National Assembly for Wales

Yes, I declare an interest as a director of the charity Wales Federation of Young Farmers Clubs. 

I always declare that I'm a councillor, just in case. 

Thank you, Carolyn. Thank you very much. 

Yes, good morning. Thank you, Chairman. My name's Bob Vaughan. I'm sustainable land manager for Natural Resources Wales and I work, obviously, on this particular subject. 

Thank you. Mr Cox. 

Good morning, everyone. My name is Martin Cox. I'm the head of operations for north-west Wales, and I also undertake a co-ordinating role across our operations directorate for our regulatory regimes. And if it's possible, Chair, could we make a quick comment regarding the judicial review, just to offer our position on it and clarify one or two matters? 

Yes, just very briefly then, Mr Cox, yes. 

Yes, okay. As you mentioned, the judicial review is ongoing and the respondent in the proceedings is the Welsh Ministers, and NRW is named as an interested party due to our role as an adviser to Welsh Government. We're not currently taking an active role in the proceedings, but that could change at any moment. So, in light of that, we're necessarily limited in the responses that we can provide this morning, and we clearly don't want to risk unintentionally impeding in any way these proceedings, or prejudicing the outcome of those proceedings. So, we will have to try and restrict our responses to matters of fact and public record, and if we're asked to offer an opinion, we'll probably have to try and present that in terms of generic issues rather than specific to matters that could be subject to the judicial review. Thank you.

Okay. Thank you very much indeed for that. Perhaps I can kick off with just a few questions to start off with. Can you as an organisation perhaps provide us with an overview of the extent of water pollution incidents over the last five years? What has been the cause of these incidents? Which sectors are actually responsible, based on the monitoring that you've done over the last five years?

I'll take a lead on that—

Mr Vaughan, yes.

Yes, I'll take a lead on that. We obviously monitor watercourses, coastal waters, lakes and other bodies of water, ground water, right across Wales. That is part of our role, and in doing so we pick up the quality and the quantity of those resources. We also respond as an enforcer to incidents that happen across Wales where pollution occurs. It's quite difficult to say that there is any trend in any particular position, because weather and other conditions mean that you get a variation in the levels of pollution from year to year, but it is, I suppose, quite clear to say that you get a number of different types of pollutant, whether that's wash-off from agricultural activity, incidents from water treatment, background natural pollution. As a consequence of our legacy industrial background, we get a lot of contaminated land and mine waters. So, we get a whole range of different types of pollutant, and the key ones that we pick up from year to year are, principally, water industry issues, issues such as agriculture, forestry, natural resources as I've mentioned, wash-off from urban areas—a whole range of different types of pollutant. I guess the levels of incidents from ones that we haven't been able to control are in the order of about 1,000 a year—between 800 and 1,000 different incidents a year.

Right. Obviously, in the past, some nitrate vulnerable zones have actually been introduced for certain areas. Would you say that those NVZs have worked and you've seen a decrease in the number of incidents in those particular areas?

Wales has got a very number of nitrate vulnerable zone designated areas at the moment. Prior to the implementation of the new regulations, it was less than 3 per cent—about 2.4 per cent of Wales was designated. The idea of that was that more stringent controls were put in place to prevent nitrates, and it is just nitrates, not other pollutants as I've mentioned previously. There are a whole range of different pollutants that occur; nitrates is just one of those, as a nutrient. We've allocated 2.4 per cent in the designated areas, and it's difficult to say that the incidents have reduced. On the monitoring that we've done over a number of years on these areas, we've identified pollutions that still occur. So, it doesn't stop it from happening, but it does put additional controls in place to reduce the risk of things happening.

So, you can't really tell us whether they've worked or not in those cases.

Certainly, from our experience, both in Wales—. As I say, we've got a very limited area, so it's difficult to give a bigger picture because it's such a small part of it—just pockets of NVZs across Wales—but our knowledge from other parts of the country and into Europe is that there hasn't been a reduction, mainly, in nitrate levels within the ground as a consequence of the designations happening. Very few areas that have been designated have actually come out of designation.

Okay, thanks. I see that Sam Kurtz would like to come in on this. Sam.

Thank you, Chair. Good morning, both. There was an interesting point made there with regard to the monitoring of nitrates, or nitrates only, with regard to this NVZ. Is it your understanding that, with water treatment plants and their monitoring of only phosphates and not nitrates, there is a potential blind spot in looking to alleviate the problem of watercourse pollution?

No. We monitor the whole range of different types of pollutants, whether those are phosphates or nitrates—all of those nutrients that might end up in a watercourse—both from agricultural land activity and from our own use, you know, as public citizens using sewerage works or private treatment works. We monitor all of those materials and we monitor a lot of others as well. So, we're looking at levels of metals in watercourses, we're looking at chemicals, pesticides and so on and so forth. A whole range of different items is looked at. I do not think that there's a blind spot.

Okay, thank you. That's helpful clarity, because I visited a treatment plant where—my understanding, and I'm happy to be proved wrong on it—they treat for phosphates but not nitrates when discharging from a treatment plant. So, if they're not treating nitrates and they're being released into the watercourse—I know you're saying that they're being monitored—if they're not being treated at the treatment plant, is there an issue there, potentially?

The reaction on that is that, in a sewerage treatment works, they're cleaning up the material that's brought via the public sewer. They will be treating nitrates, but what happens is that phosphates are quite difficult to remove from water in the treatment works and they will have put a specific phosphate-removal plant on those particular works. But, the treatment that is ongoing has to meet a particular standard for the receiving watercourse, so they will have consent to discharge that water from the sewerage works to reach particular standards and, as a consequence, the nitrate level that may still be discharged will be within the limits that are set by NRW for the consent of those treatment works.

Thank you. Finally, Chair, just on that point, you mentioned monitoring of it. Slightly separate to this, potentially, is the combined sewer overflows and their monitoring and EDMs—event duration monitors. A freedom of information request that my office put in to Natural Resources Wales says that it's, 'Important to emphasise that the apparent trend of increased spills is not misinterpreted, as this would be a result of an increased number of event duration monitors being installed and subsequent available data reported'. So, has there been a period of data not being collected as fully as is being collected now in the preparation of policy, as it were? 

Combined sewer overflows are a different topic to the regulations that we're looking at at the moment; they don't come over. Both, obviously, affect watercourses and CSOs are a pressure release within the public sewer system. The key thing to think on there is that, over the years, as we've understood the sewerage system more, we've been able to identify where the CSOs are. Over a long period of time—this is over a number of decades—we've been trying to reduce the number of spills that happen on these sites, because they are unregulated in the content, but they have to meet particular standards in the number of spills that happen a year. If we find CSOs are exceeding that spill level, then actions have to happen.

Now, to understand how frequently they spill, we'd have to put in—Welsh Water have to put in, and the other water companies have to put in—monitors to make sure that they are meeting the standard that we set. 

Okay. I know that Hefin David would like to come in on this as well—Hefin.

As an extension to Sam's line of enquiry, in my constituency we've seen pollution incidents and I've met with NRW about those specific incidents. Notwithstanding the issue about the wider Wales-wide NVZ, one of the things that officers of your organisation said to me was, 'Well, it would be really helpful if not just a nitrate zone was created but a phosphate one as well, so we'd have power over nitrates and phosphates in the same way that we've got, currently, power over nitrates, or will be proposed to in the regulations'. Is that an understanding that I should have—that you would welcome a bit more power over phosphate regulation as well as nitrates?

The reality is that we've got a whole range of different types of pollutants out there, and phosphates and nitrates are nutrient pollutants, and we want to have control over all of them. In my opinion, you can't just deal with one pollutant; you've got to try to deal with all of them to put our watercourses and the environment back into the situation that we want. 

We talk, as NRW, through our powers under the Environment (Wales) Act 2016, of introducing the sustainable management of natural resources. Phosphates, for example, are not a sustainable source of material for agriculture; they will run out eventually, and so our flagrant use of them at the moment means that we are using up a non-sustainable resource. So, yes, we want to have control over all of these; we want to make sure that nutrients such as nitrates and phosphates are used for their proper use and we do not throw them away, literally, into watercourses. We want to make sure that, both in terms of the amount of use they can have—. And let's be quite honest about this, nutrients have a huge value to agriculture. We want to see them used appropriately in agriculture. We do not want to see them wasted, because that's a loss to the farms.

Can I therefore understand then—? I'm coming to this as a complete novice when it comes to the knowledge of the area, but we're talking about nitrate vulnerable zones. Why are we specifically concentrating on nitrates when there are so many other issues beyond that?

That is correct. The nitrate vulnerable zone issue came up back in the 1970s and 1980s as a result of high levels of nitrates in groundwater, which affect human health. So, nitrate vulnerable zones were brought in across Europe to control that. I don't know whether some of you have ever come across blue baby syndrome; it affects the condition of young children because of high nitrates in water supplies. So, that's where it originated from. And obviously, high levels of all sorts of nutrients can have consequences, and we saw that in the Wye in the last few years, where high levels of nutrients were causing algal blooms and so on within watercourses. What we want to see is a reduction of all of those types of pollutants from watercourses down to background levels so that it is not having an impact. So, yes, in answer: are we concentrating on one or the other? As far as NRW is concerned, we're trying to deal with the whole spectrum of different pollutants. Phosphates and nitrates are part of that mix.

Just one last question, Chair; I appreciate your indulgence. I'm just trying to understand: why concentrate solely on nitrates when there are so many other pollutants?

That's something that you would have to ask Welsh Government. We—

Okay. That's a helpful answer; no doubt we will.

Yes, we will. Thank you, Hefin. If I can now bring Carolyn Thomas in who's got a set of questions. Carolyn.

Thank you, Chair. What are NRW's duties under the new regulations and have NRW been provided with sufficient resource to undertake these duties? Thank you.

Thank you for that. Our role under the regs—regulation 47—is to be the responsible enforcing officer of the regulations. So, we have that duty to carry them out. As you know, these regulations extend beyond the nitrate vulnerable issue that we've just been talking about because they go into SSAFO as well—silage, slurry and agricultural fuel oil rules. So, it's slightly wider, but we have the role of undertaking that. 

The position that NRW is in at the moment is we have had discussions with Welsh Government on the resources of this, but to date, we haven't had extra resources to undertake the regulations work, and we are still in discussions with Welsh Government on that. In the meantime, we've been redeploying our staff to make sure that we're in a position and are trained up to actually look at the work. But the regulations themselves provide us with a massive workload.

I could imagine that recruiting and training up people would be an issue as well, so—.

Yes, as it is for all organisations. We've been affected over the last few years, as has every other public body, in terms of the resources we have and this is another challenge for us.

Perhaps I could just comment on that as well. This situation is common with any new duty that we would be given and that we would have to take up. So, we've been in discussions with Welsh Government about the type of regulatory approach they wanted to take for the regime and what the resourcing implications were of the different types of approach that could be taken. And also, whether that would be new resource or whether we would redeploy existing resource and reprioritise. So, it's a common situation with any new regulations; we would go through those discussions with Government.

As far as resources are concerned, how much resource do you think and anticipate you will require in order to make sure that you’ll be able to carry our your duties under these new regulations? Do you have any idea of the resources you'd actually require?

Shall I jump in, Martin? We’ve provided a range of different types of resource level to undertake this work, and those discussions are ongoing with Welsh Government. They range quite considerably from a minimum viable product, where we are looking at around 60 staff, up to the full role, which is well over 200.

Right. Okay. Anything else, Carolyn?

No, thank you. I think that that's okay. It's the same with every public body at the moment as well, though, regarding recruitment for any new legislation and duties. But I understand the importance of having the resources as well. Thank you.

We have been going through recruitment rounds over the last year and a half for some of the types of officers that would be involved in this work and, generally, we’ve been relatively successful in recruiting into those roles. They’re seen by a lot of people as interesting, rewarding roles that are secure and offer interesting, reasonably paid jobs. So, we haven’t seen particular difficulties in recruiting officers to our environment teams. But, of course, it depends how many you're trying to recruit. 

Okay. Thank you.

Okay. Thank you. If I can now bring Hefin David in. Hefin.

In your professional judgement, to what extent will we be able to see a recognisable, measurable improvement in water quality as a result of a nitrate vulnerable zone for all of Wales?

That’s a very difficult question to answer, and we’re so new into the work. What I would suggest is that Welsh Government had to undertake a regulatory impact assessment on the impact of these activities to support their proposals, and I’d point you to that, to look at that document, to identify what they were saying were the benefits of the regulations.  

Do you feel that they would have a benefit with regard to water quality? 

Yes, they will have a benefit. I think the question is how much of a benefit they would have. 

Okay. And how long will it take us to conceptualise that benefit and understand it?

It’s very difficult to put any timescale on it because we get such vagaries of weather and other impacts that hide the trends that we have. You only have to look at the pollution incidents that we’ve had over the last say 20 years, and they range quite considerably because weather plays such an important aspect in the pollution that might occur.

We probably have to be a little bit careful about getting drawn into conjecture because of the judicial review proceedings, but there are lots of obviously benefits within the regulations. So, for example, one of the things they do is they convert a number of the elements of the code of good agricultural practice onto a statutory footing, which will help us in implementing those requirements. So, it isn’t just about the NVZ side. There are lots of things from a regulatory perspective that we would see as positive elements in the regulations, but I don’t think we can really offer much of a view on what the long-term impact would be at the minute.

But you would have had discussions about that impact with the Welsh Government in the preparation of the regulations.

We provided advice to Welsh Government on the regulations, yes.

Okay. What about the positive outcomes for farm businesses? Are there positive outcomes for farm businesses of an NVZ?

Again, it's very difficult for us to identify that, because we are not farmers, but the regulatory impact assessment will have taken that impact into account as part of the assessment that Welsh Government would have done on the cost-benefit of introducing the regulations.

Okay. Another thing that I've heard from farmers in my constituency is that the introduction of the regulations will require them to do things that would be costly for them to manage, to comply with the regulations. Is that a fair point, or do you think that it's manageable, even for smaller farmers?

It all depends on the risk that they're operating at. I suppose you really have to assess whether—if they have a major investment now, as a consequence of the regulations, then they are posing quite a risk to the environment currently. So, in that respect, then the investment should have already been made, if that makes sense.

Yes. Okay. I don't think I can go any further with this, Chair, without getting into other issues.

Okay. Thanks, Hefin. Before I bring Vikki in, I know Sam has a very brief question he'd like to ask on this issue.

Yes. Thank you, Chair. You mentioned your understanding that it would cause an improvement. Why, then, was the official review only recommending an 8 per cent NVZ coverage and not an all-Wales NVZ coverage?

We did a great deal of assessment on the implications of nitrate levels across Wales, and from that, we were able to identify what parts of Wales we felt were hitting the target that is set for nitrate levels—the upper limits—both in the period that we were reviewing and within a short period after that point. We recognised that a further 8 per cent—well, a further 6 per cent of Wales, or 5.5 per cent to 6 per cent of Wales—had worsened from the previous assessment. And in terms of the rules behind the NVZs, on the levels of nitrate that were in the environment, that set the 8 per cent. That doesn't mean to say that, in future assessments of the NVZs, it wouldn't increase again, and we are actually looking at that at the moment.

I can see that Luke Fletcher just wants to come in briefly on this issue.

Yes. Thank you, Chair. Very, very briefly, just in terms of the 8 per cent figure, of course, back in 2016, a report produced set out that the NVZ designation should increase from 2.4 per cent to 8 per cent, as we've heard already. Is that still NRW's position five years on?

