidence, including a Public Policy Institute for Wales report, which details some of the ground-breaking work in Brazil, and looks at the things that are happening in Scotland and also in Paris. From my personal perspective, I think some of those pieces of work align with the Well-being of Future Generations (Wales) Act 2015 better than others.

I think what this is is a real opportunity, if taken properly, to build a real long-term legacy, both in terms of skills and knowledge within Welsh Government, outside of perhaps the normal teams or civil servants that would deal with this type of engagement, so that that's properly embedded across all Welsh Government departments, but probably, even more importantly, to really build capacity in communities. By that, I mean that if we're asking public bodies and we're asking leaders to draw on future trends data and to think about the challenges that Wales is facing, it's absolutely crucial, particularly in terms of prevention, that we're offering communities the same information and opportunity and chance to go on the same journey. The best case scenario here is that people, as experts, become active participants in solutions to the problems that we're facing, and that's obviously true involvement and engagement—

Co-production-type—

Absolutely, and as an absolute minimum, what you gain from that is a better understanding from people and communities of the tough decisions that politicians and leaders in Wales face in spending the public pound.

And you're involved with the Welsh Government on the pilots that are being put forward at the moment.

We've been invited to observe and they've asked for feedback, which we've given—quite full feedback. We'll be, as I say—

It'll be interesting for you to see if they listen to your feedback.

There's real willingness, I think, there to do things. Sometimes it comes down to capacity, doesn't it? We'll keep challenging. They want to see this work take off, but I think it's a big challenge for Welsh Government. It's also a challenge for a number of the organisations out there to feel freed up and empowered to work in different ways, because people will be used to working with Welsh Government in a particular way. So, for all of us, these are quite new and exciting times in terms of really building these ongoing conversations.

Do you think that public bodies are getting enough support in terms of the decarbonisation targets? I know you touched on this before—but on the procurement perspective as well.

What we've seen from well-being assessments and from the objectives that the public bodies have set is that it's probably an area that they're getting their heads round to a lesser extent than perhaps other areas. We've done some sessions with public sector bodies—you know, awareness raising around the fact that carbon budgets are coming, and even if carbon budgets weren't coming, you'd have these obligations under the future generations Act. Where we really need to get to is actually with the finance leads in a lot of those public sector organisations, and for them to start thinking about how they, in the same way that the Government is, to be fair, are going to start planning their budgets around carbon reduction. We are not seeing as much of that as we'd like at the moment.

Can I, for clarity, just ask about the pilots you talked about on participatory budgeting? These are the ones being run by the WCVA—is that correct? Or is it different?

I think the WCVA has had some engagement with the strategic budgeting team. It's that team, as I understand it, that's running the pilots. They are working with Citizens Cymru Wales to operate those and to try to reach out beyond the usual suspects.

Clearly, as they are happening now, they're not affecting this budget at all, so is it clear from the observations that you've had of the process that these are trying to affect future budgets, or are they more a process by which more people understand what budgets are about? 

All of that. Part of our feedback has been around clarity with the audience as to what it is that they're influencing at any given point. Given that they really only started some weeks back, they weren't in a position to influence this one. Also, part of the early days thing is that perhaps they hadn't anticipated the thirst for knowledge in the budgeting processes, and the level of questions that they were asked, certainly in the first one, meant that they weren't able to get to some of the digital tools that they were trying to trial. Again, some feedback there is that, actually, there's much more preparatory work to be done before you start to think about the tools that you're using with people. 

I don't know if you intend to publish that feedback, but if you do, sharing it with this committee would be very useful. Is that okay?

We can look at doing that.

We can provide some further information.

Whatever you can, because it's over 20 years ago that I did some work with the WCVA on participation, and one of the key things is that people have to really understand what the purpose of it is, and you can raise expectations in a way that actually destroys the process if you're not very careful. But we'll move on now, with David Rees.

Diolch, Gadeirydd. In your evidence, you make the statement that

'Making progress in relation to preventative public spending is crucial in terms of safeguarding the ability of future generations to meet their needs'.

So, it's clear that preventative spend is critical here. You also indicate that it is, in your view, imperative that the Government explores and agrees a definition of 'preventative'. It seems that, since last year, when you flagged our recommendations to the Cabinet Secretary for Health, Well-being and Sport, there are still questions for the Cabinet Secretary for Finance about the definition of preventative spend. Does that concern you, that we are not yet at a position where we have a clear definition?

It does concern me. It concerned me last year, and it concerns me this year. The Cabinet Secretary for Finance has, however, set up a group that is involving a range of people, including people from the third sector, to look at what a definition might be more broadly for Government spend in terms of prevention. I think that there is, probably, within that, specific work that needs to be done in terms of health prevention. And what you can see through the narrative from the health, well-being and sport department is that prevention is referenced a lot. It tends to be prevention purely in medical terms or health terms, and I think that there's a big issue in terms of—and I'm sure you will have had this in evidence from a range of partners—the difficulty in getting health to—. Okay, they work with others, but are they willing to actually put their hands in their pockets and fund things that are going to have a long-term and preventative benefit, and that are outside of the health service?

So, the sorts of prevention that we're seeing in terms of health is the flu vaccine for children—of course that's to be welcomed—and a range of medicalised models. But I think there's some really good examples with diabetes and obesity, for example. So, diabetes and obesity are costing the NHS about 10 per cent of its budget. Obesity is believed to account for about 80 to 85 per cent of the cause of diabetes, if you like, and yet the best solution to that—yes, of course, you have management of the condition within the health service—but the best solution to that is probably to be investing with local authorities in activities to get people active, possibly in terms of what can we do in terms of—. I know licensing isn't devolved, but local authorities have licensing powers in terms of how can they license and how can their planning policy reflect access to good food and staying away from poor-quality food choices.

What I would really like to see—. We're consistently seeing every year in the budget more and more money going into the national health service, because it's at breaking point. I'm not seeing how that money is actually driving the national health service towards demand reduction. The only trajectory you can be on then is that there will be more and more and more and more every year, and all of the evidence suggests that that's the case. I actually think that there needs to be a watershed on that and that new money going into the NHS should be considered in terms of being spent in partnership with others. I think the public services boards provide quite a good opportunity or platform to do that, so that we can start this shifting to collaborative prevention, rather than purely focusing on the type of medical prevention that we're seeing in the NHS at the moment.

You're saying you want to see that happening, so are you saying to us at this point that the budget as we see it today does not give you confidence that that is actually going to happen?

Not from what I can see today. There are some things in the budget, not necessarily on health, but things where there will be impacts: the childcare pledge, for example, if that's done well, and investing in early years, which has a range of health benefits—social and longer-term health benefits. So, I suppose you could badge that as prevention, but I'm still not seeing a fundamental shift. I said in my evidence of the raison d'être of the health and social care sector being to prevent problems from occurring. We're probably more in the territory of preventing problems from getting worse. Of course, that's to be welcomed, but that primary prevention—. So, I think that we do need to have this definition within the health service nailed down, otherwise there's a risk—and I think the Cabinet Secretary has said this—that you can badge everything as prevention in some way shape or form. But actually, what the Act is trying to get us to is that primary prevention and a recognition that that prevention doesn't happen within departmental or organisational silos—that it happens across the whole public sector.

