Finance Committee

Okay. Our substantive item this morning is the second supplementary budget that was laid earlier this week—no? Yes, earlier this week. Last week—yes, I'm getting confused. There we are. Last week, it was laid. So, we've got the Minister with us and her officials. Are you able to introduce yourself and your officials, please?

Yes. I'm Rebecca Evans, Minister for Finance and Local Government, and I'll ask officials to introduce themselves.

Bore da. I'm Sharon Bounds, deputy director of financial controls at the Welsh Government.

Bore da. I'm Emma Watkins, deputy director for budget and Government business in the Welsh Treasury.

Thank you very much. Great. Okey-dokes. Well, we'll start, if I may, by looking at the economic situation impacting on affordability plans for 2023-24 and how the Government is planning to respond to those pressures. The supplementary budget follows the financial update in October. Can you summarise the processes you've gone through to prioritise the areas for additional allocations and identify underspends leading to the supplementary budget? And can you explain if anything has changed from that statement you made in October—any substantial changes or anything else that has been put into this supplementary budget, please?

Yes, of course. Thank you for the opportunity to come before committee today. At the time of the update that I provided in October, we were obviously trying to deal with some significant pressures that were being felt in year, and making those difficult decisions about reprioritising our resources. And that was particularly to look at how we respond to the pressures in the NHS, but also, rail as well. And I know that we provided quite a bit of information at that time.

So, alongside that particular reprioritisation exercise, we also maximised the use of our reserves and also planned on using consequentials, which we expected to come from the UK Government and requested that switch from capital to revenue from the UK Government, and also made a combination of revenue-to-capital savings in our departmental budgets, which I've referred to. So, since then, we've continued to closely monitor the financial position. All colleagues have to work towards their revised main expenditure group totals.

We've got a very robust monthly monitoring process in place, and Sharon can perhaps elaborate on some of that. It involves working across Government to understand the position. I meet monthly, then, with officials to discuss that and it involves looking at the updated forecasts of spend across all of the different MEGs. I also have regular discussions, bilateral meetings, with colleagues as well in terms of monitoring their budgets and understanding the pressures that they're facing, or opportunities, if underspends are emerging. Those meetings are particularly regular with the Minister for Health and Social Services because of the size of her budget, and then, other Ministers, outside of our normal bilateral meetings, might ask for specific meetings to talk about particular issues, and I'm always happy to do that as well.

In terms of, I suppose, significant things that you'll see in this supplementary budget, one of them does relate to work to reduce the deficit reported by the health and social services MEG. There's been an awful lot of work going on in the NHS to reduce the deficit, but the latest forecast did indicate an overspend of £59 million, so, we've provided for that in the supplementary budget.

The uncertainty of what might have been coming forward in the UK Government's supplementary estimates obviously meant that we took a cautious approach. I'm sure we'll have the opportunity to go into some of the detail of that as well, because things received more funding than we'd anticipated. And the Chief Secretary to the Treasury didn't agree to our request to switch up to £200 million from capital to revenue, but just gave us the Barnett share from what transpired from UK Government changes.

Looking back at, obviously, all the conversations that we've had—we've had meetings, we've talked about it at the draft budget stage, we've talked about it in October—given all of those conversations and questions that have been posed to you, are you happy with the course of action that you took, going back, really, to last August and all the way through? Looking back at it, would you do anything different?

I think it was definitely the right course of action at the time, knowing what we did about the size of the pressure that had emerged across Government. I think, potentially, had we known that the size of the consequential funding, coming very late at supplementary estimates, was going to be of the order it was, then we could have taken different decisions in year. Also, had we known that the UK Government wasn't going to agree to the request to switch capital to revenue, then, potentially, we would have not made changes at that point to our capital plans. So, I think that the kind of certainty that we have at the year end, if we'd had even just some of that at that point during the summer when we were undertaking the reprioritisation work, we could have made, and would have made, I think, different choices.