In assessment of the NVZs, yes, that's the estimate that we modelled and identified as meeting the NVZ criteria, and that's the case. We are currently undergoing another review of the NVZ limits, and once that work has been done, then that may increase. But, at the moment, yes, it was 8 per cent that needed to be designated to fit in with the European directive.

If I can now ask Vikki Howells to come in; she has a set of questions. Vikki.

Thank you, Chair. Building on that question there, when you identified the 8 per cent of Wales that you recommended increasing the designation to, can you tell us how robust you feel the data was that you came up with, that you used, during that review?

We've gone through a great deal of modelling that's been designed by Welsh Government and DEFRA to provide that assessment. We went through a public inquiry into the work that we'd done—all of that was confirmed to be correct. So, in that respect, yes, we're very happy with the work that we did there and still stand by it.

Thank you. Of course, that was five years ago now, wasn't it? So, is there any emerging data that could lead to different recommendations regarding the extent of the designation?

As I mentioned in the previous question, we're reviewing the NVZ at the moment to see if there's any further information that's come up since that time. Clearly, we've got other sources of information. We're doing a huge amount of assessment for the water framework directive and the urban wastewater treatment directive, and we're going through that information at the moment. That will provide us with an indication of whether the situation has worsened again or whether, as I mentioned at the very beginning of this discussion, it's got better. In which case, if it does get better, in theory, you can dedesignate zones. So, we continue to monitor the existing ones as well.

Is there a set timescale on which data like this is reviewed?

Yes. It's reviewed every four years in detail, where we model and look at where the trends are going. We have to do it over a four-year period; that is set by Europe. But it's also a period of time—. It's quite a normal situation, four or five years, to do these types of things over, because that allows, as I mentioned earlier, about the variations in weather and other issues—. To get a reasonable trend, you've got to have a few years of records to identify that, and four years is—. We're going through that process now from 2016, and we're doing it now at the moment.

Thank you. That's very helpful. Thank you, Chair.

Thank you, Vikki. If I can bring Luke Fletcher in. Luke.

Diolch, Gadeirydd. Just a follow on, really, from Vikki's question there in terms of the four-year review period. Would you say that the frequency of every four years is appropriate? 

Yes. As I just mentioned, I think the principle—. You'd have to have number of years; you couldn't do it every year, just purely because of the amount of information you have to gather and the fact that you wouldn't necessarily pick up the trends to show whether things are improving or worsening. So, four years is a reasonable time to do that reassessment. 

Okay. Thank you for that answer. And how confident are you in the methodology used for identifying waters for designation?

Again, as I mentioned, we've used an approach that's been identified for the UK. That still continues to be the approach that we take, and we're quite happy that we're able to pick the information up and assess, via the modelling, the types of trends we're seeing and how it's progressing.

In terms of the monitoring, as well, of a whole-Wales NVZ, do you think that's feasible?

On a risk basis, yes, because we know where the likelihood is of the highest levels of nitrates and, as a consequence, we're able to put more focus in those areas than others where we know that the level will not be so great. We'll still be monitoring in those areas, but we will focus most of the monitoring in those areas that we know are struggling.

Okay. If we move on, then. Sam Kurtz. Sam.

Diolch, Gadeirydd. Just before I touch on alternative approaches to the current policy, can I just come back to a point you raised with regard to the possibility of some NVZ designated areas improving and thus losing their designation? In reference to the Chair's question at the beginning, did you mention that none of the current NVZ areas in Wales have improved their qualities?

That is correct.

So, an NVZ policy currently under way in Wales has not lost its designation because water quality has not improved following the implementation of an NVZ policy—is that correct?

That's correct, yes.

There we go. Thank you.

I'm not aware of any sites in Wales or England where, as a consequence of bringing or creating a designated zone, they have then improved their water quality to the extent that they've been removed.

There we are. Thank you.

So, to move on to alternative approaches, having touched on nitrates and phosphates, I think it's apparent that all of us here want to see water quality improvements and a holistic approach that delivers improvements on all pollutants in our watercourses areas. In 2018, the sub-group under NRW, the Wales Land Management Forum, provided a report to Welsh Government with an alternative approach. Would NRW still advocate this integrated approach, including regulation, voluntary actions, advice and guidance?

Can I just correct you, please?

Yes.

The Wales Land Management Forum sub-group is actually not NRW's group. The Wales Land Management Forum that it spurred from is NRW's group, but the sub-group was set up by the members of the Wales Land Management Forum, and so it's an independent group.

I am part of that group and was involved in the preparation of the report back in 2018. Welsh Government were also part of that group, as were a number of different organisations from across Wales, both from the environmental organisations and the farming sector or land management sector. We produced that report because it followed the principles that the group felt was the right way to proceed to deal with agricultural pollution, and that ranges across a range of different bids. Regulation is a key part of that, and we wanted to see a much clearer, broader set of regulations that were easily applied and easily understood, but also introducing other parts to the process, because we believed that, in combination, these alternative measures would result in a reduction in pollution across Wales.

Thank you. Apologies for the error there.

That's okay.

NRW is written on my notes, so forgive me on that. So, that's one example of an alternative measure, an alternative policy to this. There's also the blue flag farming scheme that has been implemented through a scheme first developed by First Milk and their creamery in Haverfordwest, Pembrokeshire. There's also the water standard by Lorna Davis, a Nuffield scholar, the voluntary farmer-led approach to nutrient management initiatives. So, there has obviously been a lot of work invested in finding alternatives that deliver far greater benefits to watercourses. In your view, then, or in NRW's view—and I'll be careful with the JR in mind to word this correctly—is there scope for these to be (a) more deliverable, (b) more achievable, and (c) deliver better outcomes than current policy?

Quite simply, the work that we've done and the report you referred to there by Lorna was actually undertaken as one of the recommendations of the group and funded by the members of the group, as was the blue flag, who were involved in the early work of this particular group. Yes, there are a range of different options that we think are—and I'm talking for the group here rather than NRW, although NRW is part of that group. The range of different options that we identified, we felt, went a lot further than this regulation on its own. I don't know whether Martin wants to say his analogy about how this type of thing works. Martin.

Yes, in terms of generic approaches to regulation, there are lots of different approaches that you can take, so if, for example, you've got a limited number of activities that have a very high risk, we might choose a regulatory regime that is a very specific, permitting and complete compliance, assessment and enforcement. If you've got something where there are very, very many people undertaking the activity, then you have to consider alternative approaches. So, in regulatory theory, the example they always use is that of speed limits. So, for example, the general approach is that there are spot checks, there's education, people know what the limits are and there's general compliance, and that is reinforced by spot checks and enforcement. What doesn't happen is that every vehicle on the road has its speed checked every day.

So, there are two extremes of high-risk polluting industries that are closely permitted and monitored, right to the other extreme of where you've got millions of people undertaking an activity that does have a risk, but you couldn't possibly regulate it in that way, and it's a continuum, so there are multiple approaches in between. Working with Welsh Government, we would try and work with them to determine what the best balance is of impact against cost and risk.

Could I return to one of the other questions, very briefly—

Of course.

Yes, by all means.

—please, if that's possible? It was a question about the impact of the NVZ designation, and Bob was, obviously, absolutely right in what he said. But a little bit more context to that is that, sometimes, because of the natural processes going on, it can take decades to see changes in trends for substances like nitrates, and, as I understand it from the information we have, some of the monitoring has shown, for example, in the surface water NVZs, they're all currently below the polluted threshold. But of the monitoring points, some have shown decreasing trends, a smaller number have shown increases, and some have shown no change at all. Bob was absolutely right in his summary of it, but they are long-term trends and we have seen some reductions in levels, even though the levels were below the polluted threshold.

Okay. Thank you very much. I've got a number of Members who would like to come in on this issue, so if I can ask Carolyn Thomas to come in first of all. Carolyn.

Thank you. At the moment, slurry spreading is prevented between October and February. Are you looking to review this, because we've got changing weather patterns now? I know that, last year, or this year, we had terrible flooding in March, and if you're a farmer in a low-lying area, you can't be spreading in March and April because sometimes your fields are already flooded with water and it would go straight into the watercourses. So, would you look at having maybe variances, depending whether the farm is low lying or high lying, which does really make a difference?

Thank you for that response.

Also, in the guidance, in the code of good agricultural practice, there is an expectation that farmers have regard to the predicted weather forecast in any area and that they don't spread at times of predicted heavy rain.

Okay. So, it sounds like there is some flexibility there within the current guidance—or not?

Within the current regulations? No, there are closed periods. We would say in the future that would change.

So, would you be making these recommendations to Welsh Government, that using modern technology and predicting weather, that that could be or should be a way forward? 

We have already and we will continue to do so. 

Okay, thank you. Can I also ask another question?

Yes, by all—

I visited a farm, and they were using a new machine, which had been funded by Welsh Government, a slurry separator. It separated the slurry, the liquid from the dry product, but the end product is still categorised as slurry. So, it still can only be spread within those regulations. Can I just ask you what you think about—? I don't know if you've seen these. Could it be recategorised, the end product, because it seems very different? You could use, maybe, the dry product as bedding, as well as a fertiliser, and the wet liquid as well.

Yes, in some cases, the dry material is used as bedding. Martin, do you want to cover the waste aspect of that, because I think that's the core issue?

My understanding is, in terms of waste, if it arises on the farm that it's disposed of, it doesn't run into the waste regulations. I think we would have to—. It isn't something that there's been a lot of work by NRW on, but we would have to look into, for example, whether the most damaging pollutants are contained in the aqueous phase or are they retained in the solid. So, there would have to be quite a lot of work to see where the risks were presented. So, for example, nitrates are predominantly soluble, so they might be contained in the aqueous phase. It isn't something I've had any experience of personally, but that would be the expectation, that we'd have to see the evidence behind what the difference was and then we could make recommendations to Welsh Government, based on that evidence.

I just think that, if they're going through this process, if they've got the machinery there, going through the process, unless the aqueous is maybe looked at, is it worth doing—you know, the investment, which is a significant investment and takes time as well? So, I think it's something that I think should be looked at, really.

Can I come back on that, then? One of the five principles that we set out in that report that Hefin mentioned earlier, innovation is one of the key angles of that, and we put a lot of the recommendations of the report—we've done quite a lot of work on the innovation side of things, trying to look at new ways of dealing with this, principally because as I said earlier, the waste that is produced is not truly something that we want to throw away; it's got a lot of value and we want to see that used appropriately. The problem often is that the amount of waste that is produced is greater than the land area or the crop requirement that the farm has, so we've been working again with Gelli Aur and with a couple of small to medium-sized enterprises, again with Welsh Government funding, to look at new ways of trying to deal with slurry. Part of it is a separator, part of it is stripping the phosphates, nitrates and other nutrients out of the fluids, and then reusing that on the soil.

So, we've been doing a huge amount of work on that innovation, because we think that's one strand of this whole process, whether it be regulation, looking at markets beyond the farm gate in how they can control farmers, and support farmers with payments, looking at the financial markets, looking at innovation, looking at self-monitoring and understanding the consequences of actions and getting farmers more involved in understanding the impact they're having.

So, a whole range of different things. Advice and guidance was the other one, sorry. A whole range of different options that we think in combination will make a step change in the way that land is affected.

Thank you. Because concerned as I am about flooding, I'm also concerned about very dry spells as well with the changing weather patterns, so—

The two are interlinked. Yes, absolutely.

Yes. If we can store the wet liquid or rainfall for the drier periods, that would be fantastic. Okay, thank you. Sorry, thank you.

Hefin, you wanted to come in on perhaps some of the earlier issues discussed under this section.

It is a bit going back, and my Wi-Fi cut out a little bit when Martin Cox was speaking, but I just want to clarify, because I think it comes right to the heart of some of the issues we're going to be considering, and we need to have clarity on this if we produce a report that expresses our views as a committee, the question that Samuel Kurtz asked, the nitrate vulnerable zones haven't—the areas haven't come out of nitrate vulnerable zones because the level of improvement hasn't been sufficient, but there's a causation and correlation issue there. Just to be clear, Martin, what you're saying is that doesn't mean that the nitrate vulnerable zones don't have value.

No, I was just commenting on some of the monitoring work but Bob could perhaps come in. But from some of the monitoring work, at the monitoring points, some of those monitoring points have shown general increasing trends. Some have shown decreasing trends and some haven't shown much change at all. So—

So, my point is we shouldn't draw too much of a conclusion from that about the value of NVZs.

I think that's correct. Is that right, Bob?

Yes. I think they were introduced for a particular reason, and that reason was very real. It was a health issue, and if you look at how the NVZ operates, it restricts the amount of material that can be put to land, so as a consequence, it has led to the farmers having to invest quite a lot once they get designated, and as a consequence, the levels that may have then kept on increasing have not increased at the rate that they would have done if the NVZ hadn't been put in place. But those were areas that were high in nitrates anyway, if that makes sense. So, they had quite a severe problem in those areas. And often it's down to the locality; if you look at the NVZs in Wales, they are in specific locations where you have groundwater levels and we don't have a great deal of groundwater in Wales of that nature within aquifers, or major aquifers, and as a consequence, the impact was very specific to specific areas where nitrates in a solution were increasing.

Thank you, Chair.

Okay, thank you, Hefin. And Luke.

Diolch, Gadeirydd. We've touched on this already in terms of the use of technology to create flexibility for farmers. I'm aware that there's some work being done in England at the moment relating to this, and I was wondering how much engagement NRW is having with the continued work in terms of alternative approaches. If I may, Chair, just for clarity on my part, because I am approaching this as a layman, I'd be interested to know what the reasoning is behind spreading by calendar year. Because we know, as Carolyn Thomas has already mentioned, where the patterns are changing, and even traditionally, if we want to use the word 'traditionally', weather has never obeyed the laws of the calendar month as much as we'd like it to and as much as farmers, I'm sure, would like it to as well. But I'd be interested, just for clarity's sake, for my own purposes.

Yes, the background to that is that if you look back quite a few years ago, we've continued on the same process that they put in place then, which was a very simple, clear-to-understand approach, so that limits were provided for farmers saying that these are the periods when you can spread material onto the land, and we'll close it down within a certain time so that we know when the risk is highest. Today we have far better technology that allows for more flexibility, so as Carolyn was saying earlier on, clearly if you have a very dry spring, then that would be appropriate for spreading slurry, because you can get forecasts now forward that tell you the next 14 days with some reliability, and as a consequence you know that you're not going to run into problems. The difficulty is that because you have a more blunt tool, if I can call it that, you run a higher risk of future weather patterns not being taken into account, which increases risk.

And therefore, in terms of the closed period, would you say that it would be better, then, for us to have that flexibility year-round rather than just restricting ourselves to that closed period of time to spread slurry?

Yes, because I think we're in a position now where we have more information, more certainty over the impact, and we can reduce the risk, and running on a risk basis, the calendar doesn't work to risk, as you were rightly saying earlier on. It was a tool that was appropriate in its day. As we go forward into the future and have better information about the weather, about temperatures, soil requirements and so on and so forth, then I think that we can move towards a more complicated approach that predicts what's needed, and which is far more flexible than the approach that we have now, but it relies on modern technology.

Would I be safe to assume that that's something that NRW would potentially recommend to Welsh Government in the future?

Yes, and we already have.

Brilliant. Diolch.

Thank you, Luke. Are there any other questions from Members? Sam.

Just one regarding the closed and open periods. Is there the possibility of a spike of nitrates once the open period starts?