So, we still have this problem of organisational silos or departmental silos within the Government.

Yes, we do. 

Okay, I understand—

Can I bring Mike Hedges in, just on this point?

Very briefly, I think there is one very good example, and that's Designed to Smile, which is very successful at preventative activity, which doesn't cost very much and will have long-term benefits. But, there's not a short-term benefit in terms of cash, because the benefit that it's generating is that those of us who are older who have a mouth full of amalgam can get to see our dentist much easier because there's less of a queue with children. But the benefit of that is 20 or 30 years down the line. Of course, all health could be described as preventative because it's preventing people from dying.

Yes, and therein lies the problem, in a way. I think there's a real issue for the whole public sector, but I think it's most evident in health, on this issue around cashable savings. In my last role, we set up—I've probably talked about it before, Mike, and you'll know it—the help point in Swansea, which was keeping people out of A&E through alcohol-related incidents on Friday and Saturday nights. It was freeing up police officers to be dealing with other incidents. Did that mean that there were going to be fewer nurses or fewer doctors in A&E? No, it didn't. However, it does have a longer-term benefit to everyone, and our system at the moment isn't geared up to look really much beyond the cashable savings, the immediate cashable savings.

But are you concerned that the efficiency savings that are being expected are more focused upon cash savings than long-term preventative savings, which actually could lead to efficiency savings?

Absolutely. That's spot on, yes.

Okay. And can I ask one more question—which is not about health, because we feel you've answered the question on health—obviously, we now have borrowing and tax powers, and also, in your paper, you talked about the United Nations document on the financial system we need: do you think we're in a position where we're starting to look at how we can use the fiscal powers that are coming our way to introduce more collaborative work, to introduce more sustainable development work, to introduce efficiencies, which could deliver on the preventative agenda?

Well, I'm encouraged by the conversations that I've had so far with the Cabinet Secretary for Finance. Obviously, they are—. He's wading through how all of this is going to work. My team have had some meetings with the Welsh Revenue Authority, and I think we've got another one coming up soon, to make sure that they fully understand the obligations that they have in terms of the well-being of future generations Act. I suppose an early concern to flag is that—. So, in the outline budget narrative document in terms of the five principles for Welsh taxes, the last one:

'Taxation should contribute directly to the Wellbeing of Future Generations (Wales) Act 2015'—

brilliant, but then they go on to say—

'goal of creating a more equal Wales.'

Actually, it should contribute directly to the well-being of future generations Act's seven well-being goals. So, something that we're seeing not just across Government but across a number of areas is this still a bit of a siloed approach, whereas what we're looking for here, as I keep saying, is the kind of win-wins across all of our—how do we maximise our contribution across all of the seven well-being goals, not just cherry-picking the one that seems the most obvious, in a way.

There are some specific issues where I think there are some real opportunities in terms of tax-raising powers, and I know that the Cabinet Secretary has spoken to you about the work that Gerry Holtham is doing in terms of a social care tax. I've met with Gerry about the proposals that he is looking at, and I think there's a real opportunity there. So, how they've started looking at this is: 'We've got a problem: how are we going to fund the social care needs of our ageing population, which is going to peak around 2036, say?' and 'Can we have a social care levy?' or so on, and there's lots of detail to be worked through on that. I think, however, that there's an opportunity. So, we won't need—. Depending on when this system, if it goes ahead—. Depending on when it kicks in, it's not going to be at capacity in terms of what it needs to draw down in terms of funding until we hit that peak in around about 2036. So, there might be some slack—financial slack—in the system between now, or whenever it gets set up, and 2036.

Now, what I would like to see, and I think this is what would demonstrate that this was being applied, or the future generations Act is being applied, to that, is that, instead of modelling on what the trajectory of need is now, we should actually be seeking to use any funding slack within that system between now and 2036 to invest in prevention with a view to actually decreasing the demand by 2036. So, there are brains out there who are probably much better than me—maybe all of us—in terms of identifying what those things are, those particular things that we can do now to prevent the care needs or the extensive care needs of older people when we reach that peak in terms of demographics. And I think that there are some possibilities, say, around a social investment bond type model. So, we use that slack in the system now to really shift towards prevention and shift towards demand reduction by 2036.

Just one point, then, on this—

Indeed, this might be something we examine in our other inquiry on the cost of an ageing population.

Obviously, you've picked on a particular proposal of the four that the Cabinet Secretary put forward, but, for any of those proposals, would you expect in the narrative of any new tax being introduced how it addresses the well-being goals? And basically evidenced on that as well—not just the talk, but actually the evidence to support that.

Yes. Yes, absolutely, I would. We have developed a future generations framework, which we have shared with Government. We're doing—. I think I spoke to this committee before about that. It was originally developed for infrastructure proposals, and we're now doing a piece of work with—we're actually trying to—it was with the Cabinet Secretary for Finance; we're trying to work out exactly where it sits now since the reshuffle. But we're developing that document as a prompt, I suppose, to, when you're developing new policy, whether that's in terms of taxation or new policy in terms of programmes or service delivery, what are the things we would be expecting people to consider in terms of the future generations Act. And I think the intention isn't really that that becomes a tick-box impact assessment-type product, but it could provide a useful framework for giving those prompts and asking those challenging questions for myself and for yourselves through scrutiny.

And can I conclude—? I'll go back to my first question—

Okay.

We got side-tracked into other questions. 

Sorry.

You talked about the definition of 'preventative', and you were clear that the Cabinet Secretary is working on this. Do you have an indication of a timeline by which you think that will be concluded so that we know the definitions that they will want to be using in a way that we can put into future budgets?

I don't at the moment, sorry.

Okay. That's something we can ask the Cabinet Secretary, perhaps.

Indeed. We'll have him in later today, so—. Neil Hamilton.

Your title implies that you think in terms of decades, at least, but budgets tend to have more immediate implications, particularly, as we know, where there are immediate cost pressures that need to be addressed. In the budget process, the Welsh Government has included a two-year revenue settlement and three years for capital allocations. Do you think that the Welsh Government are providing a sufficiently long-term outlook to fit in with the basic remit that you've got as future generations commissioner, or is this the best we could hope for in practical terms, given the nature of budgeting as a process?

I think it's a bit of both. So, the Welsh Government obviously get their budget down through from the UK Government and so there are some challenges there in terms of predicting too far ahead. What I think is important is setting a clear policy context, and I guess that's what the Government have tried to do through 'Prosperity for All'. I'm still not completely convinced that 'Prosperity for All' sets out some really clear—you know, 'These are our absolute top priorities', and gives commitments that, whatever the actual numbers within the budget that come over the following years, these will be the priorities for investment. So, I think that they could possibly be clearer in those terms. But I do think it's difficult to put actual numbers on anything going beyond the financial settlement that they get from the UK Government. Of course, local authorities say, 'We can't plan for the future because we only get our budgets', but I think it's about setting a course: 'These are our priority areas; this is what we want to achieve'. Some years we may make more progress towards those things because the budget settlement might be better and other years we might only take baby steps towards them, but the point is setting that course and being really clear on how you're—you know, the trajectory to get there.