In the communications plan around that, obviously, we had an indication in August and not a lot of information then until October. Is there anything else that you could have done differently to take people on that journey with you, or are you quite happy that you were communicating as openly as possible during that time?

Yes, there was quite a bit of debate at that point in the summer as to whether or not that was the point at which to tell people, 'We've got this £900 million pressure, we're going to be taking action to address it, and it will involve some difficult choices across Government.' We could have waited until October and then just revealed the outcome of that work, and it was a finely balanced decision, because we knew that people out there in organisations in public services were already feeling the pressure. They could see that there were going to be pressures on the budget. So, on the one hand, it did give the reassurance, particularly, I think, to the health service, that we were addressing the issue, but, equally, I know it did cause concern then amongst others as well. We were just trying to be as transparent as we could be, but it was finely balanced. We could have not said anything and kept it all until October.

Talking about health, you did give the bulk of the extra money that you found to health. You also asked health to make some in-year efficiencies, and you've mentioned there's still a deficit, is there, within that MEG? Are you happy that you're monitoring—? You talked about those conversations and those meetings that you had, regular meetings, with the health Minister. Are those the sorts of conversations that you were having and trying to see how that was being managed?

I'll bring Sharon in on this point in terms of the discussions that our Welsh Treasury team have with officials managing finances in health as well. But, yes, I do think that the NHS has worked really hard to bring down the deficit. It's probably not quite where we want to be yet, and we've made some provision in the supplementary budget, but the funding is going to the health MEG to balance the MEG, rather than to individual organisations. But perhaps I'll bring Sharon in to give a bit more detail.

Just on the process that we have, it's a well-established, robust monitoring process that we have. It happens every month, we get revised forecasts in from across the entire organisation, both from a systematic point of view—so, the figures turn up through our system, what's been loaded as far as forecasts are concerned—and then we get a report from each MEG, which is signed off by each either deputy director of finance or director of finance in that area.

That gives us an opportunity to look into those numbers and challenge, wherever necessary, to ensure the robustness of what we've been provided. And then, all of that gets consolidated into a monthly report, which is then provided to senior officials within Welsh Government, both at—. So, we have a sub-committee of the executive committee, and recommendations and the position are discussed there, and also then, the executive committee also are provided with that, all on a monthly basis, so, there's a lot of input. There was obviously quite a lot of interest in what has happened this year, because of the challenges that we faced. So, yes, that has happened all throughout the year and continues to do so.

I was just going to say that it's worth adding as well that I report monthly to Cabinet. It's usually in the form of a paper to note, but I might speak to it if I feel that it needs a bit more explanation. And that then offers Cabinet the opportunity to see where we are in year. So, I've been doing that probably about a year now, or—?

At least.

So, it's something relatively new in my time in this role, but we felt it was important, especially when budgets are really stretched, that everybody has that kind of transparent view of where the pressures are across Government. And it's important for transparency, but then we can also, as a Government, collectively own the pressures as well, because I think that, as we've seen this year and looking into next year, it requires, often, collective action to manage those pressures.

Peter, you had your hand up, but it's gone down. Did you want to come in on this?

Yes, please. I thought somebody had taken my hand down for me. By the way, we can't see the Minister—I don't know why—on the cameras this morning. We're only looking at each other. But anyway, that's an aside.

I was just wondering—. We really welcome the additional money going into health—everybody would agree to that. But I know that something probably that resonates with Mike as well is: what reassurances does the Government take that the money is being used as well as it can be? Because, often, you can put money into service areas where they declare a pressure and that will rectify the numbers, if you like, but how can we know we're getting the best value for our money? Has the Government considered an assessment of how the health system is working to make sure that we get the best value for every pound that we put in? And obviously, that's a big piece of work, and I just wondered—. Certainly, if I was in Government, I would be wanting to take absolute reassurance that, when I chuck another £450 million into health, it's going to actually really deliver what we expect it to.