Yes, once the open period starts, then clearly a lot of farms will have a great deal of material stored up over the winter period, when stock has traditionally been kept under cover. They will attempt to reduce the levels of material inside the slurry tanks ahead of when you get a major growth spurt, so sileage is an issue that they have to take into account. So, yes, you will get an amount placed in then, and you will get spikes in a range of different things as a result of that. But nitrates going into groundwater and various other locations rather than directly into watercourses, that takes a little bit of time for that spike to occur, because it takes time for infiltration and the movement of material. Where we have the biggest issue is in wash-off from fields, and the code of good agricultural practice, as Martin's mentioned a couple of times, gives farmers a steer on what is the best practice of dealing with those nutrients. And at the moment we're doing—. Again, on the research side of things and the innovation side, we are looking at tools that will give a better prediction of when it is best to spread and look at how the land is best placed to absorb those nutrients. As I've mentioned a couple of times, the material that they're spreading on the land is very valuable, and what we want farmers to recognise is the value of that material, and how best to get the maximum benefit from it. And you can do that by making sure that the land capacity, the soil capacity, the crop capacity is there to absorb the nutrient when you apply it, and not just spread it to get rid of it.

Okay. Thank you, Sam. Are there any other questions from Members at all? No, I can see that there are no longer any questions, so this session therefore has come to an end. Can I take this opportunity on behalf of the committee to thank you both for giving up your time this morning? The session has been very, very useful, and we will send you a copy of today's transcript for accuracy, and if there are any issues, then please let us know. But, once again, thank you very much indeed for giving up your time this morning for us as a committee. 

Thank you. 

You're welcome, thank you. 

Right, we will now take a 10-minute break, so Members can grab a coffee. Thank you very much. 

Thank you, Chair. Good morning, everyone. My name is Ben Cottam. I'm the head of Wales at the Federation of Small Businesses.

Mr Slevin.

Good morning, everybody. Thank you, Chair. My name is Paul Slevin. I'm chair of Chambers Wales and their lead on policy engagement.

Well, thank you very much and thank you for being with us this morning. If I can kick off with some questions, perhaps you'd be kind enough to tell us what are the most significant challenges or concerns facing Welsh businesses at the moment, and what action do you think that the Welsh and indeed the UK Government should be taking to address some of those immediate challenges.

If I could start, so, obviously, businesses find themselves in a strange place at the moment. We've had the lifting of restrictions, which is welcome, and obviously businesses have been able to benefit. Particularly in hospitality and in tourism, they've been able to benefit from a market that was excluded to them, obviously, while they were in lockdown. But, overall, businesses find themselves in a fairly precarious state. We don't know where, obviously, the virus is going to go next. We have—it's a cliché, but—potentially a perfect storm of issues with increasing energy prices; we have the ending of furlough today; for tourism and hospitality, for instance, VAT will increase as of now back up to 12.5 per cent; and obviously we have well-publicised staffing challenges. Now, even before this period, our members were reported as the least likely to be looking at growth in the next quarter, so I think we are concerned about how this will dent confidence within the business community. Obviously, on the horizon is an increase in national insurance contributions, which was obviously not foreseen and therefore not budgeted for. Despite this, I think confidence is relatively robust, but I think we are in a holding pattern now to understand what this cocktail of issues is going to do, and obviously that's notwithstanding any restrictions that may or may not come about with the resurgence of the virus later in the autumn. So, a lot of this is a little bit unquantifiable. My feeling is that we are not at the point yet of really where we should be withdrawing too much support from businesses, given all that precariousness about the impact of the virus. By their nature, smaller businesses are obviously resilient. They are by their nature entrepreneurial and optimistic. But I think, certainly, when we look at what measures Welsh Government can look to, obviously we're very keen to see what the Minister for Economy is going to come forward with in terms of a future round of support. But, clearly, we are concerned about some of those headline measures at a UK level that may well come down the line and for which businesses haven't yet budgeted.

Mr Slevin, would you like to add something to that?

I will, thank you. I echo a lot of what Mr Cottam has said, and I think there are some further concerns for us from the point of view of supply chain. Obviously, a lot of the hospitality businesses rely on larger companies who are in that supply chain, and also the food and beverage manufacturing businesses that are part of that supply chain. We're acutely aware that those businesses are struggling. The management is suffering from fatigue. There is a limited bandwidth in respect of being able to consider anything else other than survival at this stage. The aggravation of staff shortages is having a material impact in most of the sectors in which we have a presence, and that is particularly emphasised when you look at robust and well-known restaurants shutting or certainly reducing their service and their offer as a result of that. Now, a piece of research that came across our desks showed that 71 per cent of those businesses are still operating well below their full capacity. That's a concern, primarily because we now have a limited period of time, between now and Christmas, for those businesses to start to regain stability and to start to build some form of cash reserve. Christmas is a challenging period for anybody in the hospitality and retail sector, and it's also a challenging period for people who are in the supply chain to that. It requires significant investment in working capital. If those businesses have not had the opportunity to recover that working capital in the next 60 to 75 days, then Christmas could be a challenging period for them.

More importantly, if we haven't resolved the skills and supply chain problems to a satisfactory level by the time Christmas comes around and we're still operating at reduced capacity, there is a further risk that those businesses will face cash challenges into the first two quarters of next year, which are well known in the sector to be the leanest months of all. If they don't have that runway of cash to take them through to spring and summer of 2022, we may see further casualties as a result of that.

Thanks very much for that. If I can now ask Hefin David to come in, who has got a set of questions—Hefin.

Just to pick up from there, in the light of what you've just said, Paul Slevin, furlough ends today, self-employment support ends today—I think this sounds like quite a bleak picture, from what you've just presented.

I'm not sure it's bleak. I have mixed views about furlough ending, because there are conflicting reports going around saying that furlough ending will provide a resource of people for these sectors to pick up. I'm not entirely convinced of that, because I think that most people who have been on furlough probably have already got some form of alternative employment. The furlough ending enables them to either pursue that alternative employment or to seek roles in other areas. 

I think we've also not yet had the opportunity to be able to demonstrate to people that jobs in the supply chain, and jobs within hospitality, tourism and retail, are attractive careers for people to pursue. So, there is always the choice, which is, 'Do I go into hospitality, where I'll have to work 10 hours a day, six days a week, or do I continue my role driving a van for a supermarket or some alternative employment, which may be more attractive?' So, I have mixed views about the impact of the end of furlough today.

So, are you saying that the end of furlough will have a positive impact on labour supply—is that the point?

It may have, and I think it needs to play out. I don't think anybody is completely clear yet about what the impact of that will be. It may have, but it's one of those medium-term economic plays for us that will take some time to deliver.

I think, Ben Cottam, it seems to me, from a constituency perspective and the anecdotal evidence I'm getting, that it's the people who are self-employed who are the ones who've suffered most in these sectors. Is that fair to say?

Yes, to a greater degree. A number of the schemes, whether they be Welsh Government schemes or UK Government schemes, excluded the self-employed and, obviously, directors, largely because we needed reliable and quick ways to deliver the support and to verify, but the consequence of that has been that those businesses have, nevertheless, been impacted and have had to eke out what resource they've had. Obviously, some of those find themselves—particularly the self-employed and directors—hit again by national insurance contributions in the future. So, I think we are seeing a cohort of people who have, I guess, suffered more and had the least viable safety nets through the pandemic. 

It's very difficult, if I'm honest, to say what impact that will have in the medium to long term on entrepreneurship and the preference of people to become self-employed. I think there are lessons to be learned in the way that we've administered support during the pandemic, and there is a need to review, in the future, should any of these hits arise, the methods by which we can get support to the self-employed.

More often, we're talking about organisations and businesses with the shallowest pockets, the tightest margins and the least ability to plan for these kinds of shocks, so I think it may be one for another day, but we will have to look at how we administer support for the self-employed and directors in future.

Just before we move on to that, the Welsh Government was keen to say during the pandemic that they offered the most generous business support in the whole of the UK. Were they right to say that?

I think it's one of these things that it's very difficult to read across the piece. Certainly, Welsh Government support on the whole was, from our reading of it, responsive—it was very time-responsive. I think we felt at least there was a good narrative between us and Welsh Government, where it identified need. But, nevertheless, there are groups within the business community, including the self-employed, which did find themselves excluded from support. Now, Welsh Government did move to administer discrete pots of funding, but that doesn't scale up against the volume of funding that was available for those businesses that paid employees through pay-as-you-earn, for instance, and had an employment base or a property.

That certainly was the evidence I saw. Paul, do you have a comment on that specific question?

No, I think it's perfectly summarised there. And I think there's a tendency to believe that those businesses—those micro businesses or self-employed individuals—can actually rely on the private sector to be able to support them going forward. Our view would be that the private sector will potentially struggle, because some of those businesses are already over-geared and the opportunity to draw further funds from the private sector may be limited as a result of that. So, I think, if you ask me, 'Is there a need for targeted, specific funding going forward?' Yes, I think there is, but I'm not quite sure where that is yet or when it will be due.

So, in June 2021, there was talk from the Welsh Government of a business recovery fund. If you were to say to us, 'Well, there are these three or four things we really need now in the period ahead with regard to business support', what would they be?

I think, from a recovery point of view, what we've learned from this is the need for business resilience—we need to prepare for shocks. We know we need to prepare businesses to substantially adapt to the challenges of climate change, and I think it's important that support is aimed at allowing particularly SMEs, who probably have the least capacity to understand the measures that they can undertake to make themselves more sustainable. That is going to be a really important area for recovery.

I have to say, and I want to flag up, that there is a very immediate challenge that is potentially faced by businesses as a result of coronavirus. We're going into autumn and winter; we have a period, obviously, where we have a virus that thrives in indoor environments. There are more high-risk settings within the business community. I noted this week that the Scottish Government has administered a £25 million fund for ventilation of businesses in high-risk areas. I think we'd like to see that taken forward by Welsh Government, recognising the challenges that businesses have, once we close doors and windows in an environment such as this, in making sure that they and their employees and their customers are safe. So, it would be good to have a look at another round of more immediate support that responds to the challenges of coronavirus while we then pivot to that conversation about recovery. And some of that is around, as I mentioned, sustainable development, net zero and decarbonisation, but also questions around the future of Welsh towns and how we remould our town centres is another area on which we'd want to see targeted support.

Okay. Thanks. Then it was climate change and coronavirus recovery. Paul, do you agree with that? Is there anything else you would add to that list? 

I think, from our perspective, that list plus supply chain and people. If we don't address the people issues fairly quickly, I think these businesses will continue to struggle.

Okay. I think the next round of questions will focus on that.

Okay. Thank you, Hefin. If I can now ask Luke Fletcher to come in. Luke.

Diolch, Cadeirydd. I was just wondering if both of you could outline what role you think the Welsh and UK Governments can take in addressing some of the skills shortages in both hospitality and retail?

Yes, I think COVID has exacerbated some of the problems that the sectors were already facing as a result of the reduction in labour from EU countries. And, again, that's come as an unhelpful cocktail—businesses are unable to plan for that kind of eventuality. There are some very well publicised shortages, particularly in terms of hospitality. We know of a member in Swansea, for instance, who's had to close a portion of their restaurant business until Christmas, because they simply do not have enough staff to cover the full breadth of operations. And I think that's played out—. Walking through Cardiff city centre the other day, I noticed three restaurants that had signs on the windows saying they were closed until further notice because they're unable to find the staff that they need. And I think that there is a real challenge in that, because it’s very difficult to train up experienced chefs, for instance, for hospitality where people particularly are administering a quality product.

In terms of some of the remedies, we need to have an audit, to some extent, of the skills available in Wales for hospitality and tourism businesses. I think it will be interesting to see the extent to which Welsh Government’s young person’s guarantee can be aimed at addressing some of these challenges. So, I think we would like to see a conversation between Welsh Government, businesses and providers once we’ve audited or once we’ve understood those skills shortages. What opportunity, obviously, does the young person’s guarantee pose for businesses in Wales? And, similarly, I think there is an opportunity about prioritisation of things like the Kickstart Scheme at UK Government level.

One of the challenges, I suppose, in all of this is that these are, to some extent, medium to long-term measures. The young person’s guarantee, for instance, is not up and running. That conversation is not well understood within the business community. But it’s very difficult to understand in the short term how we quickly fill these places in a way where suitably trained people are in the roles that they need be in, in a way that gives, whether it's a diner, an assurance that the experience that they’re going to get—or, actually, even in the tourism sector—that we’re getting the people that reinforce the welcome that Wales has for tourists to Wales. But there are certainly measures that we can get under way now, and there are schemes that we can get under way now to make sure that we can address those shortages in the medium term.

And did you have any comments you wanted to add to that, Paul?

I think, as Ben says, Brexit and COVID have exacerbated a problem that was already existent in the sector, and I think what we need to do is not just take the orders, but find ways now, as I said earlier, to make these roles attractive, to demonstrate to people that this is a career and it should be a career of choice, that it offers potential, and that it’s not just a stop-gap while you look for something else or a stop-gap as a student. I think we need to try and professionalise some of the skill sets and some of the work opportunities that now exist, which we have taken for granted in the past. We have always assumed that there will be somebody there to serve us coffee, to serve us a meal, to provide us with retail support. It’s actually only now that we find that there’s a vacuum there, and I think that’s purely down to the fact that it has been a staging post, it has been a stop-gap employment for quite a lot of people and, unless we find ways to professionalise this industry, with all of those customer-facing industries, I think we will struggle to recruit the right people into them.

But the key point is the point that Ben made, which is these are not short-term solutions; these are medium- to long-term solutions, which will play out into next year, and I think all Governments have a role to play in providing that guidance and providing the resources to professionalise the sector in such a way that it becomes an attractive place for people to work, at all ages.

Thank you for that, and I have to say I agree with one of the comments that Ben made in terms of the skills audit of the sector—I think that will give us a clearer picture in terms of where the skills are and where we need to improve.

We see a lot of conversation around this relating to the skills shortage and the need for more skilled workers in hospitality in particular, and I approach this as somebody who worked in the sector for about four to five years before going into politics. One thing that I think is being missed out in our conversations around this, actually, is the quality of the work, in particular the unsociable hours, for example, that can be a result of working as waiter or a bar tender. I know I had quite unsociable hours and long hours at that as well. Of course, I still know a lot of people in the sector who are working as waiters and bar tenders who have looked at during the pandemic, in particular the lockdown, jobs that have been offered by Tesco, for example, that are stacking shelves that offer better wages and better hours. So, I’d be interested to know how you see us going forward in improving some of those workplace practices. Because the reality, I think, for a lot of people in that sector is that it's just not really an attractive prospect to be working, say, a 14-hour shift that's followed then by another 14-hour shift, followed by another 14-hour shift, and followed again by another 14-hour shift—you get the pattern I'm going down.

We're aware of that, and we're aware also of the fact that many people have left the sector because stacking shelves or driving a van for Tesco or other supermarkets is more attractive, and it's an eight-hour day. And I think my point about professionalising the sector is creating a working environment—an accepted working environment—which probably needs to be Government led, which says that you don't need to work the 14-hour days. There are people out there who are prepared to work, and happy to work, what we may consider to be anti-social hours, because it happens to suit their own personal lives, through childcare and through education, or whatever. But, I think, unless we create an environment where people can choose to go into that, and employers are willing to take a blend approach to staff, then I think we're going to struggle to fill those roles. Because people are not going to go back into those 14-, 16-hour days, and, like you, I have come out of the hospitality sector—albeit many years ago—where you would happily work 14 or 16 hours a day and back in the next day and the next day and have maybe one day off or one and a half days off in that week. I think what the pandemic has done is it has made people realise that, actually, there are alternative careers out there and there are different lives out there, and it's up to employers and Governments to work together now to create an environment where people can do that.