Yes. It's easy to think long term if you've got lots of money to spend and choices as to how to spend it. If you've got immediate pressures—and Mike referred to this earlier on in relation to the health service—it's easy to think in terms of chopping the environment budget because that's not going to have an immediate, visible impact, but not providing for A&E resources in the health service does. So, I'm not seeking to dismiss the idea of the future generations Act—I think it's an extremely good idea—but there are inherent problems that are very, very difficult to reconcile given the inevitable, and, I think, permanent, financial pressure that Governments are going to be under in the future.

I think you're absolutely right; it's why the suggestion that I made earlier, for example, in relation to NHS budgets, I think is something that is worth considering. So, of course, I understand the pressures on services, but at some point we've got to take some really difficult decisions, which is—. Those pressures in services based on the way that we currently deliver services aren't going to get any less, they're going to get more, so, the long-term thinking that I would be expecting to see is, 'Let's take some difficult decisions now; let's look at how we shift to prevention and to manage reduction' and that would have the kind of long-term benefit—. I appreciate that that is challenging to do, but it's going to be even more challenging when, in 10 years' time, the black hole in the NHS is an even bigger one.

And I appreciate that it's early days yet. This Act is only five years old or so—

It's not even that.

Not even that. Or the whole idea behind it is. So, obviously, it will take time to embed a culture in which people naturally think about what our long-term objectives are when they're setting short-term budgets. Looking at the current draft budget proposals, how do you see them reflecting against the priorities set in 'Prosperity for All' and your own priorities within that, particularly, obviously, looking at infrastructure and equipping people for the future? Because physical infrastructure and also what you might call the educational, mental infrastructure are clearly at the heart of future generations policy.

Yes. Well, the budget narrative makes clear links back to 'Prosperity for All'. I suppose I would say that it doesn't necessarily follow that there's a clear line of sight then to the well-being objectives that the Government have set, and I already mentioned the understanding of those that have been set by other public bodies as well. In terms of the priority areas that I have, as I said to Jane earlier, I wouldn't necessarily expect the Government to prioritise those areas in their spending, particularly in this budget, but we can see some evidence of where that's happening. So, I think the housing innovation fund is quite a good example of that, both in terms of the budget allocations that are made to it and also how the housing innovation fund is actually working, so, across the well-being goals, looking at innovation where we're looking at low-carbon housing, where we're looking at housing for an ageing population and so on and so on. So, I think that it's quite challenging to—. You can have a budget allocation that reflects in theory something that we should be doing for the long term, or should be doing to prevent, or what have you, but then, when it's actually carried through, it doesn't do that at all. The housing innovation fund, as I said, is a good example of where that's happening. But I think we need to be looking at it in more detail than just the budget lines, in terms of what's actually going on within the programmes that are being funded. 

I'd just like to ask now about one specific example. You've commented on the Welsh Government's interpretation of the Act in relation to the proposals for improving the M4. This can obviously be funded either from borrowing or from reserves. What would be your approach to the decision if the Welsh Government decided to use reserves rather than to borrow? Because, obviously, using reserves has a more immediate impact upon other budgets, or a potential impact on other budgets, whereas borrowing is a more longer term objective, but, on the other hand, money borrowed has to be paid back by the future generations whose interests you are specifically created to protect.

So, my view is that—it's well documented that I don't think that the building of the M4, for a range of reasons, is in the interests of future generations. I suppose it's a particular kind of blow if it's not in their interests for a range of other reasons and they've got to pay for it. So, borrowing, therefore, I suppose, is a least favourable option. However, if the funding for it is taken from reserves, that means that those reserves aren't available to fund other services, which could have a better contribution to meeting the needs of current and future generations, and meeting the seven well-being goals. So, I don't know; I think that's a lose-lose proposition, rather than a win-win one.

Okay. Thanks.

I think that was quite clear. [Laughter.] Nick Ramsay, do you want to come in on this?

The Member for Monmouth may have a different perspective.

You could always consider tolling the road to make the motorists who use it pay for it.

Well, yes. Or not build one at all.

We'll have an interesting discussion before long on that, I'm sure. I turn to Steffan Lewis.

Thank you, Chair. You mentioned in previous answers the strategic integrated impact assessment. I wondered whether you felt that this year's assessment had a clearer link to the Act than the last one that we had. 

The Act has clearly been referenced in the strategic impact assessment. However, it's not clear, as I just said to Neil, where the line of sight is back to the well-being goals. The thought process and the decision-making process aren’t clear either. So, why have we chosen to invest in these areas and not in those areas, and where was the deliberation and consideration of which of these types of investment, which of these budget lines, would, as the Government’s required to do, be taking all reasonable steps to meet the well-being objectives that they’ve set?

So, I’d like to see throughout these impact assessment documents how that thought process is actually taking place, and I don’t think that we see that here at the moment. Now, I suppose that, if they did that comprehensively, that would be a huge document to do, but I would like to see, you know, even just a flavour, through appendices or what have you, of the thought process that has gone into one of these.

What I do know is that the Government—and, again, I think I’ve said this before—. I have a lot of sympathy for them in terms of the plethora of impact assessments that they’ve got to go through. I think at the last count it was something like 27 or thereabouts. I’ve raised this with the Cabinet Secretary and, actually, to be fair, his finance officials were chomping at the bit on this: could we actually use the future generations Act as a kind of overarching framework for all of the impact assessments? It might not be popular in all areas because everyone wants a specific focus in theirs, but you have to question, if you’ve got 27 impact assessments to fill in, clearly we're not drawing out of the document we’ve got here the flavour of those 27 impact assessments. And is it even humanly possible to do that in a sensible and coherent kind of way? So, I think there’s some more work that needs to be done there.

I was wondering, actually, about whether the Act in terms of budgetary processes is better off being weighted more heavily on the budget planning side or whether, actually, there’s a role for your office to almost act like an Office for Budget Responsibility-type body to come out with an assessment. So, notwithstanding that, of course, the Government is going to want to, you would presume, consider its own legislation in how it does its budgeting and its processes—and there will be debates about the extent to which it does that—actually it might be more valuable once the budget is published that we get, as I say, an OBR-style thud-factor document from you, having done the assessment of the budgetary process and the budget narrative, the impact assessment. Then, that forms part of the wider debate and discussion around the budget. Just look at the UK budget yesterday. Much of the commentary today and the analysis is actually on the OBR’s analysis of the economic and fiscal forecasting rather than, actually, the announcements that were made in the budget.

So, because of the nature of the Act, you know, it’s not a rights-based Act, there are no sanctions in the Act, and the Government has and will again ignore the Act and even publicly say that it’ll act contrary to it when it feels that it needs to. In which case then, are we focusing too much on the budget process rather than the follow-up of the budget process? I’m just trying to find a way of how that Act can be best used for future generations.

I think that’s a really interesting proposition, and I would love to be in a position to do that. I’d have to have the budget of the OBR—

How much?