The health Minister and her team would probably be best placed to describe the scrutiny that she puts into the health service in terms of how that money is spent. But I'm going to ask Emma just to say a bit more about our overall approach to delivering value for money and perhaps a bit more about our 'Managing Welsh Public Money' document, and the way in which all officials across Government have value for money and managing Welsh public money in a proper way as part of their training in many cases, and so on.

Yes, certainly, and Sharon may want to come in on this as well, but we are, as officials—we're all responsible for managing Welsh public money. Some of us in teams such as Treasury and financial control and our corporate teams obviously have a laser-sharp focus on that, because it's a key part of our role, but it is an expectation of officials right across Government.

In terms of the role that we play in supporting the Minister and the First Minister, when we consider advice that's coming up to Ministers about proposals with funding considerations, we do have a look at a core set of value-for-money considerations; we look at economic considerations and implications; if necessary, we look at the social considerations; and if there's a big funding area, we obviously would look at a business case as well and follow the Treasury Green Book rules. So, it is something that is incumbent on us as civil servants, and it's a particular focus for our team in Treasury. I don't know if Sharon wants to add to that from her perspective as well.

No, I think you've covered it off quite well there actually, Emma, thank you.

Thank you for that. Going away from policy, I suppose, and those MEGs, you talked a lot about forecasts. How accurate have the forecasts been? Because obviously, if you're monitoring it on a monthly basis, you'll know what your variance to forecast is. Is that tracking quite closely? What's the maximum/minimum deviation, I suppose, from those forecasts and how accurate are forecasts in relation to actual spend? [Interruption.] That's good to know.

I think I'd say that it is fairly accurate. I mean, it is forecasting—there are always going to be variances, things are always going to change and that's one thing that you can guarantee, but the processes that are in place—. And there's a risk-based approach to those areas where the highest volatility is—obviously, there's more governance around those in the shape of statistical models and sign-off and who's involved in those forecasts.

But, yes, in terms of tracking, we actually don't see a lot of variance in the month-to-month—. Although the formal forecasts come through on a monthly basis, we have very good relationships with officials, so, the message always is, 'Don't wait until you have to report on a monthly basis. If something happens, then obviously, let us know.'

Where there is greater risk, in a sense, is that it's not always Welsh Government that is delivering. There's a series, there's a chain of delivery partners, so, there's only so much you can do at the Welsh Government level—you are reliant on what forecasts are coming through, whether they're from local government, health boards, even steps beyond that. But there are processes in place that try to assure all of those forecasts as they come through. So, in terms of variance, it is—. I wouldn't say that there's no variance, of course there is, but it's not hugely volatile, given the size of the budget that we're trying to manage.

There is variance, because, obviously, you've found underspends.

Absolutely.

I'm just trying to understand the process you go through to get to that point.

And if I can just add as well, sometimes we drive those underspends. So, if there are pressures that we need to manage, driving underspends and underspending deliberately is part of the strategy that we can deploy as well.

Thank you very much. The decisions you've made in this supplementary budget help in terms of reducing the budget pressures and the demands going forward. Given the stark funding position going into 2024-25, are there any knock-on effects from this supplementary budget into the final budget that we'll be discussing on Tuesday?

One of the key elements is that we were able to carry forward some funding over and above, or outside of, the Wales reserve into next year, so, that does mean that we are able to have a modest reserve available to us in the next financial year. So, that's been, I suppose, one of the knock-on impacts for next year. That is £43.9 million. So, that, as I say, is able to be carried forward outside of the Wales reserve. It will be formalised at main estimates in the next financial year. That was part of the negotiation we did with the Chief Secretary to the Treasury, so, it's not a routine thing, but it was something that we did because it was so late in the year to get our supplementary budget figures and they were moving around quite dramatically as we moved to the end of the financial year as well.