I can see that Ben wanted to come in.

Yes. I think we absolutely have to be very clear with ourselves and accept the precariousness of employment in some areas of tourism and hospitality. There is no point in kidding ourselves otherwise. That is part of the conversation about how we drive tourism to an industry, maybe not 365 days, but a more sustainable industry that offers better opportunities, particularly in areas of Wales and in more rural areas, where there is more of a predominance of hospitality and tourism businesses, and where the economy relies more on those businesses. So, we, as representatives and employers, have to have a conversation with these sectors and talk about how we not only drive up the offering, but how do we drive up levels of stability and wage levels within that.

Also, I think we need to have a conversation—again, it's more of a longer term conversation—about how we market these. What I hear from businesses when they talk about the sorts of responsibilities that they place on front-of-house staff, for instance, is that we don't capture the skill sets that you get, for instance, from being front-of-house staff within the restaurant—those of accountability, those about the interpersonal skills. We don't market them to younger people as options, nor are they particularly well captured within careers advice. So, I think there is a real package that needs to happen, that needs to be implemented, to make sure that we are creating an industry that is attractive, as Paul says, so that it is a worthwhile proposition for a young person. But I do agree that there is a conversation to be had about driving up levels of fair work, ensuring that the precariousness of some areas of these industries is what people see as the minority rather the majority of instances.

And if I can just come in to add to that, I think we need to look at employment contracts, and I think we need to look at remuneration, because I think it's unfair to base the industry on zero-hours contracts here.

I wonder if you've seen my notes, Paul, because that's what I was about to come on to.

Sorry. [Laughter.]

No, that's fine; it's nice to know that we're on the same page. In terms of the use of zero-hours contracts, which is very prevalent in that sector, I think one way of professionalising the sector is by scrapping zero-hours contracts altogether and providing some of that security and ability to plan as part of the job. So, I'm glad that you've referenced that.

I think there is a balance, though, if I might just add, which is the scrapping of zero-hours contract can't be onerous, therefore, on the employer. So, we need to find a contractual arrangement that suits both the business and protects the employee, and that's the fine balance; that's the real challenge. Zero hours, obviously, could potentially help an employer, because their commitment to that employee is reduced, but, in truth, we can't then impose full-time contractual employment on every single person who may take a role within that business. So, there's a fine balance to be achieved between the removal of zero-hours contracts and a contract that's acceptable to the business. 

I think you're right in saying that there is a balance there, because, of course, there is a power imbalance between the employer and the employee, where an employee could be forced to go onto a zero-hours contract. When we talk about zero-hours contracts, this is something that I hadn't experienced myself, but a colleague had experienced, and, where they were unwilling to take certain shifts, they were then punished by their hours being reduced the following week and the week after that. So, I think you are right in saying that it's about finding the balance and ensuring that we address that power imbalance, of course, between the employer and the employee, so that it's a more level playing field between the two.

I'd be interested, as well, to know, in terms of your consultation around addressing the skill shortage, whether there has been any consultation with those who are at the coalface, as it were. And when I say 'coalface', as well, I don't just mean management; I mean, again, those who are working as waiters, who are working as bar tenders and working as, even, pot washers.

Sorry, my sound cut out momentarily there. Could you repeat the question?

Yes, of course, no problem. I was just wondering if there'd been any consultation with workers in the sector—if I talk specifically about hospitality, again—with those who are at the coalface. And, again, when I say 'coalface', I don't mean management and just management; I mean those are working, as well, at front of house, like bar tenders, waiters, and even back of house—pot washers, for example.

We don't have a line or a sort of route in, if you like, for a conversation with employees. We take soundings from the various structures of engagement that employees have, whether that be through trade unions or whether it be through workforce councils or more informal mechanisms. Now, yes, that is only one side of it. We try to be pragmatic about the wider landscape. Obviously, it's part of the social partnership we work with, and we listen to the concerns that unions bring forward; they may well have more lines into those conversations with employees.

On the point about zero-hours contracts, I think, yes, we want to move away from that precariousness, but we have to first understand why businesses feel the need to levy this, and in some instances it will be because work and income is very, very cyclical for the business, and so it's very difficult to provide that guarantee. So, in the conversation about extending the tourism offering, for instance, we need to understand what it is that inhibits businesses, bearing in mind no business seeks to—no good business, at least—create that precariousness deliberately for an individual. More often than not, there is a real pain felt at that precariousness, because that precariousness affects the business owner themselves—that cyclical nature, that uncertain nature, whether it be tourism or hospitality, that is felt by the business itself, and it is very, very difficult to plan around that. So, we need to have a look at the structural reasons for that precariousness and to start to understand that. 

But I think I agree with you—I think we do need to listen to the experiences of employees, and, certainly in the work that's happening as a result of the Fair Work Commission's report, we are—Chambers Wales and FSB—part of the social partnership that is looking at that. We were really quite interested to push forward the conversation about fair work and the recommendations of the Fair Work Commission's report. What I would say is—and it may well be through simply accident; we've been preoccupied with things like Brexit and, obviously, coronavirus—that conversation about fair work, in my experience, hasn't yet hit the ground with the sort of range and volume that we'd probably want to see. Business are aware of the fair work agenda, but I guess we haven't conceptualised for businesses what is in that report, what it means for them and what the opportunities are for them about tackling that precariousness. And I think that's the next front for us—to look at the recommendations within that report and have a conversation, particularly with smaller businesses, and make sure that the support infrastructure is there so they can reform their business model to make sure that precariousness isn't there.

Would Paul like to come in before I ask one final question? I thank the Chair for his patience here; I know I've taken up a lot of time.

A similar challenge to Ben, we don't have a line of communication with employees. Ben and I both listen to the same soundings from trade unions and other sources. We have this fundamental belief that, actually, most businesses in Wales are good and fair employers. I think the fair work piece that we're working on at the moment—. As Ben says, we haven't quite translated that yet into what does it mean for business, and that's work in progress that we're doing with officials and with colleagues like Ben. What we know is that a lot of the people that we talk to on a day-to-day basis are very good employers and want to treat their employees, their suppliers and their customers properly. Economic challenges sometimes get in the way, legislation sometimes gets in the way, but, actually, most of them are intent on looking after their employees because they value those employees. There are some exceptions, of course, and let's hope that the translation of the fair work project actually starts to help those businesses that may not be in that position to rise to that challenge and to make Wales a fairer place to work.

Thank you for that. I'm sure, as you've probably already guessed, when it comes to the Fair Work Commission, I'll be looking in particular at what is on offer for the hospitality sector. If we come back to some of the remarks you made in terms of your links with employees through trade unions, one issue, of course—and again I speak about the hospitality sector because of my own experience in there—with the hospitality sector is that it is largely an un-unionised workplace. So, I'd be interested to know: is that something you would encourage all of your members to allow in their workplaces, unionisation, to provide their workers with a voice? Of course, I just thought I should probably say as well, given that I had worked in the sector, that I do agree there are some good employers in that sector, some I've worked for—I won't name them. It is important that we realise that, but it's also important that we realise that we need to clamp down on some employers who are poor employers.

I would agree. I think it's not in our gift to promote union membership within that employee base, we have a separate role to that, and I think it is for the trade union movement themselves to carry out that responsibility. From our perspective, any of the businesses that we talk to, whether it be through a formal trade union arrangement or through some form of consultation or collective representation, a lot of those businesses are trading quite well and happily. As I said earlier, there are pockets that need to be addressed, and hopefully the trade union movement and the fair work piece will go to address that, but I don't think it is within our gift to promote trade union membership as a service that we provide to members and companies.

And Ben Cottam.

Obviously, there are statutory obligations that businesses have with regard to trade unions. I think we would always encourage businesses to look at opportunities to increase the engagement with employees, to increase employee voice. Where we see it, the very best practice is by those employers that understand their dependence on their employees, and whether it be through formal unionised structures or maybe more informal structures, we see that there is a really good flow of information. I guess where the challenge is is to make sure that where you have informal structures they are nevertheless clear, transparent and equitable. But whether it be through more informal structures such as employee forums, we've got to recognise that, overwhelmingly, businesses in Wales, and certainly within the sectors that we're talking about, are microbusinesses, and so what we see within those is a very close relationship with employer and employee. Now, that's great, but it has to be equitable, it has to be transparent and there has to be some way, whether formal or informal, of ensuring that the employee has an opportunity to make their voice known. So, in any of these structures, we'd absolutely promote that, but we'd certainly say to businesses, 'Look at the opportunities of engaging unions and forming arrangements', but it has to be driven by the business itself and its employees.

Diolch.

If we can move on, then, to Sam Kurtz. Sam, you've got a few questions.

Diolch, Cadeirydd. Firstly, I just want to declare a relevant interest. My parents work in the tourism and hospitality sector. And, to build on Luke's last point, there are some very good employers out there who offer not only a job in hospitality and tourism but a career. Bluestone National Park Resort in Pembrokeshire is one example who do fantastic work for the employer and sustainably as well for the environment.

I want to touch on trade, if I may. What would you both say, in short, are the main issues facing businesses wanting to trade internationally at the moment, and what can both Welsh and UK Governments do to assist with these issues?

Do you want me to lead on that, Ben? For us, the challenges in trade are the bureaucracy that has been created by the departure from the European Union; secondly, the cost of raw materials coming into the country; thirdly, the cost of freight; and fourthly it comes back down to people, again—having the right skills in place to be able to address some of these challenges. So, let me just unpack some of those, if I may.

Smaller businesses are struggling right across Wales with the complexity of documentation in respect of being able to move goods either in or out of the European Union and to move goods in or out of this country. The delays created by the UK Government in moving some of that testing and moving some of the next levels of complexity further down the road is recognised as being of short-term benefit, but it is effectively just moving the goal posts slightly further down the road. So, we will have to face into it at some stage. I'm not convinced that we have all the resources in place to be able to make those checks effective, on a timely basis, as and when they come about. The level of documentation, the level of detail, ignore the scare stories that started in the first quarter of this year, because you'll always get that when you create a fundamental change at this scale, but I think it is starting to settle down, but businesses are facing additional costs, not just in trading overseas.

And I think there's something that I would like to just introduce here, that trading overseas isn't always just about selling overseas, it's also about the importation process, and those challenges exist in raw materials coming in. And within the manufacturing sector in Wales, 62 per cent of all goods utilised are imported into Wales first. So, we need to consider both ends of the supply chain in that respect. 

In respect of freight costs, it's well publicised. Container costs have gone from $1,000 to $16,000. That is a prohibitive penalty for a lot of businesses to try to cope with. Air travel has increased. It's still running somewhere between 10 and 12 per cent below pre-pandemic levels. Why? Primarily because it's still marginally cheaper for some businesses now to air freight goods overseas than it is to container goods overseas or to import them. So, businesses are faced with challenges on both fronts in respect of documentation and getting goods in and out of the country.

Now, material costs coming into the country is having a profound effect. We're aware of one builder who had a shipment of timber coming in from overseas. By the time the goods landed here in Wales, he was broadly held to ransom at twice the contractual cost. If he wanted the goods, he needed to pay twice for them. And the contract existed, but it was ignored for the sake of the financial benefit of the supplier. So, I think we are seeing very significant material increases. They are striking the construction and infrastructure sectors very hard indeed. Cement, concrete blocks, all of those areas are being rationed. Wood has increased disproportionately. So, material costs, freight costs, documentation are all militating against businesses to try to trade internationally, whether on import or on export.  

If I could add to that, I think it's worth understanding the landscape that businesses now find themselves in. Very few, particularly small businesses, will have any experience of navigating the scale and complexity of the trade documentation that Paul's alluding to. And UK Government instituted its Brexit support fund, which is a £2,000 grant available for buying in services and support, and that was welcomed, but it was more limited in impact than was probably anticipated because it was administered through the HM Revenue and Customs website, which many thought was just for customs. So, there is a need, I think, for another round of that funding, understanding that we need to proclaim that a little bit better to make sure that businesses are able to buy in the support that's required to help them navigate this.

We know recently of three businesses that have re-sited operations, or instituted operations in European countries, EU member states, to try and navigate the complexities. Now, not even that guarantees solving the problem, because all those issues about the variability of delivery timescales, all the challenges about courier charges and the variability of the treatment, the documentation, for instance, in the different EU member states are very difficult to predict. But it's an indication of just the extent to which some businesses are having to go to navigate this, so it's important that we understand these problems. They're not showing themselves as short term, perhaps, as we anticipated early on that they might, and this is obviously a problem, this is an issue that's rolling out with time. But I think the challenge for Welsh businesses, particularly as traditionally they've had disproportionate exposure to EU member states in trading, is that they've gone from that free trading state to having to understand the complexities of trade documentation. So, it's important that we help them navigate that in a way that means they're not looking away from those EU markets, which are familiar, they're profitable and they're beneficial, but understand obviously the complexity and get used to the complexity of trade.

I think it's really helpful and really welcome that the Department for International Trade is extending its footprint in Wales, and so, the idea of increasing that infrastructure of support and how close the ear is to the ground of Welsh business, I think, is very welcome. It would be helpful to understand the extent to which Welsh and UK Government support knits together, though; that businesses aren't confused, that they aren't being asked to navigate what is quite a complex set of official channels and lines. So, with the increasing of that footprint in Wales, we'd like to see and understand the extent to which Ministers and officials are working together to make sure that wherever a business looks there is a seamless opportunity of support. 

Thank you. And forgive me, can I just quickly ask: is coronavirus being used and the pandemic being used to mask some of the issues around Brexit, or is Brexit being used as a catch-all for a lot of global issues that are happening in Wales, or issues that are happening in Wales and globally, or is it a bit of a mixed picture?

I think it's a bit of a mix. It's really difficult to untangle. If I look at, for instance, construction: some of the real challenges faced by construction companies and small house builders in terms of the access to and cost of timber, for instance, which has risen stratospherically in a way that is very difficult to account for in pre-existing contracts and is therefore testing the margins of viability for small house builders to go after plots, then that is a global phenomenon. A lot of that, or some of that at least, is being driven by growth elsewhere in the world, but nevertheless when it comes to import, then obviously some of those challenges are associated with Brexit, and necessarily the virus has had its impact on that import and export activity.

So, I think it's a mix of a lot of things. It's very difficult to unpack, and I would certainly—probably more economically proficient people than me would be able to do that better. But certainly, from what we see, there is a blend of issues and it's very difficult to anticipate from where they come, because our post-Brexit transition, coronavirus and the rise of international markets come from different places. The challenge for me in representing small businesses is helping them to navigate that to the point where they can anticipate how they grow their businesses and in what area.

Thank you. Paul, would you agree that it's very difficult to untangle?

I think it's tremendously difficult to untangle, but let me give you a small example. So, because of our network, we trade information right across our network through 150 similar entities across the world. Most of my colleagues would report that fuel costs are increasing, most of my colleagues would report that material costs are increasing. Very few of my colleagues will report that there are shortages, and I think there's a difference there in the sense that I suspect some of our shortages are not necessarily entirely driven by global impact, but I think they are predominantly driven by Brexit. I'm currently in France—I'm calling you from France this morning. I have been to all of the garages and all of the supermarkets in my area, and the shelves are perfectly laden and there are no queues on the forecourts, but there is a marked increase in fuel cost. So, I think there is the potential that some of this stuff has been masked by COVID. I think, as COVID starts to reduce—and assuming that we don't get a further round of the virus because, as Ben made the point earlier, of us being more inside and being closer back together again—it will become more obvious that, potentially, Brexit is taking the lead as the impact of greatest force here.