—to do that. Oh gosh, I could perhaps come back to you on that one. Again, I think I’ve previously said that with the hundreds of objectives that I’m responsible for monitoring, and culture change throughout the entire public sector, and an under-resourced office to do that, I think we would, on current budget, find that difficult. But I think it’s a really good proposition and something that, you know, maybe we could work with others to do, because I absolutely agree with you that that kind of in-depth assessment of what this budget actually means for now—whether it’s going to meet demand now across all of the well-being goals as well—and what it means for the future would be really quite useful.

Just on that point, do you think, given the breadth of the well-being Act and the goals, that you have sufficient resources to be able to future-cast or forecast—? Would that exercise be possible in all areas or would there be, presumably, some areas that would be easier to future-cast and forecast than others? I mean just in terms of whether that is feasible, even if resource wasn’t an issue, which I appreciate it is at the moment.

Yes. I think it's something that could be done with the right level of resource. Even now, we have partnerships and arrangements in place with a number of universities. For example, we're working with Swansea University and Ceri Phillips, who is a health economist there, to look at some of the issues around preventative spend, which I'm hoping to be feeding in over the next year. It would be quite an exercise to co-ordinate and identify the range of experts that you would need to do something as comprehensive as you're suggesting, but it's certainly not impossible with the right resources.

Thank you for that.

Mike Hedges.

One last question, taking you back to procurement, which you talked about earlier. One question, in two parts. The first one is: you talked about the merger of those offices, but surely the merger of the offices will increase the carbon footprint, because people have further to travel to go to the merged offices than they had to go to the old one. But the more important question is—on procurement—far too often, we procure very large contracts. We procure very large contracts, which bar most of the Welsh companies from doing it. Very large companies from Europe, America or England come in and get the contract. They skim off the profit. Welsh sub-contractors do some of the work, but you actually increase your carbon footprint because people are coming in from outside, and you're taking employment out of the area. Do you think more ought to be done to try and cut contracts down to a size where local people can bid for them? They may not win them, but at least they are able to be competitive in bidding for them, rather than, 'Let's put out a very large contract, like the A55 contract, which only probably three or four very large companies could bid for.'

Yes. I absolutely agree with you, and those are some of the things that we've tried to do. I've mentioned the work that we're specifically doing on the food contracts with the National Procurement Service. So, part of that was creating lotting and zoning strategies to support the local economy and small and medium-sized enterprises' ability to be able to bid, alongside a range of other things. We would see the ability to support local economies as absolutely key to addressing, actually, a number of the well-being goals. So, those are exactly the sorts of things that we want to see the NPS using in their frameworks.

And a very final very short one from Nick.

Yes, you had a couple of mischievous questions earlier about the M4, but we haven't mentioned—at least, unless I haven't been listening properly to my colleague here. We haven't always liked hearing your views on that—similar-minded, actually—but in terms of rail and the metro, and recently the dropping out of Arriva from the franchise, have you had any input with the Government recently on their future rail proposals on the metro? And do you think this budget adequately addresses the future needs of rail users in Wales, which are clearly going to be increasingly important?

Yes, we've had quite extensive engagement, actually, with Transport for Wales. I would hold them up, to be fair, on this, as one of the most willing to embrace the Act. We've used that future generations framework that I talked about to inform the procurement process that they are going through, and we have some really good working relationships with them. There are still some issues around the level of vision in terms of what a new metro system would look like in terms of being carbon neutral, and I'd like there to be sort of further leadership from the Government in pushing the procurement exercise further on that.

In terms of the budget, I must admit I am not sure where the budget is in relation to that, and as to whether—

That might be a very good answer. [Laughter.] I'm not entirely sure, either.

I will have a look. I will see if we can identify that.

Okay. In which case, I will bring this session to a conclusion, and thank Sophie Howe and Kate Carr for coming in to us this morning. Diolch yn fawr iawn i chi. There will be a transcript to just check for veracity. Also, if you are able to provide more information around the work on the participatory budgeting, then we'd be grateful for that, because that's part of the ongoing work of this committee to examine how that's going on as well. Okay. Diolch yn fawr iawn. Thank you.

Thank you, all.

The committee will now take a break in order for the Chair to do some work on something different. We'll reconvene at 10:45, when we'll have the Cabinet Secretary in. Okay? Thank you very much.

The statement put out by the UK Government says that Wales will get an extra £1.2 billion over the three or four years of the prospectus set out by the Chancellor yesterday. The key thing to know about that is that over half of that comes in the form of financial transaction capital. So, that is money that, in the end, we have to give back to the Treasury. It's not money that stays here permanently in Wales.

Can you just give an example of what that money would be used for, just for clarity?

Andrew, I'm sure, will give you several examples.

Yes. Financial transactions are a particular form of capital funding that can only be used for loans or equity investments. The reason it's differentiated from normal capital is that it doesn't score against the deficit. It's, as I say, seen as a financial transaction. It does score against the overall UK debt figure, but it doesn't score in the deficit of any given year. So, it has, obviously, those different properties that make it attractive to the Treasury as a way of financing certain types of activity rather than traditional capital.

I haven't really understood that, I'm afraid. Is there something I could read up on to understand how that works?

It's in the consolidated budgeting guidance, if you want to have a look at that.

Good. Thank you.

While we're just on this, I think Mike wants to come in.

Two questions. One you may want to send us a note for, because you may not have done it. Have Northern Ireland had their money in exactly the same form as we have in terms of transaction, or have they had real money, as it were, or have they been treated exactly the same as us? I think a number of us have an interest in what’s happening with extra money for Northern Ireland. The second thing is that you said what it could be used for. Is it able to be used for business loans, for supporting companies within Wales?

Well, Chair, for Northern Ireland, there are two different streams of money being provided from the UK Government. There is the £1 billion, which is the deal between the UK Government and the DUP—not that any of that money has yet been released to Northern Ireland because it requires a specific vote on the floor of the House of Commons, although, when setting a budget for the Northern Ireland Executive a couple of weeks ago, the Secretary of State for Northern Ireland identified £50 million of the £1 billion as part of the announcement that he made. And that’s conventional money—that is revenue and conventional capital. The £650 million or so that went to Northern Ireland as a result of yesterday’s budget is made up in the same way as our budget, so they get their share of financial transaction capital in the same way that we do, and financial transaction capital can indeed be used to make loans for businesses, and through the Development Bank of Wales is one of the ways in which we seek to deploy that resource.

Right. David just on this, because this is a salient feature of this particular budget that we haven’t really seen in previous ones.

It is just on this. Have we had this type of capital transaction before, and what has been the take-up of it? If it’s loans, obviously, there’s a question of who takes up the loans.

This sort of capital has been a feature of recent budgets. Frankly, Chair, it is difficult to deploy, and this is true of both Northern Ireland and Scotland as well. At the finance quadrilateral last year, when there was a finance Minister from Northern Ireland there, he took the lead in the discussion of financial transaction capital with the Treasury and made a series of proposals as to how we might work together to make better use of this form of funding because they simply didn’t have takers for it. Now, we have managed to deploy the financial transaction capital we’ve had hitherto, but we’re getting a very significant amount of it in this budget and, in my meeting with the Chief Secretary earlier in October, I said to her again that I thought we needed to pick up the discussion that Northern Ireland had begun to see whether it might be possible to shape the rule book around this money in a way that we could make more effective use of it. And she did agree that that conversation would be worth having.