Thank you very much. And finally from me for now: we're coming up to the end of the financial year and the majority of the pay awards are settled. What assessment have you made of additional staffing costs in different portfolio areas, compared to the assumptions that you made when the draft budget was originally laid in December 2022?

What I wouldn't want to do is to talk about the assumptions that we make on pay, for obvious reasons—

Well, it's the assumptions that you made in December 2022, so what's the—?

Nonetheless, I probably wouldn't want to go into too much detail, because we need to, I suppose, respect the integrity of the negotiations that do take place and that have taken place. I would probably say that there was some difference in terms of the planning assumptions that we'd made, but we were able, of course, to manage things. I don't know, Emma, if there's more we can add to that.

Yes, I can add to that. Obviously, when we set the multi-year spending review back in December 2022, the economy was in a different place from where it is now, and you'll know the well-quoted figure of our budget being worth £1.2 billion less now. We, obviously, have been looking at the assumptions from the Office for Budget Responsibility, for example, looking at other public sector bodies as well, and we do revise those, we do reflect on those when we're looking at making allocations, and we do that on a regular basis as Treasury, and indeed with portfolio colleagues. However, the Minister is right, we wouldn't want to be talking about those publicly. We don't want to prejudge any outcomes of any decisions, but we do keep these things under review, for sure.

Thank you very much. I'll bring Mike Hedges in at that point. If we could unmute Mike. Mike's unmuted. Thank you.

Diolch, Cadeirydd. I'll start off with this: we have previously discussed how communication between yourself and the Treasury has caused challenges in terms of budget planning due to a lack of funding certainty and flexibility. And we saw the Treasury making a clawback, which you didn't expect, previously. What is your recent experience regarding consequentials from the UK autumn budget and supplementary estimates, and has the additional in-year flexibility relating to draw-down from the Wales reserve helped?

This year's supplementary estimate process has been particularly volatile. We were given a set of figures upon which to plan, which of course is useful—it's quite late in the year, but to have at least something to plan is important. But then it was made really clear to us that, if we were to use those figures as planning assumptions, we would be doing it at risk and the Treasury would not be held responsible for any choices that we made based on the planning figures that we were given. Anyway, we proceeded on that basis. We had our final figures for the supplementary estimates confirmed on 7 February, which is obviously very late in the year, but then less than a week later, the position had moved quite dramatically and the figure had increased significantly. So, very late; things were moving around a lot.

That did mean, of course, that the discussions that we'd had with the Treasury allowed us to carry that £43 million into next year because there was so much variance happening very late in the year. So, it has been helpful in the sense of recognising the volatility there. And the size of the consequential funding that came through at the end of the financial year, £230 million revenue, that's a good chunk of the Wales reserve, in any case. So, it was good to be able to have those discussions about carry-forward, but it's just so much uncertainty late in the year. I know Sharon was really close to those discussions. Perhaps you've got some further details.

Yes. I suppose, just to reiterate what the Minister has said there, it was a very late understanding, particularly having had what we believed to be the final figures on the seventh. We obviously timed the publication of the supplementary budget to coincide with when we were expecting those figures, to then find, a week later, that there was a significant variance from what had been provided. It was additional money, so welcome, but extremely unhelpful in terms of planning purposes and what we were trying to achieve within the supplementary budget.

Just before I bring Mike back in, the cause of that was the impact of decisions made in Westminster about what was devolved and what was not. Is that right? Or was it just the quantum that was coming through? What drove that late—?

I think it was less late allocations in Westminster than refining their understanding of the figures, shall we say.

Right. Okay. Thank you. Rhianon, did you want to ask a question on that?

Yes, I did, very briefly. Obviously, on this occasion, it has been more positive, but in terms of the machinations and the follow-through in terms of input, in terms of you, Minister, and the officials, how normal is this in terms of how other legislatures work? And how can this be, in a sense, prevented? Because the amount of last-minute work for us in Wales with these types of happenings is surely immense in terms of rewriting whole budgets. I'm just intrigued as to what the understanding is around others there.