Thank you. Paul, could I stay with you, if I may? Chambers Wales, in their response to the committee's consultation, said,

'while international trade is not a devolved issue, Welsh Government should provide clear advice and support to businesses'.

Could you expand on this comment, please?

It goes back to an event that took place when Eluned Morgan was Minister for international, and she asked us to bring together 20 or 25 businesses into Tŷ Hywel to talk about the issues facing international trade. That was quite an explosive discussion, because many of those businesses reported very openly that they welcomed the Welsh Government's support but they found it incredibly difficult to navigate because it came from so many different areas, and potentially took time to deliver. One particular company referenced the fact that they had made an application to go on a trade mission overseas, and by the time their application was approved, the trade mission had actually taken place and was past. So, our comment is really based on the fact that, while officials, independently, across Welsh Government, do an excellent job, I think there is a need to draw it all together into some form and signpost it very clearly so that businesses who don't have the intellectual or time capacity to be able to navigate governmental complexities are able to access the support that they need on a day-to-day basis in a timely and simple way.

Thank you. So, obviously, throughout the pandemic we've seen business support from Welsh Government that's been incredibly fast, and that has gone to the industries required quickly, with minimal bureaucracy, and it seems that, if that can be replicated in normal day-to-day proceedings, there's evidence that someone wouldn't miss out on a trade trip because the deadline's passed, before or after the trip has taken place. Is it that the wheels of private sector turn so much faster than the wheels of public sector? Is that a fair assumption?

What the pandemic has done is that it has levelled the world to a certain extent, and nations across the world are now striving to find a new competitive edge, they're striving to find their place in the marketplace, they're striving to get to a faster level of recovery. Wales needs to step up and do that, and I think it has a fantastic opportunity to be able to do that. What we need to do is to make sure that the support structure that's in place operates at the same pace, and without complexity, as the entities who need that support and who will effectively drive that economic growth, and that is the private sector.

Thank you. And finally, then, to develop that, how could the Welsh Government develop or improve Wales's offer on trade and inward investment? Is it through that streamlining, or are there other additional measures that they could quite easily undertake?

I think it is about streamlining, I think it is about simplicity, and I think it is also about potentially utilising resources within the private sector to help them to deliver that.

Thank you. Ben.

Yes, if I could. We talked about knitting together all these threads and making sure that there is clear point-of-entry support, and the FSB's advocated the creation of a development agency that would be part of undertaking that work and bringing this all together, but also create a single point for the capitalisation of the brand. A lot of this trade and export activity neatly segues into our offering in tourism, for instance, and the way that we're seen internationally. I think there is benefit in having that conversation about what a development agency that could administer that might look like. I think what's clear is that Brexit provides opportunities for us to project ourselves in a new way, but challenges for us to draw together all those, for the reasons that we've heard. There is a need for businesses to have better support infrastructure in place, and I think we'd like to understand in the longer term what Welsh Government's approach to the projection of the international brand, and the projection and support of businesses to trade will be, but I think there is merit in a conversation about bringing together a body that will do that and be very business faced. 

Thank you, and just one more, if I may. 

Very, very briefly. I'm conscious time is marching on.

Yes. I'm just wondering, are you satisfied with the current brand Wales when we're looking to increase our overseas trade?

I'd have to say that I'm not, and I would support Ben's concept of the fact that we need an external agency, predominantly private sector-resourced, which is lean and effective to be able to develop that brand Wales across the world, which not just addresses trade, but it also addresses tourism. 

If I could just add a quick point to that, the brand is owned, effectively, by Welsh Government at the moment. We've always advocated a closer conversation with businesses, whether they be tourism businesses, whether they be exporting businesses, about, 'What does this brand mean?', and if we can get that community of net promoters, then they project the brand for you, but at the moment, when we talk to businesses, they don't feel an ownership of that brand. So, we need a new re-conceptualisation of the brand, and we need to give some of that brand to the business community so that they can go out and do some of the projection for us. 

Thank you very much. I'm conscious that time is marching on, so if I can ask everybody to be as succinct as possible. I now bring Vikki Howells in to ask her set of questions. Vikki. 

Thank you, Chair. I wanted to explore the tourism sector in more detail, but some of that has already been addressed. In fact, I was going to ask you about the wider Wales brand that has already been covered, unfortunately, by another Member. But if I can start, Ben, by asking you about the comment that the FSB included in your consultation response that rebuilding the tourism sector will involve navigating both

'opportunities and risks in the post-Brexit and post-Covid economy.'

Could you expand on that a bit for us?   

Yes, certainly. Obviously, with the restrictions imposed by COVID, we've gathered a massive internal market for tourism. Obviously, members within the tourism sector saw, once the restrictions were lifted, a really welcome uplift in their activity. And, certainly, that's provided an opportunity for us to look at the proposition that we have here in Wales—amazing landscape, a really warm welcome, some really good leading-edge businesses within tourism, both large and small. Unfortunately, businesses probably weren't well prepared for that volume because it came unexpectedly and, obviously, as restrictions on international travel between international markets have ebbed and flowed, it's been very difficult to understand the portion of the market that Welsh businesses will get. 

Clearly, we recognise that that influx of visitors in places like north-west Wales and my home patch in Pembrokeshire has put its stress on those communities, and not least the business communities in those areas. So, it has tested the infrastructure in those areas, and that's been quite difficult to navigate. So, understanding what we know as a result of COVID, where we seek to increase market share and draw more international travel into these communities, we do have to have a conversation about how tourism businesses mesh with communities. We have to have a conversation about supply of skilled and sustainable labour in those businesses to make sure there is a consistency of offering within tourism economies. 

But, as I say, post Brexit, we are engaging in new trading relationships with countries that we probably haven't previously had much engagement with, which provides an opportunity for us to showcase Wales. But I think, along with those opportunities, we need to look at the capacity of the sector, the offering of the sector. When we looked at the challenges and opportunities, we didn't ignore the fact that an influx of visitors into some of these areas didn't provide its own pressure. And I don't doubt that there are businesses within the tourism and hospitality sector that, as that calms down a bit, breathe probably just a sigh of relief, because it has been fast paced, albeit welcome to see businesses returning to some level of profitability.

Okay, thank you. I won't ask you for your comments on that, Paul, because I can see we've only got five minutes left and I think there are about seven questions that I and other Members wanted to ask. So, if I could just move on to the next question, then, it builds, really, on the answer that you've given there, Ben, and some of the issues that you were posing. Making Wales a year-round tourist destination is of course the ultimate goal, but how can the sector actually be supported to give it that greater resilience and sustainability to enable that?

We can't control the weather. That's the first problem. That's always going to be the first challenge. I think, though, it is about the imagining and the projecting of the experience outside season. I speak as someone who's quite happy to travel to another area of the UK to walk on a windy beach and sit in a pub. But I guess, more seriously than that, it's about understanding the offering. Not everyone can be a Zip World. Not everyone can be a Bluestone. But there is something about how you create an interrelationship with hub attractions like those—that when people are drawn to them, they are also drawn to the accommodation or hospitality in proximity to that. 

When you look at hospitality and tourism, that represents a vast proportion of Welsh businesses and foundational economy businesses. We need to find a better way of knitting that together. But I think, in the same way as we support businesses to innovate in terms of process, we need to be targeting specific support at businesses within tourism to innovate, to market themselves more effectively. By and large, these are businesses that don't have a lot of money to be able to market themselves. They might have a great proposition, but it's not seen or heard necessarily by the widest possible market. So, there is an opportunity to push support into those areas that help create capacity, but also understand that if they have a key attraction that is nevertheless popular out of season, that they can capitalise on that, so we need to make those connections. And FSB is a part of that; we can't just look to Government. We have to be better at linking with other organisations—like-minded organisations—and doing a better job of putting businesses together.

If we look at some of the lessons we've learnt from the pandemic, particularly in terms of outdoor hospitality, so many small businesses have made use of the Welsh Government funding now to improve or introduce an outdoor hospitality offer, with covered seating and so on. Do you think that that will have a knock-on effect into trying to make Wales a more year-round tourist destination?

Yes, I do. It's created much more versatile businesses, and that is part of increasing and understanding that offering. For a hospitality business that now has those facilities, it has innovated—it has created that. We have to look, though, at some of the challenges associated with that. For instance, we're now seeing across local authorities charges levied for tables and chairs in outside settings, and those charges can be really, really quite variable, to a point where businesses will say, 'Well, is this disproportionate to the benefit?' So, we need to look across Wales, make sure there is a consistency with the ways that things like those charges are explored, but also, as I say, administer the funding support and the marketing support that means that they can capitalise on those facilities. But it has been great to see the way in which hospitality businesses in particular have created a bigger window for trade through outdoor trading.

Thank you. Paul, I'll bring you in, if there's anything else you wanted to add.

I would agree with Ben, and this year-round resilience and the interconnectvity, for me, starts with the brand, and I think we've got the opportunity to be able to refresh all of that now, to make Wales a year-round attraction, because it is a year-round attraction. And I've experienced a wonderful hospitality business that has converted an unused back yard into their new dining room—a covered dining room, open on three sides, heated. On match days they'd even put tvs up for people to watch. So, hospitality businesses are prepared to do it. I think we need to make sure that the bureaucracy doesn't actually just slow that all down and make it uninteresting.

Thank you very much, Chair.

Thank you, Vikki. And finally, Carolyn Thomas has just a few questions to ask. Carolyn.

I just wanted to make a comment about the skills shortage. I talked to Coleg Llandrillo and they said that they offer courses for hospitality and tourism, and very often, there isn't always the market here in Wales for someone to move on. So, that's just another dimension to it, really. 

These questions are about a fair and green recovery. Are there any innovative approaches to business support that the Welsh Government could adopt in order to support a fair and green recovery? And also, the extent to which the economic contract has driven behaviour change, both within Welsh Government in relation to funding decisions, but also amongst businesses that have signed up to it.

Shall I take that? If I could take the last point first, the economic contract. We've been quite heavily involved with Welsh Government at the various stages of the existence of the economic contract. I think we've agreed that the something-for-something approach is absolutely something that we should be promoting. There is a lot within the contract, and so unpicking what it means for businesses is really important—so, the translation of the economic contract. I think there is a challenge in getting businesses to understand exactly what they're engaging with. It's called a contract; it's not quite a contract. So, it's not terminology that is understood, necessarily, by most businesses.

I think also, it is quite heavily weighted, obviously—. We hear, quite rightly, about some of the elements of the contract, such as fair work, for instance, but also within the contract, addressing some of the challenges around mental health, for instance. So, we'd like to see the contract explored for all the elements that are in there. Decarbonisation, for instance, is in the economic contract and that's going to become really quite important over the next few years. So, I'm unsure, but I suspect that most businesses don't really understand what the contract is there to do. Businesses have signed the contract as a result of some of the Welsh Government support during the pandemic, so you have a significant cohort of businesses that are now brought within the contract; what we need to do is make sure that they understand the opportunities of engaging with the subject matter within the contract.

I think the way you want to promote these themes such as fair work, such as mental health and decarbonisation—it can't simply be left to the contract. Only a small proportion of businesses in a normal year, at least, would have any exposure to Welsh Government support indirectly or directly. Now, these are behaviours that we want to drive up in businesses wherever they are. So, we can't limit this to conversations around the contract, but I think we would like to see what comes from the contract refresh. We've given views to Welsh Government as to what that should do, what that should look like, but the translation of it is really important because we want businesses to own the contract for themselves rather than seeing it as an obligation that is placed upon them. And Welsh Government needs to understand its offering to the contract over and above simply funding support. 

Perhaps you could share with the committee what you have requested from the Welsh Government to make the contract more clear to businesses. Could you provide that in writing, please? Thank you.

Yes.

And Paul Slevin.

I have little to add to what Ben has said. Ben and I have been involved in the process of the refresh of the economic contract and trying to understand what it means. So, little to add. But the issues that it faces are massive issues for businesses—that whole piece around fair work, the mental health issue that has been created or has been amplified by the pandemic, and I think the issues around net zero. Our ongoing quarterly analysis shows that somewhere like 87 per cent of businesses in Wales haven't yet or don't understand how to engage in the net zero discussion, and I think that's a real challenge that we're facing. Because as scope 3 declarations come about within net zero, I think that that could have a material impact on the supply chains within Wales. You know, we are a nation of small manufacturers, and if customers like Ford, Nissan or Airbus or whoever have to make scope 3 declarations that their entire supply chain is moving towards net zero, then I think businesses need to start to expedite activity in this area at a time when bandwidth is low and exhaustion is high. It's another layer of challenges that business faces. If the economic contract highlights that, that's great, but we need to make sure that there's action behind each of these areas too and that businesses own that contract.

Thank you.

Thank you, Carolyn. Well, I'm afraid time has beaten us, so, on behalf of the committee, can I take this opportunity to thank both of you for giving up your time this morning? It's been very, very useful; it's been a useful session for us as a committee. We'll send you a copy of today's transcript for accuracy. If there are any issues, then please let us now. Once again, thank you very much indeed for giving up your time this morning. We'll now just take a very short break and we will resume in about five minutes' time. Thank you.

Bore da. Suzy Davies. I'm the new chair of the Wales Tourism Alliance.

Diolch. Sara Jones.

Bore da. My name is Sara Jones. I'm head of the Welsh Retail Consortium. Welsh Retail Consortium is part of the British Retail Consortium; we're the trade association for UK retailers, representing around 70 per cent of the UK turnover of the retail industry.

Thank you. And David Chapman.

Hi, I'm David Chapman, UK Hospitality Cymru, executive director for Wales, and we represent virtually every element of the hospitality industry, from pubs, restaurants, hotels, clubs, events—rights across.

Thank you very much indeed for being with us this morning. Perhaps I can just kick off with a couple of questions regarding, perhaps, the significant challenges that businesses are actually facing at the moment. What do you think are the significant challenges that businesses are facing at the moment? And how do you think that the Welsh and indeed the UK Government can actually support businesses in facing those challenges? Can I perhaps start with Suzy?

Happily. Obviously, tourism covers a wide range of businesses. Obviously, we're thinking of hospitality, but it'll cover things like attractions as well and stately homes, anything through to the castles that we all know about. It also includes secondary spend destinations, so things like cafes and pubs. Everything is interlinked within the tourism sector, and so any answers that we give today will have knock-on effects, even if they seem to be targeted at particular types of business.

So, it's been a good summer in the sense of we've had more visitors in Wales—day visitors and those staying over. But that disguises a number of challenges as well, because many of the bookings that have been taken in accommodation settings, for example, are effectively rebookings of those that had to be cancelled during lockdown last year, which actually limits the amount of available accommodation anyway. That's exacerbated by something that we should be celebrating, really, which is higher demand this year, as quite a lot of business that perhaps would have gone abroad has come to Wales for the first time. But that demand has come into a sector that not only is having to deal with the rebookings, but a loss of skills and personnel and, to a certain extent, limits on things like food deliveries, which have impacted particularly on pubs and restaurants. And all that in combination has produced quite significant challenges for those who are running tourism businesses at the moment, and, if we’re thinking about the Welsh economy as a whole, actual things like the mental health of people running these businesses is something that we certainly want Welsh Government to understand is happening and to take seriously.