And if it isn’t taken up, where does it go? What happens to it?

Well, at the moment, if we’re unable to use it, it sits in our reserve. David Rees particularly will be aware that we came to an agreement with the Treasury for this year to take financial transaction capital that we’d set aside for Tata forward in a way that we otherwise would not have been able to do. So, we have to manage it within the reserve arrangements that we have.

But still as financial transaction capital.

Yes.

Steffan, just on this.

Just quickly, I wondered, with the financial transaction capital, is it time-limited? Is there an expiry date on it so that, if you haven’t lent it to somebody else, presumably or whatever, that you have to—. When’s the cut-off date for sending it back up the M4?

So, as the Cabinet Secretary has explained, up until this point, all of the financial transactions funding—the majority has been deployed for—. Help to Buy is a good example of where we have invested financial transactions. In terms of repayment to Treasury, then we send an annual repayment profile back to Treasury based on the investments and the repayments. At the moment, that period—I think between 25 and 30 years—. You know, there are certain points when some projects, programmes will repay earlier than others.

So, there is quite a long period to repay. So, it is real money that you don’t have to rush to spend for fear of losing it, then.

Well, as we were saying, there’s the same kind of annual limit on financial transactions as you would have on any other form of funding. So, we have a maximum amount of financial transactions that we can allocate in any given year. So, based on yesterday's figures, it's £256 million this year—the financial transactions capital that we have. If we don't allocate it in that year, then they will either lose it or we have to carry it forward into a future year—

With agreement—

With the agreement of the Treasury, yes.

Right. Mike Hedges on this.

Simply, you have this money—are you paying interest on it if you borrow it, and if you are, how does it compare against Public Works Loan Board interest rates?

So, this is money that Treasury allocate to us, so we are not paying interest on it, but, obviously, if we loan it out or invest it in an equity stake, through Help to Buy, for example, then you would expect a return on that investment. There's an interesting discussion still going on with Treasury about who gets the benefit of that return, and whether we pay back Treasury 100 per cent of what they've allocated to us or more or less than that. It depends on the thing that you are investing in, to some extent, as well. Some things have better returns, but are more risky, some things have lower returns and less risk.

Jane Hutt.

Just on the matter of how quickly you have to spend the money or allocate it, there was an allocation, I understand, in terms of revenue relating to the health service that has to be spent within this financial year. I don't know whether you can clarify that point, because, obviously, there were people saying yesterday in England—and it's obviously allocated to England—it's very difficult to actually spend that kind of money at this stage of the financial year.

Chair, on that point specifically, there is both revenue and capital. The revenue is modest. I think it's about £5 million or so that comes to us in this year, but money that comes to us to spend in this year, when we're almost already into the final quarter of the year, isn't a—. I'm sure we will make use of the money, but it's making the best use of the money, isn't it? And if you've got to use it quickly, then you're not always in the position of being able to use it in the most planned way.

Can I just make—?

It's the pothole scenario then, isn't it?

Well, there are always things on the shelf that you know you can do and are useful to do, but you might have done things differently had you had a longer run-in.

Can I just make one general point, Chair?

Yes.

I think what the discussion illustrates is that, whereas when conventional capital comes to the Welsh Government, our ability to deploy it is relatively straightforward and within our own hands. Financial transaction capital comes with all sorts of strings, conditions, timetables, limitations, and that's why including it as though it were straightforwardly available to us isn't telling the full story of it.

That was a very interesting discussion, but, basically, that was half of the £1.2 billion that we were talking about. Can you just confirm what the rest is and then we—?

So, then there is £215 million in revenue over this period. That includes the 105 per cent multiplier. So, we are now beginning to see a bit more of the advantage of the fiscal framework agreement there. The remainder is conventional capital, so that is about £340 million over four years in conventional capital.

Chair, the figure that I generally use is that if you compare the Welsh Government's budget in 2018-19 [correction: 2019-20] to our budget in 2008-09 [correction: 2010-11], we are, in real terms, 7 per cent below where we were a decade ago. If you factor into our budget the conventional capital and the revenue, so you're taking out now the financial transaction, then our budget remains 7 per cent less than it was a decade ago. So, you can see that the extra money we've got doesn't even make a percentage point difference in the reduction in our budget. Nevertheless, I always want to say any money we get, we are glad to have. This is very modest, marginal money, really, but it is better than a cut in the budget, which some previous finance Ministers have had to deal with in year.

If there is any bit of the budget that is slightly at the better end of what we were worried about, it is that, in 2019-20, the impact of the £3.5 billion unallocated cuts—although there are cuts in this budget, and we've had reductions in some consequentials as well as pluses in others. But taken in the round, fewer than 24 hours since we’ve heard the budget and started looking at the detail, we believe that the £100 million that I had to take out of the Welsh budget in case I had to hand it back for those cuts—that isn’t going to be necessary, and that will give me some opportunity to do what I told this committee the last time I was here: that if I were able to restore some of those reductions, then that’s what I would aim to do. We’ll work on the detail of that now over the next few days.

And that’s all revenue, isn’t it?

That’s revenue, yes.

Thank you. I was going to ask about the efficiency savings, but you’ve explained that. As well as the actual budget allocations, the wider fiscal question in the budget, of course—the almost obvious one that impacts directly on you—is probably stamp duty/land transaction tax. You hinted quite strongly, I thought, in the Chamber yesterday, in the debate, that this needed looking at now in light of the announcement in Westminster. Again, you’ve only had 24 hours—I appreciate that—but can you set out for the committee what steps you’re now going to take to reflect on the stamp duty changes there, which are, my understanding is, introduced now in Wales, and therefore would be changed by any regulations that you introduce in April on land transaction.

Yes, and that, of course, is a unique set of circumstances, because that will not happen in the future. It’s partly because it is a unique set of circumstances that I feel like we’ve got to pause for a moment and consider the impact in Wales. It is why this committee agreed during the Stage 2 process of the Bill itself to allow us to introduce the regulations after the autumn budget of the Chancellor rather than in advance of it.

So, what I will want to do, Chair, is to look now at the evidence. I’ll want to look to see how many first-time buyers in Wales are actually not captured by the announcement we made back on 3 October to raise the threshold to £150,000 in the first place. Is there a problem here in Wales that merits a solution? We won’t know that until we’ve been able to look, and we can look in enough detail to be able to see that. So, I want to know the nature of the problem.

It wasn’t easily Google-able yesterday. But the average first-time house price was £130,000, I could see.