I think things that could assist would be—. For example, we had the Barnett guarantee during the COVID pandemic; that was very useful in at least giving us an understanding, when there was significant additional funding coming forward, that whatever we were planning to do towards the year end wouldn't fall below that point. It gave us a better basis upon which to plan. I think that the UK Government could, or should, consider using that kind of tool when making large allocations so that it gives us time to be able to respond to that.

And then there are all of the things that we've talked about about the size of the Wales reserve. Had we not planned to draw down everything from the Wales reserve within this financial year, then we would have found ourselves potentially in a big mess at the end of the year because we'd had a large amount of funding that we couldn't accommodate within the reserve. So, it's just been fortunate that our approach this year has allowed us to accommodate the funding—again, all those things we talk about, about the size of the reserve and indexing it and so on.

And then there are those year-end flexibilities. We think that with anything that comes through late in the financial year—so, anything after an autumn statement, for example—we should have that flexibility to be able to carry it through to the next year. And let's remember as well that, sometimes, those include reductions to budgets. We wouldn't want to be finding ourselves right at the end of the financial year, in the last weeks, scrambling and trying to find reductions that we can make. You should be able to smooth that over, I would say, a number of years, actually, if it is of a significant order. So, there are things that we can do, definitely, to improve the process in terms of more clarity through the year, and then more flexibility at the end of the year.

Diolch yn fawr. I'll go back to Mike, then, please, if we could.

Diolch, Cadeirydd. You've drawn all the funds from the Wales reserve; what are your plans to allocate these during the remainder—the very short remainder—of this financial year?

There are no current plans to make any further allocations this year. Any unused funds will be carried forward into the Wales reserve to draw down in future years and to support future years' spending. In drawing down everything from the reserve, it really was more of a budget management strategy than an intention, necessarily, to spend.

Thank you very much. Moving on, the second supplementary budget includes an additional £59 million to protect the forecast deficit of the health and social services department, but how much are local health boards expected to overspend over and above the £123 million target control total the Welsh Government set for them last November, and does this deficit for the MEG cover any other areas of overspend?

The £59 million allocation, as I said, doesn't provide additional funding to NHS organisations; it does reflect that forecast spending of the service at this point in the financial year. Those funds will be held by the Minister for Health and Social Services within the MEG to offset forecast deficits in the NHS. I know that her officials will be working to drive down those deficits as far as possible with the organisations. I think that beyond that, beyond the NHS organisations, there are areas of the health and social services MEG that are currently underspending and reporting underspends, which she is using to help manage the overall position as well. But perhaps Sharon might have some more up-to-date information on that.

No, I'm sorry, I don't have the actual areas of underspend, but I'm sure we can follow up on that in writing.

Does the health Minister tell you why we have overspends in different health boards? They have the money allocated; most of their staff are permanent staff. Is it being caused by bringing in external staff and paying agency staff? Is it caused by unplanned overtime? Does the Minister tell you why? They tell you the numbers, but do they tell you what causes those numbers?

When we talk to the health Minister, I think pay pressures will be one of the key things that she regularly talks about, and then those particular areas that she's asked the NHS to focus on. Those are the kinds of discussions that we have. Often, those discussions are focused on the figures. I know that then she will be talking to the health boards themselves and all of the other structures that operate in health about the details about where those pressures are arising. But generally, the big area is in relation to pay, and then the focused areas about driving down waiting lists and so on.

You say, in the budget documentation, that four local health boards forecast that they will hit their target control totals in 2023-24, meaning that, obviously, out of seven health boards, three will not hit that total. Does the deficit in the MEG cover those three health boards, and why are they not expected to meet their target control totals? How is it going to be addressed?