I think there are five essential ways of turning the tourism industry into something a bit more resilient and capitalising on things that we've learnt during the pandemic. I would like, I'm sure, some other people to speak here, but it's effectively things like making it easier to get here; recognising where skills fit in to the economy of Wales; understanding that Visit Wales perhaps needs more investment itself to deal with marketing and certainly research; some work around destination management, which is referred to in the action plan prepared by Welsh Government, but that needs to be accelerated, not left to long-term planning; and then, ultimately, as I've already hinted, understanding where tourism in its widest sense can really contribute to well-being in Wales and the communities of Wales, the resilience of communities in Wales, and not just be a great thing for visitors to do.

Thank you, Suzy. Sara.

I think we can sum up the current challenges in two ways, the first being the huge uncertainty that the retail industry is currently facing, and I'm sure that will be the same for both tourism and hospitality. And also the driving cost pressures that are really creating a cumulative burden for the industry right now, being borne right out before the key period for us—the golden quarter ahead of Christmas.

Just to give Members a bit of a snapshot of where we are at at the moment—in Wales, we are seeing consumers returning to store. Footfall is down, but we have seen a fairly positive summer period. However footfall is down around 25 per cent on two years ago. Most concerningly, I think that's in city centres and shopping centres. Some of our shopping centres are down 60 per cent in terms of footfall, and I think there needs to be a real consideration of that when we look at some of the Government policies that are coming through. Vacancies are up—we're seeing that one in five shops now, typically, are vacant on our high streets. That's obviously of concern. And we've seen a real change in terms of consumer spending. We're all consumers, we all know those changes that we've made ourselves during COVID. We saw retail sales spike to around 65 per cent during the pandemic; that's back down to about 40 per cent. But, clearly, the way that we choose to shop has changed beyond recognition and, indeed, the sort of things like how we use and we spend now. So, 80 per cent of transactions now are done by a credit or debit card, so, again, there are challenges around that. That's a bit of a snapshot.

In terms of the costs and structural challenges, quite clearly, HGV driver shortages, that's on everyone's minds at the moment. That's causing pressures—pressures in the supply chain. Those COVID mitigations: we're estimating around £20 million has been invested by retailers in COVID mitigations. Those continue to add weight to cost pressures. We've seen those increases in employers' national insurance contributions. Again, that's been borne by retailers disproportionately, and just that general sort of uncertainty picture that's playing out at the moment. So, I think, as we move towards that golden quarter, as I say, before Christmas, it's quite a concerning time for the Welsh retail industry.

Just very briefly, Chair, just in terms of what we'd like to see, some of the immediate things: action to bring consumers back into store, entice consumer spending, bring people back to city centres—so, there's lots of action that could happen there; potentially a voucher scheme like Northern Ireland—crucially, reform on business rates, but also that we don't see a cliff-edge position post April next year. And we need to see some progression on the Welsh retail strategy, which the Welsh Government has brought forward and which we very much welcome.

Thank you. David.

Yes, thanks. I think I'll just start by saying that we're in a completely different world, and I think we need to look at how we address the issues that the industry has, alongside the issues that you're looking at, in terms of a holistic solution, and I'll be coming back to that over the course of the different questions that we'll be answering.

Looking on the positive side of things, it's worth remembering that this industry added £3 billion to the Chancellor before COVID, and we employed 140,000 people and another 40,000 people in subsidiary supply industries across Wales. So, the impact of this industry was perhaps below the surface before the epidemic, and one positive impact of the epidemic has been the recognition of how important we are to the economy, and, in fact, how essential we are to the economy. And I think that relationship offers an opportunity for us to further that in the coming year, and I'd like to look at what I think are some exciting opportunities as well as some quite serious challenges.

Looking at the challenges alone—because I'll come on to staffing, I'm sure, in further questions and our skills issue, and also how the Welsh Government can help us—but just looking at the challenges, it has to be remembered the industry's gone under extended restrictions in Wales more than with our colleagues across the border, and we've had two periods of substantial hit, which was pre Christmas last year and early/late summer, if you like, 19 July to 9 August. We were still under heavy restrictions or closed, whereas other colleagues weren't. So, the industry really hasn't traded viably between March 2020 and 9 August this year, and that's left a huge hole in the ability of those businesses not only to reinvest but to survive.

Now, looking directly at the challenges that we have: if you look at the pub industry before COVID, all of you would have probably been aware of the way that village pubs and many other pubs were threatened, and that was at 100 per cent trading, because of small margins and changing habits. Well, that position has obviously been exacerbated over the period that we've had.

Direct problems ahead of us in the next, say, eight, nine months in particular: we're facing, really, a cauldron of costs, which Sara related, and it certainly extends into our industry. The cost burden is likely to be hugely increased on those businesses that are actually very precariously based at the moment. Just look at the business rates holiday ending in April—no interim arrangement as yet for that; so, a cliff edge, possibly, facing businesses on that—VAT returning to 20 per cent; the end of furlough; we've got wage inflation; we've got problems with our price sensitivity with the public. So, there's a ceiling on what we can charge, whereas costs are really escalating. Cash reserves have been decimated, loans have to be repaid, and deferred VAT is coming up, energy costs are soaring, and the city centre problems still exist for a lot of our businesses. So, you can see that there's a whole range there. It is a cocktail of costs that will impact, and that is bound to go right through the chain and mean that there's job threatening and business sustainability threats. That's the gloomy side of things. In the rest of the conversation with you we'll hopefully be able to look at ways that we can make that easier and work together and bring the industry back to its pre-COVID position of being 10 per cent year-on-year growth, and being a major employer throughout Wales in every community.

Thank you very much for that. If I can now bring Hefin David in to ask a few questions. Hefin.

I wanted to ask about the end of furlough and self-employment support. An interesting comment was made in the previous session that, actually, the end of furlough might actually have a positive effect on the flexibility and availability of labour supply. Is that a view you share?

Shall I go first on that one, then? Furlough's been particularly helpful in the tourism sector during this COVID period with—. I think it's almost a half of staff within the industry were able to take up furlough, which is—to compare with other sectors, it was between 14 and 16 per cent. So, the availability of furlough has kept some businesses going that perhaps would have fallen by the wayside. However, during that furlough period, there's been about a 40 per cent reduction in full-time jobs in the wider tourism sector. So, there's now a jobs gap as well as a skills gap. There's a question here as well about where the industry fits in to plans to improve skills development across all sectors in Wales, when we're looking at a future where innovation is everything and people will be doing jobs in 20 years' time that we've never heard of today. But it does need a skills mix because of that. So, the lower pay, more flexible end of the market is still valuable for people perhaps coming into the industry, for students, for, primarily, women, who are looking for flexible work, but there's a job of work, I think, as well for the industry and Welsh Government to do in raising the status of the visitor economy within Wales, and I was disappointed to see in the action plan for COVID recovery for tourism that there's no mention directly of further education and higher education institutions, and part of that is critical in raising the status of the industry. Obviously, you don't need a degree to do everything in tourism, quite the reverse, but it doesn't help if it's constantly portrayed as a low-value and low-skills industry. And I'm—

Suzy—

—slightly disappointed that there's an over-reliance on the regional skills partnership, bearing in mind comments that the predecessor committee made.

I think we'll come on to skills. We will come on to skills, but I don't want to get too much into skills. I'm still interested in this idea, which you touched upon, that furlough actually causes people to be frozen into specific roles, whereas the ending of furlough will create that flexibility. Are we overestimating the value of that? I suppose it's a 'yes' or 'no', really.

I don't think there is a 'yes' or 'no', because 'we don't know' is the answer. We are talking about businesses that are so uncertain about their own futures that we're not sure what risks they're prepared to take in taking on new staff.

Okay. Okay. Sara and David, do you want to comment in the same way?

I'd echo what Suzy Davies said: there's still a huge level of uncertainty. It's undoubted that furlough was a lifeline for many business, but, with the end of the scheme, I think it's very apparent that jobs can, obviously, only survive as long as those businesses and shops are still in place to support them. So, we're going to need to keep a very close eye on things. I don't have a 'yes' or 'no', I'm sorry, to the question that you've raised, other than just to say that we don't see any direct impact from the end of the furlough scheme itself on our industry. What we do have concerns about is the indirect impact that that's going to have in terms of potential job losses in other industries, which then impacts in terms of household incomes, consumer spending power et cetera. So, there's that wider concern about indirect consequences from the end of the furlough scheme.

Just to add—most of it's been covered—I think we'll only really know from the ONS in about 30 days' time. The one point I want to make is going back to this theme about integration and holistic consideration of where we are, and it is that what we have noticed now—I will come back to other points like this in the staffing side of things—is that people have made lifestyle choices and that the conditions are not the same as they were before. And so it's very likely that, when the reality of furlough ends, people will be looking for something else that they want from life, and it may not be the same job, it may not be the same working hours and it may not even be the same location, and I think we're going to see a fluidity across the labour market on that, not just for us. We, of course, are in a difficult position because we've largely been shut compared to some other industries, and so coming back is a bit more of an unknown.

Yes, I think we're in a period of off equilibrium, I suppose is what you're saying—

Yes.

—we haven't hit equilibrium. With regard to self-employed people, one of the things the Welsh Government have said is that their business support package through COVID was the most generous in the UK, but, of course, self-employed people are in a slightly different position. What do you think the impact on those self-employed has been and will be, and what is required for those people? Go on, Suzy, you go first. [Laughter.] You're unmuted.

I think it's good to be variable. It's worth taking on board David's point that people have made decisions during COVID about how they want to run their lives from now on, and we may find that, actually, more self-employed people enter the tourism sector. I think we need to be slightly wary of consultations on things like second homes that are taking place now, which, potentially, either will put off people coming into self-employment within the tourism industry, particularly in self-catering, or the converse, of course. So, watching out for unintended consequences of discussions that are taking place on something that is not directly related to this.

In terms of things like business support, I think it would be fair to say, actually, that there needs to be some clarity within our sector on what constitutes businesses and what constitutes casual entry into the tourism market, if you like, and particularly in letting. But in terms of cash flow, which I suspect is what you're asking about for those who are already self-employed, the summer has been good for some people, but it's not a reliable indication of what future demand is going to look like, and I would be urging, I suppose, Welsh Government to be a little bit flexible on things like the short-term loans that people were having during the COVID period while some people may not quite be ready to pay it back entirely yet, but are on the way to doing so.

Well, that does bring me on to the next question, I think, which would be helpful to put, and if you want to refer to the previous question, as well, Sara and David, that would be helpful, if you want to. But what we're looking for often as a committee, as Suzy will know, is what can we actually say needs to happen. So, what are those things, in sector-specific business support, do you think the Welsh Government should be offering now in the period ahead? And don't be afraid to be very prescriptive If you want.

If I may, we don't look for a great deal of specific sector support as an industry in the retail industry, but I'll refer back to my previous answer around business rates. Because of the lack of certainty about what's happening next April, the businesses that I'm talking to on the high street—it's causing them a huge level of concern, so I think if we can get some cost certainty around what that position's going to look like after April, that would be hugely beneficial. There are other areas that we're looking for support around, and some of this is at a UK Government level as well, so, around the moratorium on the rent arrears and the debt enforcement around that. We're looking at some support around the arbitration process, to enable that post March, so that we've got some certainty around that. But there's not a huge amount in terms of direct financial support that we as an industry are calling for at the moment, but clearly it's a bit of a watching brief, depending on what happens over the next few months with COVID and any potential—hopefully not—further restrictions.

Suzy, you mentioned specifically the repayment of loans, is there anything else you would add?

Yes. Sorry, you wanted specific answers. I was just going to add that perhaps some Government focus could go on to attractions, in particular, which are still in a position where they can only have small group bookings or no group bookings at all, and, obviously, it's volume that creates business in some of these places. They may be more vulnerable than, perhaps, the accommodation sector, for example, in needing direct, short-term support. And if I can throw this in here as well, I think, actually, Visit Wales could probably do with an injection of investment as well for reasons that perhaps we'll come on to later in the session.

Okay. David, do you want to round that off, and I'll call my questions to a close at that point?

Fine. To go back to what we were talking about just a little bit earlier, the self-employed position, I'm not going to be at all critical in any way about the support the Welsh Government gave us, because, first of all, we've had brilliant access through regular taskforce meetings with the Minister that was responsible for us throughout the period of time, 48 different meetings weekly, and that meant we were able to input. Now, that sort of consultation is fantastic, and I'd like to see that continue at that sort of level right the way through, because we can help you to design and implement some of the policies that you've already got and wish to pursue.

That's the Welsh Government, rather than the Senedd. 

Yes.

We are just as much trying to influence as you are. 

If you listen to this shopping list now, you can do us a favour. [Laughter.] We're coming back with—. Business rates—Sara is spot on. We work together. I must say, and I'm sure Sara will back this up, I thought we had a very good hearing and understanding of our case at a round-table that we did last year, from three Ministers who attended. And I would hope that there has been some input there into a very progressive policy that I saw was announced at the Labour Party conference this week about abolishing business rates. Now, that is brilliant. We've all got to find £27 billion from somewhere else, which is another question, but it's a really positive step forward, because our industry—a bricks and mortar industry like a lot of the retail sector—is paying a massively inverse amount into this system. I would ask for a relief system. That relief system needs to be thought about from April, otherwise we have a 100 per cent holiday going to nought. That will cause difficulties. If we were able to find a way of tapering ourselves back into a position—hopefully a reformed position from 2023 on, but certainly into a substantial position, that would be really helpful. 

Your help, please, as politicians to campaign to keep the lower VAT rate for the industry would be very important to us. That is really important. We've had a great response for the last 10 years since I've been discussing things with people inside the Assembly as it was then and now the Senedd, there's been great support, I think, for the idea of the VAT rate for us, and I hope that that will continue, to try to persuade the Chancellor to do that. It has made a very big difference.

Looking directly at things that could be done, I think a substantial contingency fund to support struggling businesses in the hospitality sector would be useful in the next nine months in particular. I think we're going to find that, with this rise of costs, the uncertainty, the unknown in terms of how public involvement—how customers will react in the pre-Christmas period, the post-Christmas period, whether they will still be holding off, as they are in some areas, about going out and mixing and mingling. We don't know what the market will be like. It's quite likely that we're going to be hit with some serious challenges, and I think having a fund that businesses could draw on with a legitimate checking point through that to see how they qualify would be useful, as would easily accessed grants, I think, for aiding investment in products. It has to be remembered, we're going into what is really the fifth winter, in terms of our industry. I know a lot of businesses who invested six-figure sums into their businesses in 2019-20 and then found in March that they were shut for six months or more. And, as a result, their repayments accumulated, but there is no hope on the back of that of them reinvesting in their product. And if we don't reinvest in our product, competitively we fall below other parts of the UK and the overseas offer, and that reduces our ability to be able to be sustainable as well.

So, we've done a lot of work in the past. UKHospitality and its predecessor, the British Hospitality Association, helped design funding of this sort for the foot-and-mouth crisis, for instance. I know that's going back 20-odd years, but it was very effective. If we find ourselves in difficulties, it would be good to be able to act quickly and smartly on that. We also helped design, for instance, a £1 million fund through WRAP Cymru to help investment in environmental changes in businesses, and we also helped produce the tourism investment support scheme, which produced something like £5 million-worth of draw down from our industry and helped to bring it really up to speed in a very short period of time. And that was some years back. So, we can work with Welsh Government and yourselves to actually develop these schemes and to implement the schemes if necessary. But I think the industry would be looking for that. 