Yes. So, my anticipation is—I’ve said to colleagues here earlier today—I really do want to have the more specific detail. In the round, we don’t expect there to be a large proportion of first-time buyers who are not already catered for by the general uplift that we announced. I then do want to look carefully at the Office for Budget Responsibility evidence. If we really felt that what we were doing here was not benefiting buyers but just benefiting sellers, because the price goes up to reflect the change, and what this would be would be Welsh public money going into the pockets of people selling houses rather than first-time buyers trying to buy them, then I don’t think that would be a very attractive proposition. But as I did say yesterday, I am open to looking. I think we should do that. I think we need to look at it in Welsh-specific terms and then I will come forward with any proposals, if we have any to make.

The Chancellor this morning, I thought, made a very unconvincing case as to why the OBR was irrelevant to this consideration, but you’re obviously going to look at that. While we’re on the OBR, the Welsh-specific side of the OBR—what have you been able to do with their Welsh-specific analysis? Is that something that, around this budget, you feel has been robust enough and sufficient for your purposes? Because, obviously, we have an ongoing debate in Wales—potentially a fiscal commission and so forth, but you’re using the OBR for now. And specifically on land transaction tax I noticed that they did say that, potentially, there could be some forestalling, if that's the correct term, now in Wales that could lose you £0.5 million from next year’s land transaction, because people will have moved quicker to buy homes now.

Yes. Well, Chair—

Sorry, I was just going to say—are those figures you recognise as the overall package the OBR did on Welsh-specific? Is that something that's robust enough for your purposes?

Obviously, we have updated forecasts now and Welsh-specific forecasts, including by the OBR, which we will be looking at. We need to do that because they will have an impact on the forecast that underpinned the information we provided to this committee, to the Assembly, back on 3 October.

I’ll come back if I could, Chair, in a moment to the general point about tax forecasting and all that, but, on the forestalling issue, there are two elements to forestalling here. One is whether any transactions would be brought forward into this financial year in order to benefit from the current rules if we were not to replicate them, and there's a figure for that in the OBR's forecasts. But we anticipate that, in any case, there will be a one-off forestalling effect simply because conveyancers and solicitors will bring forward transactions into March to deal with them under the system that they're familiar with. So, you know, these are the forms they fill in all the time and they know how it works, so they'll just hurry things up so they do them in March rather than having to switch to the new system. No matter how carefully we design that and go through it with them, it'll be new and, understandably, they'd rather do it using the forms and the rules that they're most familiar with. And that will mean on a one-off basis that there will be a windfall to the Treasury as a result of that, and I am in discussions with the Chief Secretary to the Treasury about that aspect.

Aspects where we lose money because we make one policy choice and the UK Government makes another, that's something we've all got to be willing just to, you know—. That's mature decision making. But to lose money for something that is a unique set of circumstances over which you have really no control and is a behavioural effect we think is captured by the fiscal framework, and that the Treasury ought not to just pocket that windfall. We're in discussions with them on that aspect of forestalling.

Just briefly to turn your first question, the OBR is doing more to make sure that its Welsh-specific data is fit for the purposes that it is now needed for now that the fiscal devolution has taken place, but that's only one in probably three or four different strands through which we are trying to improve the data available to us. Members of the committee will have seen the Bangor University report. You will know that it makes a series of recommendations as to how we can improve both the methodology that we use in the Welsh Government for forecasting, and how we can look to data improvements in the future. We are also working with the Scottish Government and the Scottish Fiscal Commission, making sure that we get the benefits of the work that they have done to improve data and forecasting in the Scottish context. 

We will have, as a result of the instigation of the Welsh Revenue Authority, Welsh-specific data for the first time in a number of these things over the next coming year. So, there will be real data that we will be able to use for forecasting purposes. And we are committed as a Government to reviewing the methodologies that we use after every budget to make sure that if there is data that we don't have that we need, and we can obtain it in a way that is proportionate and reliable, we would want to do that. And, where there are methodological improvements we can make, that we feed those into successive budgets as well.  

Okay, thank you. Mike Hedges. 

Two quick questions. The first one is on the answer you gave to Simon Thomas. Would it not also be picked up by the 'no detriment' part of the command paper? And the second question is: we know that land transaction tax or stamp duty is the most cyclical of all taxes, so we're talking here about the odd million here or there, but, depending on economic confidence and the rate of interest, it can drop by 40 per cent or go up by 40 per cent, as it did over the period of time when we had that collapse in 2007 to 2010. 

Well, that second point is always a point that worries me, Chair, in trying to manage the Welsh Government's budget in such tight times, where even a few million here and there makes a real difference to our ability to meet the urgent needs that we know are there. Mike will know very well that the way we do it is we take a central assumption and then we do sensitivity analysis around it, and the key variables in relation to land transaction tax are household income growth, property prices, the number of transactions and so on, and one of the things we asked Bangor to do was to test our sensitivity analysis. Did they feel that we had factored in those variables and the way that they could move in a sufficiently robust way that our central assumptions stood up to examination, and they concluded that it did. Now, there was a new set of Office for Budget Responsibility forecasts for land transaction tax here in Wales yesterday, and we will look to see whether we need to amend any of our thinking. Andrew's probably done it already. 

Well, we have had a look at the revised OBR forecasts. As people will have seen, generally speaking, forecasts for tax receipts have gone down very significantly in this budget compared to March, and so there have been some downward revisions in the OBR's forecast of land transaction tax receipts in Wales after devolution. We'll now be looking at the OBR's economic determinants, which obviously feed into our forecasting model as well, and, when we publish the final budget, we'll publish our own revised land transaction tax forecast. It might be worth pointing out that the OBR's forecast in 2021-22 for land transaction receipts is £28 million lower than at March. So, that's quite a big downward revision, and, obviously, income tax forecasts are also significantly down towards the end of that period. So, yes, they make quite a big difference. 

And, Chair, I should maybe say that what I've asked officials to do is to try and do that work in updating our forecasts using the OBR quickly enough that I can ask Bangor to take an independent look at that, and, when we lay the final budget, to be able to give the committee both our revised estimates and Bangor's assessment of them. 

No detriment in the command paper—is it picked up?

The 'no detriment' principle is that you should not be disadvantaged by decisions over which you have no control. So, in the sense that I don't believe we are able to control the behavioural effects of this one-off change from our taking on these responsibilities, then I think it does apply.

Now convince the Treasury. 

Yes.

I don't know if you've got any other questions—for you now, Mike, or are you happy to move—? Okay—

Actually, I was going to—

Sorry, you did tell me.

—pick up some—. Obviously, what you've just said and commented on the downgrading of growth, the OBR downgrading of growth and tax forecasts, will have a bearing on how you are looking to, planning to, grow the devolved tax base in Wales. It would be interesting to hear a bit more about this in terms of the work you've asked the Wales Centre for Public Policy to do, the factors and trends that you will need to take into account. So, this is a challenge in terms of the opportunities with the devolution of tax powers, but, clearly, it's a very difficult economic context in which you're working—perhaps a little bit more about that. 

Thank you, Chair. Well, the Wales Centre for Public Policy is indeed carrying out a review of the tax base in Wales. We expect it to report in the new year, and I'm happy to give an undertaking today that, when the report is published, we will share it, of course, with the committee. So, what we've asked the institute, the centre, to do is to look at the strengths and the weaknesses of the current Welsh tax base, to make an assessment for us of the risks and opportunities that that poses to the Welsh Government in taking on the fiscal responsibilities, and then to look behind that at the social and economic factors and trends that have an impact on the future tax base for Wales, because, of course, as was said often yesterday in the debate that we held on this matter, it's in everybody's interest to have a strong tax base here in Wales so that we can be confident that we will have the revenues that we need to support our public services in the future. 

So, the report, we hope, will both be analytical, in that it will help us to understand things better, but that it will have some proposals for us to look at as well to try and strengthen the tax base into the future. 

Will that report also look at any specific economic data that you need to access? It's interesting—I recall the work that the chief economist did on the basket of indicators that we brought together. Is that valid and useful in terms of economic intelligence?

Well, Chair, I hope that the committee found it useful to see the chief economist's report that we published alongside the budget. That was the first time we'd done that. I would be interested to know whether committee members felt that that did contribute to helping to understand the budget and whether we should do it again—you know, make it a regular part of the documentation that we supply.

There is a fairly difficult, tricky issue here, which is that trying to get Welsh-specific data on lots of economic matters is really quite difficult. Our economy is so intertwined, and at different points intertwined, isn't it? The economy of Powys is intertwined with the economy across its border; the economy of south-east Wales is bound up with Bristol and Severnside activity. So, trying to disaggregate data in a way that tells you something reliable about Wales as an entity I don't think is technically easy. And I'm not absolutely sure whether data produced on an all-Wales basis may not itself disguise some sub-Wales variations in a way that would be also difficult to disentangle.

There's then the question of whether the time and the effort and the money that you would need to invest in order to secure that data would be proportionate to what you would learn from it, because, by and large, the trends in the Welsh economy do tend, fairly predictably, to mirror trends on a UK basis. So, you could go to a lot of effort. I think this is what Bangor say in their report. They do say that it would be nice to have some more Welsh-specific data, but they do go on to say that (a) it might be very difficult to get and (b) you might put an awful lot of effort into it and quite a lot of money to do it to learn not very much that you don't know by using data that is already available. So, it's not that I'm not convinced by the general argument that it would be good to have more Welsh-specific data, but I think, underneath that headline, there are some quite tricky issues to think through as to how we could do it.

The ONS, however, is itself doing some more detailed work at the moment on producing robust figures on inter-regional trade within the UK. Our chief statistician is involved in that work. So, there may be a new source of data emerging that we could use for these purposes without having to do it all for ourselves.

I think Steffan wants to come in on this point, if that's okay, Jane.

That's fine.

I'll forgive the Cabinet Secretary for using the ghastly term 'Severnside'; no such place exists—never has done and never will, I hope. But, moving to the point, I think it was welcome—the chief economist's report being alongside the budget was welcome, of course, but there is this question about a lack of data. I'm a little disappointed at the fact that the Cabinet Secretary seems to question the usefulness of economic indicators specific to Wales because of the nature of our economy being linked to our neighbour's economy and then going down into the granularity and the spatial issues within Wales.

I think he has, in his previous role, made it quite clear, in terms of the economic regions he envisages for Wales—and there are datasets available for sub-national level indicators, but in terms of the—. You would come to the fundamental point of: how can we possibly measure the thinking behind the Government's tax policies and, indeed, wider economic policies, if we're not able to look at a raft of detailed national economic and fiscal indicators? It is a very normal thing for any fiscal entity and any nation to have. So, whilst I accept that there are different ways to gather that data, I think that having a comprehensive set of indicators alongside a budget is absolutely crucial for transparency in a normal budget process. So, I would urge him perhaps not to be reluctant to progress in that respect.

Chair, I don't think I need convincing about the case in the way that Steffan has just made it. I understand that case and I think the case is well made. All I was trying to say is that, below the headline that we could do to have more robust, Welsh-specific data in this field, there still are some quite tricky technical issues to solve in getting that data and that you would have to ask yourself the question—any sensible Government, I think, would ask itself the question—whether the effort will produce a sufficient reward. Now, I'm not saying that it doesn't; I'm just saying it's a question you'd have to ask: whether, having gone to all the trouble, you would learn enough from it to make the effort worth while. Now, I'm just putting it as an open question, saying that anybody would want to be convinced that, if you did put a lot of effort into securing that data, you got enough out of it to make that worth doing. And that's a question I will just want to ask as we try and do more, and I do want to do more, and the ONS is one of the ways that we might be able to do more to produce the sort of data that would allow us to have the type of understanding and analysis that Steffan set out.

We'll return to Jane.

That's something that's—. I'm sure the Wales Centre for Public Policy will take that into account in the work that they're doing and draw on that opportunity with ONS. So, I think we will want to look at that paper as it comes forward.

Just moving on to new tax powers, we did debate these yesterday with some rigour. I just think that—

No historians will be mentioned today. [Laughter.]

I certainly was very pleased to make the point that, in fact, the Welsh Government and yourself, in terms of identifying four new potential taxes, had led the way. I recognise that Steffan also talked about manifesto policies as well in terms of disposable plastics. But I think it is important for us to see and take account of how you're going to take this forward in terms of selecting a new tax, timescales—and also, of course, we can't do anything without initiating the process with the UK Government.

Chair, if you are happy for me to do it, I'd like to rehearse a very particular point with the committee, because I'm very interested to know what people think about it. I'm trying to sort of pin the arguments down in my own mind as much as anything, because I think they are very important here. That is: what is the role of the UK Government in this new process? And what do we need to do to make sure that we get the right relationship between the decisions they have to make and the decisions we need to make here?

So, this is how I see it at the moment: the Wales Act says that we can propose, but we need the agreement of the House of Commons and the House of Lords to allow the National Assembly to take something forward. Now, my view is that the role of the UK Government is a fairly confined one. What are the questions that it is legitimate for them to ask in deciding whether or not to allow the National Assembly to move forward in this area? I think, in a way, there are only two or three questions that the UK Government should ask itself. I think it is fair for it to be convinced that a tax that we are proposing lies within devolved competence. That seems to me like a proper question for them to ask, to be sure that we're asking to do something that we have the power and the authority to do.

And the second question that I think it is fair for them to ask is whether what we are proposing would have an impact on revenues that they have an interest in—you know, if we were to do something and it would lead to a diminution in the revenues that they can collect, I think that would be a fair thing for them to take an interest in.

After that, I don't think they have a role to play. So, it reminds me—and there are people around this table who will remember, maybe—of the old legislative competence Order process.

How dare you swear in committee. [Laughter.]

Yes, indeed. In that what I don't want to do is to set all this up on the basis that a UK Government feels that it can take an interest in the policy merits of the proposal, because I don't think that's their job. I think that's for the National Assembly to decide. Because, once the UK Government has resolved the two questions that I've outlined, I think it should then say, 'That's fine; we now allow you to take forward a proposal that the National Assembly will decide whether or not it is willing to support it or not'. And I'm sorry to be long-winded about it, but the reason that's important in relation to the question that Jane raised is that I think that, at the point when I go to the Treasury with a tax, I don't want to have done a huge amount of detailed work around that proposition, because the more detailed work I do the more I think it invites them to come back to us with questions that I don't think are questions for them to raise.