Finally, I'd like to suggest that there are imbalances with where we are at the moment between the regulated and the unregulated sectors in our industry. We've seen a substantial rise in Airbnb and similar rental properties. The prices of properties are escalating, it's difficult for staff in many areas to be able to afford to live in those areas. And, at the same time, we have something like, I think it's an estimate of something like 16 different taxes that each business has to accommodate, which obviously doesn't apply directly to the unregulated sector.

And my final one is to say, having set up the hospitality skills partnership—which I think is a major achievement for us in Wales and a really great way for us to be able, medium to long term, to take ourselves out of the current cycle of staffing difficulties—if you and the Government were able to invest substantially in that and help us to continue the good work that's already been set up. And I will come back to it in staffing time and skills time, but Government involvement in, for instance, in the current recruitment campaign—which is something we recommended—is brilliant and it shows great partnership involvement; it shows the right way forward and that's what we want to see more of.

That's quite a list there we're going to need to go through in the wash-up session and in future correspondence with the Government, but it's very helpful to have that perspective. Thank you.

Thank you, Hefin. If we move on now to Luke Fletcher who's going to ask a set of questions. Luke.

Diolch, Gadeirydd. I'd be interested for you to outline the causes and effects of the skill shortage being seen in the workforce at present, particularly in the hospitality and retail sector. 

Shall I come straight in on that one? I've alluded to it earlier really, and I think what we have to do is to be really smart-thinking and clever on our feet here about changes that have occurred in society. I think it's a long-term shift. Homeworking, different hours, realisation for some people of mortality, if you like, of looking at what their life has in store and how they want to change things and move maybe into a different career, different place to live, different way of doing—. We're seeing coastal living increasing.

So, the furlough gave people a sort of period to contemplate, and that has led to an area of shortage in our industry where people who we thought would be coming back have actually decided to do something else, and they're not coming back. Uncertainty in our industry is another major difficulty. Because of our stop-go position over 18 months, and the already precarious nature of some sectors and some elements of those sectors, I think the people who work in them are craving the stability. I think the COVID crisis has probably done that as well. So, although we know we are a substantial sector and will be bouncing back, because we're very resilient and able to do that, it'll take a bit of time and people perhaps have to be persuaded after the shock of what Covid brought about and that uncertainty is another factor.

The third thing, I'd say, is competition. Retail has done pretty well in the last few months, while we've been shut, and certainly a lot of our alcohol sales have gone that way, so I can understand people wanting to move into retail for instance, from us, in some parts of retail anyway, but there would be other areas where they don't feel that, or they feel that they can get more maybe, in the delivery area, where people are paying more.

So, there is an element of that in there, and the unregulated sector is taking some of our people. Certainly, I would say the cleaning area, where our hotels are losing cleaners to self-catering in the local areas, that increases in size. And then, of course one of the major factors is the migrant labour position. As an industry, the hospitality industry had something like 25 per cent migrant workers across the UK, of which about half of those were EU. I know in Llandudno, before COVID, there were something like 50 per cent in that area. And we commissioned a KPMG report looking at the implications of this, which we gave to the finance Minister—the then finance Minister—and the First Minister afterwards. And I know in conversations we've had with him, he's said that he took those arguments to Westminster Government about the implications of the cliff-edge exit. I don't think anybody thought, because when COVID came along, it created a cliff edge, and so we've had sizeable holes in the staffing position to be able to fill.

So, all of those contributing factors have impacted pretty near at the same time, plus labour-intensive restrictions. Just to give a small example: I know of a hotel that has a pub on site; they had five people working in that little pub. As a result of the labour-intensive restrictions, they needed nine people, but in fact, they could only get three people because of the staffing crisis. Now that's just a very small equation, but you can see how it impacts directly on trying to run an efficient, sustainable and attractive business.

And I think there's also been regional imbalances, I would suggest as well, because we've got price sensitivity that's different certainly to some areas of England, where they can charge higher rates for the product. So, if you put all that lot together, it's all short term, I think, but it's a big short-term issue and how long that short term is we're not sure, but we certainly would like to have some help with that, which is where I go back to saying that the vehicle for the short to medium term is the hospitality skills partnership. The recruitment campaign is great because, as Suzy mentioned earlier, we do have a number of misconceptions about what the industry is. When people think of hospitality, they don't think of highly paid jobs in HR, management, accountancy and marketing, which we offer in many places, and certainly management. Management are people who are young, where the progression chain is swift and effective, and you can be a general manager at 23 of a hotel.

So, the opportunities are there, apart from having a lifelong career and a career that allows you to travel the world and operate virtually anywhere. We do have a large number of pluses, but there's a negativity that needs to be overcome, and I think we found that as a residual within the careers, and education and parents, when people were looking at possibly considering their future in our industry. That's partly our fault because we've not been very good at getting that across, so we need to get our act together and do that, but at the same time, with Government help and some Government resources, we can legitimise and widen that argument very quickly, and that is what I hope the partnership will be able to do.

Perhaps I can come in on this one just to reiterate that last point of Dave's there, about the value of a career in hospitality/tourism and the wider visitor economy, because obviously it is a wider visitor economy we're talking about.

But just to answer the questions on the short-term effects of the situation we've been in recently, as well as what Dave has already mentioned, I just want to reinforce that point again about owner-managers. We're a small and medium-sized enterprise industry primarily, in Wales, and staff shortages have meant that the owner-managers of all kinds of businesses are exhausted. I have to say this isn't just applying in Wales, having been to East Anglia on holiday fairly recently and speaking to pub owners in particular there, they have exactly the same problems, they're utterly exhausted, and again, it's the secondary industries that feed into this that have also been affected. So, I think, Dave, you mentioned cleaners, but it's not just the chefs and the cleaners, it's also things like the building maintenance companies, the small enterprises where people come round and fix up the caravans and so forth. We're actually going to need some extra capacity in those job territories when you think that many of our operators are going to be having to move their boilers over from gas into something else fairly swiftly, and lots of our operators are going to have to be offering electric vehicle charging posts. We need people who are actually capable of installing all this stuff, and actually that's one area, perhaps, where Welsh Government might want to think about capital investment, because it's not just going to be the tourism industry that needs a bit of support on those infrastructure upgrades, it's going to be other industries as well.

And from a retailer's perspective, in terms of retail skills shortages at the moment, I think all of us can agree that the way in which retail careers are changing has been accelerated, obviously, because of COVID. We're seeing more digital needs, more customer-facing focused type roles that are coming in, so there's a big challenge there—I think it goes back to the point that both David and Suzy have said—just around the profile of the industry and retail careers. We know that retail careers are a great driver for social mobility; they're hugely meritocratic. I've got great examples with my retailers where we have people who started work at 16 and have gone on now to run hundreds of stores as managers across Wales and the west, for example. So, it's a great place to have a career, but how we present that to young people and to school leavers as a career option has to be something we work very closely in partnership with Welsh Government on.

More generally, I think we need to see reform of the apprenticeship levy. That's a UK Government levy, but clearly the impact of that is seen because we are UK-wide businesses paying into that, but the money, accessing it for Wales is quite challenging because it's Barnettised and there's not a clear route to accessing the levy funding. Quite clearly we need to access that money to be able to invest into our level 2, level 3 apprenticeships, those gateway apprenticeships that help people into their retail career and to grow and progress.

And then just, obviously, the immediate one at the moment: we have a shortfall in HGV drivers. That's all over the news. We know the problems behind that. There's not one single problem, it's an accumulation of different issues, and we've been working with the UK Government around that and with the Minister Lesley Griffiths, from the food retailer perspective, and she's been very supportive in terms of the engagement we've had with her. A challenging picture, but one that I think we can turn on its head and present retail as a really fantastic place to have a career, and one which we want to work on with Welsh Government to present in that positive way. 

Thank you for those answers, and I hear what you're saying in terms of hospitality and retail being a place to have a career. I myself know a number of people who, like you say, Sara, started at 16 and became managers at an early age, and that's something that is to be commended. But, of course, there's a part in between, isn't there? We talked—. Well, I think all of you talked about some of those negative views around hospitality and retail, and I'd be interested to know how you think we can look at breaking down some of those negative views because, from experience, some of those negative views can ring true, especially for those people who are on the coal face, who are bartenders, for example, in hospitality—and that's where my experience is—where they are working long hours, for example, and unsociable hours. We had a very interesting discussion with the previous panel about professionalising the sector. I'd be very keen to hear your views on that element as well.

Do you want me to kick off on that one? Yes, I'm not going to disagree with that last point, actually, and I think there's a role here for businesses within the industry more widely themselves, as well as Welsh Government and things like our colleges and higher education institutions. I mentioned earlier on that you don't need 18 degrees to be successful in tourism and hospitality, but having this career, not structure exactly, but career opportunities that are well broadcast and well defined will help. It certainly adds value. This is going back about 10 years or so ago now during the crash, Barcelona, obviously in Catalonia, had a huge tourism industry, and it was about the one thing that survived when all the accountants and the lawyers and all these high-level professions were crashing. Their university saw a big influx of people from what we would consider to be the professions going into tourism, and tourism strategy and management and development, I suppose. So, there's definitely space for this idea of a professional and high-status industry.

Again, we've got to bear in mind that the majority of our businesses are small and medium-sized enterprises, and that we want them as either owners-managers or small employers to up their game on not just recognising that they're part of a bigger picture, but being willing to upskill people who are working for them. There's got to be a recognition that they need the time to do that as well and, at the moment, they absolutely don't do that. This is a conversation that really, if we're talking about the skills partnership, needs to involve the SMEs to find out how this information can populate the need to upskill and be professional, work their way into SMEs. It's almost the same kind of question as, 'How do you improve Welsh language skills within businesses?' You have to get the space for that discussion to be had, and those skills to be acquired. 

So, we've probably got a lot of ideas in common on this with Welsh Government, but recognising that businesses need time to learn how to improve other people's skills is a question we've got to answer, somehow, and that can only be done in genuine conversation with SMEs.

Just adding to Suzy's point and answering your question, Luke, on what we can do more, I think we can strengthen the links with the regional skills partnerships as a retail industry, so work more closely with the RSPs. I mentioned the flexibility in the apprenticeship levy. We need to be able to have greater access to the money that we as retailers pay in. Given the very narrow margins that we have now and the massive cost pressures, the ability for us to be able to find the funds to upskill, to train, for example, that's very much been reduced over recent months because of all the cost pressures that we have.

I think we can do more with Welsh Government as well. The Welsh Government did a fantastic campaign when Ken Skates was Minister, which was looking at people returning to the workplace and supporting and promoting retail as a great place to return to work. We'd like to see something similar for the school leavers, to do a focused campaign on that to try and increase the prospects and attractiveness of the industry. So, I think there are lots of initiatives that we can do. 

I think just a final point I wanted to make: over the last 18 months we've seen an unacceptable rise in abuse and violence towards shop workers, and that's something that needs to be addressed very strongly, because—I'm trying to think of the figure now—I think it's over 450 incidents a day that we see in terms of violence and abuse—across the UK, that is—and only 6 per cent of those incidents actually end up making it to court. Now, with the Police, Crime, Sentencing and Courts Bill that's going through the UK Government at the moment, we want to see a specific sentencing or offence around assault and abuse of shop workers. So, I think there's something there that the UK Government can do to try and address that problem, because clearly that's impacting on people wanting to come into the industry when they see this awful position that many shop workers face on a daily basis.

Can I add to that last part, to respond, because we've noticed it as well within the hospitality industry that there has been a sort of less temperate attitude? We had some members report—. In fact, it was made public, I think, that staff were having money thrown at them and were being invited outside for a fight. Most of it seemed to have originated around the conflict in restrictions between areas, where people who didn't understand the restrictions thought they were having a personal restriction applied, I suppose. But that doesn't help us to recruit, because our people don't deserve to have that.

Going back to the question, I think what we've got to do as an industry is to ride this new wave of thinking and to lead and to look at how we can accommodate people in the lifestyle choices that they want within what is often a restrictive business. Whatever we try and do, you have to recognise the fact that most people when they want to go out to enjoy themselves like to do that in hours between 5 p.m. and three in the morning on Friday and Saturday, and so that's when we need people, and it's the same, I think, for other parts of the industry where they're offering evenings out and Saturday nights are obviously very important. So, we are restricted in the sense of what we can do.

But I think, given the nature of changes that have occurred in society through COVID, the increase in home working and a feeling of more taking control of lives, I think we can do more now and should be doing more on how we can accommodate that and attract people on the back of that accommodation. I think that's part of this suggested sort of holistic solution that we need. I don't think anything should be prescriptive and I certainly don't think anything should be silo based, because if that happens it becomes a distraction away from the whole and what can be achieved. We've got to play out part in it, but I think essentially it's got to be a clever sort of jigsaw of components to get us to the maximum position we can as an industry, to employ as many people as possible and to re-energise the economy in the shortest period possible.

I'd also be interested—. We talked about silo working there, briefly. I'd be interested to know what sort of engagement your organisations have with the hospitality and retail sector, in terms of consultation with workers on the coal face. So, when I say 'the coal face', I don't just mean management; I mean bartenders, waiters, even pot washers, and how they can feed into this process in informing their own workplace of things that need improving in the long term.

I'll come in now. One sort of innovation over the last three months is that a lot of our managers are now pot washers, because they've got such a shortage of staff that they've ended up having to do every job that is going within the business at any hour whatsoever. And so, if anything, many of them may have begun there, but they're certainly coming back to that and understanding the position that's going on at the moment.

I think what I found really helpful was that alongside the taskforce meetings that I mentioned earlier, we had regular across the hospitality industry meetings during the pandemic, and union officials and other officials—police and local councils and licensing people—were on those calls. That helped us to bypass a lot of confusion and, often, confrontation that can occur, particularly with, say, licensing implementation, by just talking directly to people and explaining the positions and looking for where we could have some sort of flexibility here and there. Reports were coming back all the time, and very often in tandem with the reports I was getting back from our members, reports from other contributors, about what was happening on the ground. So, I think it would be helpful for us to continue those. I know they will continue anyway, because they're a very good way of imparting information, but I think those sorts of get-togethers are useful in helping us to assimilate and to direct new policies as we go through, and I think that's a good thing. But, generally, our members are very, very close to the staff. Many of them are part of that staff; they work very closely with them and we do get solid representation back from them, I think.

Similarly, with retail, it's exactly the same picture. Many of our representatives on our Welsh Retail Consortium group, for example, will be people who've worked their way up through the career pathway in retail, will have started off on the shop floor and will be still working very closely with their colleagues. And just to say, echoing David's points, during the pandemic, we worked very closely with the Union of Shop, Distributive and Allied Workers. So, with the trade union, we developed, with USDAW and Welsh Government, the guidance in terms of safe working and return to safe working, and those relationships are really strong and they continue to be strong. So, it's about continued engagement with them and more generally, with the workforce. But retail is a great place in terms of an ability to have a say and have a voice, and great employee engagement.

And just briefly from me, just to reiterate the point that this is a sector with a lot of small and medium-sized enterprises where the management and the pot washers are not often next each other—it can be the same person, as Dave said. One of the ways where the voice gets translated back up into Welsh Government is the route that Dave has mentioned and I hope that that will be maintained. It's starting to slide a little bit at the moment, I think would be fair to say, partly, I suspect, because of capacity within Visit Wales. I wonder if we'll have a chance to talk about that a little bit later on; it's somewhere that needs more rather than less capacity. But also, I'm here on behalf of membership organisations, where our smallest businesses join membership organisations, destination management organisations, and they're part of the route of feeding in from the front line right through to Government through organisations like ourselves.

Diolch. We've got quite a few questions to get through and I'm just conscious that time is marching on, so if I can ask everyone to be as succinct as possible. If I can bring in Sam Kurtz now to ask a few questions. Sam.

Diolch, Gadeirydd. Thank you, all three, but forgive me, because of the time constraints, I'm going to focus on retail and Sara particularly, if that's okay. So, forgive me, Dave and Suzy, that I won't be touching on any questions for your specifically.

Sara, ahead of the Senedd elections earlier this year, the Welsh Retail Consortium set out its key recommendations for the next Welsh Government. Have any of those been taken on board so far, and if so, which ones? And what are your expectations in terms of delivery of these aims?

It's still fairly early days, but there certainly has been some development and action, which is great. One of the key areas of interest for us and priorities for us was the development of a Welsh retail strategy. And I referenced him before, but Minister Ken Skates at the time was very supportive of this ask, and it's actually been committed to now by Minister Vaughan Gething, so that's really positive. Obviously, it remains to be seen how quickly that will advance, but it's a key thing that we think will help support our sector, working with us in partnership to develop the enabling activity that we need to allow us to grow and to flourish.

I think a couple of the other key points under that manifesto we put forward as a sector were around business rates. So, again, it's still a bit unknown as to what's going to happen post April. And one thing I haven't mentioned is that we're really keen to see more frequent revaluation. So, before we see the fundamental reform hopefully eventually come in, we need to see a commitment to more frequent revaluations in Wales, because England are looking to move towards that way, Scotland already has, and Wales is going to get left behind if we don't move forward on that. So, that's something we're looking for.

And, as I say, the commitment around business rate reform and what's going to happen post April—you know, it's quite stark that we're looking at four in five retailers, I think, potentially looking to close premises, those multiple retailers, unless we see business rate reform. And then, as I said before, the apprenticeship levy, skills, more funding in skills—again, we're waiting to see what comes out of the budget this year from the Welsh Government. How that's developed will be of interest to us and we'll get to see, then, whether or not some of our asks have been followed up by the Government. 

Thank you. On business rates, you mentioned more frequent revaluations, but in terms of reform, what are you as a retail sector looking for in those reforms, specifically?

I think that's the million-dollar question, hence why we've not managed to get to grips with how we fix this broken system. I think all I can say is that we're 5 per cent GVA of the economy, and yet, we're paying almost 30 per cent of business rates. So, at the moment, retail disproportionately is impacted by this system because it's outdated and because it's fixed on bricks and mortar. What we're looking at is potentially looking at things to incentivise investment, so potentially seeing rate relief come in that could enable us to make investments in other areas, for example in terms of the green economy, but effectively, just a substantially lowered burden on retail, which shoulders a great deal of the business taxation that's already in existence. 

Fabulous. My final question: retail is predominantly seen as a town-centre—not any more, obviously, but the town centre has been a key part of the high street, as it were, in retail units. Humour me for a second, but if you imagine a simple high street, you see the shop floors, where you enter into the shop, and then above there are vacant, sometimes, premises of the shop buildings, which are used for storage. One argument that's been put to me by retailers to increase footfall in high streets is by reinventing these vacant areas into accommodation units. Is that something that you would see as an opportunity to bring more people into town centres to get them spending their hard-earned cash on high streets?  

Yes, definitely. I think we need to be looking at the multichannel approach to this. It needs to be a mix of residential, office space, leisure use, tourism use and retail use. High streets will no longer just be seen as retail destinations, nor should they be. They should be about experiences and creating a place that people want to live, shop and spend their leisure time in. So, absolutely, we'd support that. We'd be looking to the planning systems and local planning authorities to look at how they can bring empty spaces back into use. We know there's an oversupply—an abundance—of retail floor space that is no longer going to be needed, given the transformation that's taken place. So, we need to be working closely with the LPAs and with the Welsh Government on how we can really reinvent our high streets and town centres.

Fantastic. Thank you, Sara. Diolch, Chair.

Diolch, Sam. If I can now ask Vikki Howells to ask her set of questions—Vikki.

Thanks, Chair. I've got some questions around hospitality and tourism. I think, David, you've already covered some of this to start with, but if there's anything you want to expand on, I'm just looking to have an overview, really, of the experience of the sector over the summer and any concerns for the autumn and winter period.

Thank you very much for raising that. I think what I want to get across is that it would be easy for external observers to get complacent about where our industry is at the moment. It looks like there are a lot of people out there filling up the businesses, and you have to look at the bookends to that; you know, the 18 months of no income—virtually no income—and the prospect of a very difficult winter. Those three months at the very most—two months, really—may have been good, but they've not really got us anywhere back into establishing the footing that we needed to invest in those businesses and to make them competitive. But, it's brilliant to see that the public still have the faith in our industry and, also, how essential we are to other areas, such as well-being, celebration and memories, which I think everybody has now realised over the COVID period are things that are really precious.

Thanks. Suzy, is there anything you wanted to add to that?

Yes, just to reinforce that point that even though it has looked like a busy season, some of the accommodation, at least, has been filled by rebookings for people who had to delay their bookings and all of the rest of it. But, there has been some good news as well; for example, in campsites, there has been, apparently, a much greater number of younger people using campsites for the first time.

Going back to what Dave was saying about creating memories, we want to create, don't we, a habit of coming to Wales on holiday, if we possibly can. The sooner you do that the better, in families, and as people's income changes over their lives, hopefully as they get older they'll come and spend longer and spend more in Wales as well. So, if we're looking long term we need to invest at that end of things as well.

What I really hope is that some of the negative stories that came out about hotspots and all of the rest of it will disappear from memory. They're incidents that are related to this year in particular. They've obviously shown some weaknesses in our infrastructure that definitely do need dealing with, but, overall, the prospect of coming to Wales is great.

What I hope doesn't happen is that because we've had so many staycations this year, people don't just turn around now and say, 'Oh, we've done Wales,' and never come again. Hopefully, of course, we'll get people to stay here rather than go on their foreign holidays as well, because, obviously, we did benefit from people coming here instead. I hope they enjoyed it.

Yes, I would agree with that, Suzy. In fact, it was the thrust of my question to the First Minister just last week about how we can make sure that we continue to benefit from the tourism economy. One way that we could do that is by looking to make Wales a year-round holiday destination, rather than just the summer. What are your thoughts on that, Suzy? Is it viable? How do we do it?

Well, if we had the answer to that last question, we'd already be doing it. But there are some things that can happen now, and one of the things that I think is worth mentioning again, because I don't think we say this often enough, is quality. People will stop coming to Wales if they've had a bad experience. It's critical that we make sure that they have a good experience, and, while we'll get the odd person who, for example, complains, because they can't get an Uber or Deliveroo in the middle of mid Wales, they've learned what having a holiday in Wales can mean, and it's probably exceeded their expectations. There are some ways that we can look at this. In another meeting, I daresay, we'll be speaking of registration of businesses, to make sure that quality is maintained; you can't just rely on Tripadvisor. But there's also an understanding that people do want different experiences. David's just mentioned that.

The 'shoulder seasons', as we call them—Easter and from now on—we are still seeing some bookings coming in, and it looks like there are more full weeks being booked, rather than just long weekends or middle weeks. So, it looks like people have noticed Wales. There's a job for Visit Wales to do now to keep that visible, but, then, there's a job at local level, through—. This is the destination management question, which involves local authorities, Welsh Government and private businesses to make sure that, when people come to Wales, the quality in what they're looking for is here. That includes things like public toilets, car parks, shops not closing at 3 o'clock on a Monday, businesses being open at lunchtime for meals, even if it's quite quiet. Those conversations can only happen locally. Obviously, strategically, Visit Wales will help. But we have a gap at the moment on strategic destination management. It's too fragmented, particularly in the south Wales area; it's better further up. And that's why I would like Welsh Government to look at this now, rather than as the last thing in their action plan. I'm sorry it's a bit of a dry answer, but there is a structural issue here that will help with the resilience round the year. 

That's really useful. Very interesting, thank you, Suzy. David, is there anything you wanted to add to that?  

Yes. First of all—I know we're running out of time—can I do a quick advert? This is our prospectus. It's got all of our policy areas in it. It was devised for the Senedd elections, and it's current for three years. I'd very much like to be able to come along and have a chat with each of you for, possibly, 20 minutes or half an hour in the next term, to be able to talk through these issues, and to see where you might be able to help, and, also to innovate some of the ideas that are in there. 

Let's look at three areas where we could help to extend the season. I think the first thing is that we're not making enough of what is a fantastic set of sectoral businesses. We tend to separate them. We've got a brilliant events business, including the new convention centre, the Royal Welsh Show and many other target areas—the Eisteddfod, and lots of gigs and sporting occasions. I think we can build on that and support that sector. I think we've got a great food and drink industry, and that can be built and supported more. It's about integration, so that each part of the hospitality industry, including the events and food and drink part, make more of what they do, and to combine in a way that would assist more sustainable development for all three areas, by crossing sales and by helping each other, but, also, with Government support to build.

The second one, I think, is investment and support. I mentioned it earlier, but, if we can improve that product, more people will come to us, rather than go somewhere else, and that's the end of it, really. They will go to where they can get great experiences, where they have great service, and where they have a great food offer or beverage offer. We've got to make sure our businesses are up to scratch with that, and they are pushed. Cash reserves have gone, as I mentioned earlier. So, helping that area has got a really big effect in terms of economic gain.

And the last thing, I think, is an adjustment of school holidays. We've been asking for this for some time. I think that many families without so many resources are finding it hard to go on holiday during the school period. Also, we get a very hotspot time of six weeks, when there is a lot of activity, and, around that period, it's not so much. If we were able to spread that about—. Now, I would counsel against any extension around the Christmas period, because I think the Christmas period for all of the hospitality businesses and many other retail and everything else would be busy anyway, in a normal time, and hopefully they will be this year. But certainly, in terms of the main traditional season, we could extend the different holidays, I think, to accommodate that, and spread it around, particularly when England offers a different time, and that means that some people would be able to go on holiday here, perhaps at more affordable rates but, more importantly, maybe more than once. That’s going to help as well. So, they’re just three things to throw in.

But as my final point, I think, on all of this, really, it goes back to this integration and holistic solution. We can offer a sustainable solution, but we need to be able to be supported. Survival and renaissance for this industry, really, means more local employment, and more local suppliers thriving, including those self-employed businesses like florists and all of those subsidiary industries that help with weddings and venues. When more local food is supported, fewer food miles occur as a result, and when you’re looking at encouraging local people to dine out, and they have a resource without it being closed, they then don’t drive as so far and use local businesses, and that circular economy is really important. So, we need to think around all of that, because everything must now contain sustainability, but not only environmental sustainability; it’s economic sustainability to allow us to input as much money as we can into Government so that you can spend it on public services, health and education.

Okay. Thanks. We're over time already, and there's a whole other area of questions that we haven't managed to cover, so if I could ask you both, extremely briefly, starting with Suzy, with regard to Welsh Government's 'Let's Shape the Future' document, could you give me your one top thing that you would like see in the action plan?

It’s a pretty good action plan. One thing that’s missing from it is a real understanding of it being a small and medium-sized enterprise business economy in the main. My second point would be that point on destination management—it is still too fragmented in the south, and it needs coalescing in order for Welsh Government to get a really unified picture and that holistic picture Dave was talking about.

David, one thing from the action plan.

I’ll be as quick as I can with this one. I think we’ve got to remember it was based on pre-COVID economic assumptions and how the industry was then. I think we should look at revisiting it. I think we should look at how we can, all together, help with big sustainability issues, and I’m looking at environmental issues there, about how we can make sure that visitors to Wales yield the biggest return as possible for our businesses, while causing the minimum possible damage to the environment. And that is really the big question—it used to be $64,000 I think, but probably the prize show has gone up to over $1 million now, but it’s certainly that big question. We’ve all got responsibility that we must take to try to resolve, and I think we should look at how we can do that in some sort of question-and-answer exchange.

Thank you, both. Thank you, Chair.

Thank you, Vikki. And finally, if I can ask Carolyn Thomas to ask a few questions. Carolyn.

Thank you, Chair. I’ll keep it brief. David touched about the green recovery there and the importance of it, which is something I wanted to touch on as well. Also, just regarding the economic contract, how has this driven behaviour change, if it has so far? So, some of the things required in the economic contract are regarding fair work and progress in reducing the carbon footprint. So, just some feedback regarding that, please, and the green recovery.

I will be really quick as I've hogged this last bit. Again, look at the new conditions. Since we’ve got back to full opening, I think we’ve increased wages—I think our chief executive said yesterday—by 19 per cent. The basis of the policy considerations behind the economic contract need to reflect the new dawn and the new position that we’re in, and, at the moment, we are paying very high rates for people to be working with us and trying to balance that into a business plan. That’s good news for everybody, providing it enables us to have sustainability about businesses and long-term futures for all those people who work with us.

A final point, back to the same thing: a holistic solution. 'Let’s Shape the Future', economic contract—they’re just two. Why don’t we get them all in together? We need that to be a combined thing. We can’t transform our industry over night against a policy directive unless we get great support in every other area, to help this huge transition takes place that meets what the new age wants from us in terms of being employers and businesses.

Thank you. Sara, do you want to come in now? You've not spoken for a little bit.

Yes, thanks, Carolyn. Just briefly, we as an industry are not typically that engaged in the economic context, but I would say that the sorts of things that the Welsh Government is looking to deliver through it we're doing already as an industry. So, for example, we have our climate change road map. As an industry, we're looking to deliver our ambition for net zero by 2040. We're very much, I think, leading the way in a lot of these areas already in terms of green economy and green recovery.

And then, on the fair work side, a couple of weeks ago, we met with what's now being established as a retail forum to talk specifically about the fair work agenda. But just behind that, I think, again, there's a perception issue, because, actually, retail pays well. If you look at the total reward package from retail, it's actually very positive. And in terms of the way in which retail wages are increasing, they've been much more accelerated than in other aspects of the economy. So, for example, between 2008 and 2020, wages rose by 44 per cent in that 12-year period, whereas in the rest of the economy it was 30 per cent. And, indeed, wages rose faster in the retail industry in Wales than in any other region or nation in 2019. So, there's some really positive messaging there and there's of course more that we can do, but we're working closely with Welsh Government on that. I think it's quite a positive and constructive relationship.

Okay, thank you. Suzy, do you want to come in?

Yes. Thank you. Just to refer back to that point of decarbonisation and the need for proper electrical infrastructure, and the need for businesses to get past needing gas boilers and putting different boilers in and all the rest of it, there needs to be security of supply and there needs to be recognition that electricity costs in particular are very expensive in the UK. I appreciate the UK has a part here—it comes up in the steel conversations all the time—but the warning, then, is, 'Welsh Government, please don't do anything through green taxation that makes that position worse'. The fact that the tourism industry has clocked the fact that eco-tourism—and I use that in its widest sense—is actually a seller is something that we should latch onto, because that's the kind of new style holiday people are looking for, and we should just maximise that. Thank you.

Thank you.

Thank you, Carolyn. I'm afraid time has certainly beaten us in this session, but can I take this opportunity, on behalf of the committee, to thank all of you for giving up your time today? This session has been an interesting and a very useful session, so thank you very much indeed. We will send you a copy of today's transcript for accuracy, and if there are any issues, then please let us know. Once again, thank you very much indeed for appearing in front of us here today.

Thanks, all.

Thank you very much.

Diolch yn fawr.