So, my aim by the beginning of next year is to have narrowed the list down to one. We will have done more work to do that. We are talking to the people we need to talk to who have got an interest in that tax in particular, or the group of tax experts, the tax advisory group, for example, who advise me—and we had a long session with them on this topic earlier this week.

But I think the stage needs to be: I then go to them, they test the idea against this pretty narrow list of criteria and, if they give us the go-ahead, the detailed work and the detailed scrutiny of any proposal will be for the National Assembly to undertake. I would expect at that point that that would be a pretty thorough process. It could begin with a White Paper, and then a Bill, and then the detailed scrutiny of any proposal would fall to the National Assembly. I would have to face the prospect that I could persuade the UK Government to allow me to do that and the Bill may still not reach the statute book if we haven't done the work sufficiently to persuade the National Assembly to support that. But I'm just interested in whether Members have a different view of where the respective roles fall.

I think that's a very fair point because, clearly, expectations have been raised, even narrowing it down to a shortlist of four, and then you're saying that you would wish to narrow it down to one, and obviously there'll be a process for that, which will be very transparent. I think those two points that you made about legitimate reasons why the UK Government will have a view on this—they will be tested, we can test those, but we have to test them with the UK Government as well, clearly, in order not to waste that time and grow expectation to move to a Bill. But this is—. I'm sure the committee will want to think further on that. 

I would also hope that—actually we've possibly got an opening door on one of the ideas, which is the disposable plastics idea. Because there was much more said about it before the Chancellor's announcement yesterday. It sounded as though it was going to be a much clearer proposal; it ended up with just exploring, but it's an open door. But I would also hope that some of the other new taxes that have an important bearing on wider issues, like the social care—Gerry Holtham's—proposal, would not be then put back and forgotten about but could be considered in another way.

Could I just say—? I'm quite happy for the committee to explore this briefly, but it isn't part of this budget. It's a further tax proposal—of course, very relevant to our work, and we've been taking an interest in it and it's good to have further flesh on the Cabinet Secretary's thinking, but I don't want us to get too distracted by it because I do want us to concentrate. But if people want to just ask a couple of questions now that would be fine. So, Mike Hedges.

One very brief question: how does it affect if they bring new taxes in in England in areas that are devolved?

Well, we're familiar with this, I'm afraid—the sugar tax, the apprentice levy and so on. Both my Scottish counterpart and I had another discussion about this with the Chief Secretary at our meeting earlier in October, both again stressing to the UK Government that it's absolutely not the right way to do things for them to spring rabbits out of a hat in areas that directly impinge on our responsibilities. I think, to be fair, I did feel we had a bit of a stronger recognition from the Chief Secretary that they had better understood the problems that had been created as a result of the way they went about the apprenticeship levy and wouldn't want to repeat it than we had the last time we discussed that matter.

And Steffan Lewis.

Very briefly, Mr Hedges highlighted the point that I was going to make, that, again, the UK Government will be acting on behalf of England when it comes to tax matters and that will have a direct impact upon Wales. And you used the apprenticeship levy and sugar tax and the rest of it as examples of when they act on behalf of England. In which case, I would say that the two questions that you've posed are the questions for all Governments in the UK, and would be better served through a body of all Governments. I know that, notwithstanding the current legislation, there are limitations there. But are we better off looking at a Council of Ministers model or some sort of Executive-level agreement between the Governments of the UK, for as long as it exists, and that we have due regard to each other and we have legitimate questions to ask of each other's fiscal policies and implications, and come to agreement on that basis? 

I entirely agree with that, Chair. The current mechanism for making the UK effective in the future isn't good enough. We have tried working with Scotland to use the finance quadrilaterals that we have as a sort of embryonic way of doing that, but it needs to be formalised, and it needs to be formalised not just in this sphere but in all the other places where there are overlapping competencies and where the United Kingdom is such a different place than it was before devolution began. 

I assume the £1 billion complaint around Northern Ireland is still ongoing.

It is ongoing, yes.

We'll—. If Neil Hamilton wants to come in—. On this one? Yes, that's fine.

Yes. I agree with you entirely that the different Governments in the United Kingdom ought to treat each other with mutual respect, and that means having a proper discussion where one or the other proposes to bring in some measure that is going to have repercussions for the others. But I would take a rather bolder position than you've done in relation to new Welsh taxes. Because, if it is within our competence to introduce such a tax, notwithstanding the formal structure that is imposed upon us by the Wales Act, if there are financial implications for England in relation to a measure that we propose to take here, I don't myself think it would be proper for us to be denied the opportunity to introduce such a tax just because it would have, in the estimation of the UK Government, complications for England. 

Well, in terms of a general principle, I agree with that. I don't think it should be an automatic barrier to us introducing something because what we did would have consequences elsewhere. But it is a matter of— 

It's a legitimate concern.

It's a legitimate concern. It's about going into it with your eyes open because, of course, the block grant adjustment mechanism could also come into play here, in which case we would find ourselves maybe disadvantaged by doing something in a way that hadn't been thought through. But, as a general principle, I agree with what Mr Hamilton said.

We'll complete the round of the parties with Nick Ramsay.

Last but not least. You could say that any Welsh Government policy could have an effect across the board—if you took something like free prescriptions, with the migration across the border from England to access those. So, it's difficult to say where the effect of Welsh policy ends.

I was going to ask—. You mentioned the quadrilateral meetings earlier. I think it was either yourself, or possibly Jane Hutt when she was the finance Secretary, who said that the quadrilaterals had been downplayed in importance and that there were more bilateral meetings going on between individual Governments. Are the quadrilaterals back up on the agenda now since the fiscal framework? Are they more part of the formal way of doing things? 

Well, we've had one quadrilateral, Chair, since the general election, and it is the quadrilateral that probably has the most fixed position in the calendar. Because I think there has, for quite a while, been a quadrilateral in advance of the main fiscal event of the year. So, there was no suggestion at all from the Treasury that they didn't intend to have a quadrilateral in advance of the budget. It happened, and it happened in the way that it happened the year before. With the current Chief Secretary's predecessor, we had a second quadrilateral during the year as well, and it met in Edinburgh last time. Certainly, I would value having those quadrilaterals more regularly than just once, and just once—. It was a useful meeting. I don't want to at all suggest that it wasn't worth having. But it does have a certain ritual component to it: it happens when it does because there is a budget coming; the Chief Secretary is there to listen to our views. A meeting beyond that, where you could maybe have a slightly more engaged conversation about some shared areas of importance would, I think, be worth while.

Where, for example, you could discuss the principles around a new tax in Wales.

Yes.

Thank you for that. It was an interesting diversion. We'll turn to some of the main questions, if we may. But just to say: I think the Finance Committee, if we're in agreement on it, would, I'm sure, like to, when we have time after the budget, look more closely at what you've been discussing and perhaps come to a view on how we might want to take that forward or assist the Assembly itself in formulating a view on that.

That would be very helpful, Chair. Thank you.

Jane, are you okay?

I'm fine.

I think, in