In terms of what is in the MEG now, providing that £59 million ensures that the MEG will not overspend, including the outturn of those boards that will not reach their targets. In terms of why they are in that position, that is obviously the conversation that the health Minister will be having with those boards and the governance process that is in place and the accountability process in place to manage the health boards in that respect. The outturn that is being forecast from each of the health boards, including those deficits, is now included within the Welsh Government's outturn position, and that's why the £59 million has been provided to ensure that the MEG does not overspend.

Is it worth, just for transparency as well, noting that the three organisations currently forecasting that they won't meet their target control totals are Aneurin Bevan, Hywel Dda and Betsi Cadwaladr university health boards?

I could have guessed two of those. Everybody else in this room could have guessed two of those. Aneurin Bevan is unusual, because it normally is the best financially performing health board, so, that is strange. But on the other two, I think everybody in this room would have guessed those two.

Any more questions, Mike, or are you happy with that?

I'm done.

Okay, thank you. I'll bring Peter Fox in, then, please.

Thank you, Chair. Minister, what are the consequences for the Welsh Government's allocations for 2024-25 of local health boards either achieving or not achieving their target control totals since the recurrent funding, announced last November, was conditional on delivery of a 10 per cent reduction in planned deficits?

In allocating the additional funding earlier in the year, the health Minister did make it clear that elements of that allocation would only become recurrent dependent on the progress in achieving the target control totals. The funds are included within the 2024-25 LHB allocations, which the Minister has issued. However, for organisations to be able to rely on that funding to be made permanently recurrent, they must be making progress that the Minister has requested, and we would look to see that demonstrated, both in their outturn this year and also their plans for the next financial year.

Okay, so we're confident, even though there's a £59 million deficit currently, that the Minister is comfortable that they've done all they can to meet their targets, even though there's a remaining deficit for three authorities. I'm just trying to understand the robustness of that challenge and that expectation in that we can see health boards considerably overspending, or rather, in a projected deficit position at the end of this year. I'm just trying to reconcile the expectation of the Minister against what has actually happened. I don't know if there's anything further to add on it.

We were just discussing how best to provide the committee with an update on the figures from the health boards. The outturn won't be available until the summer, officially.

Officially through the audited accounts, yes.

But we'll perhaps discuss with the health Minister how best to provide a useful update for committee as to where things get to.

Obviously, we're on a pretty tight reporting deadline on this, but obviously if that comes beyond that timescale—. Because obviously we have to report because we're discussing this supplementary budget in a couple of weeks' time. So, we have to report before that. But any further information beyond that would be useful so that we can pick it up then in pre-budget scrutiny with you, before going into the next draft budget cycle.

Thank you, Chair. Thank you, Minister, that would be helpful. The supplementary budget also includes £95 million in respect of the recovery payment linked to the 'Agenda for Change' staff pay agreement set last April. Why was the figure not regularised in the first supplementary budget or included in the October financial update?

We'd agreed to make the funds available for the recovery payment element of the offer from reserves, and, as you say, the cost of that was £95 million. But due to the timing of the offer, we had to consult with Audit Wales to agree the accounting treatment of the offer, and also to confirm our view that it was appropriate to account for the costs of the offer in this financial year rather than the previous one. Sharon, I don't know if you've got anything further to say on that.

It was agreed at the time that the offer was made that it was going to be funded from underspends in 2022-23. As the Minister has said, whilst we were of the view that it would be a payment, or expenditure, that would be reflected in 2023-24, we did need to consult with Audit Wales on that to ensure that that was the case, because there was a risk that it may need to be recognised in 2022-23. Therefore, had we made an allocation at the first supplementary budget, and then found that we needed to recognise it in 2022-23, that money wouldn't have been available, because we would have allocated it in this financial year.

The flexibilities around the Wales reserve meant that there wasn't a risk of where the money was going to be found—it was either going to be recorded in the last financial year, and, therefore, there would be less to carry forward, or carried forward and used in this financial year. So, that was the reason for not regularising it in the first supplementary budget, but it was always clear where it was being funded from.

Thank you for that clarity. One thing that concerns probably quite a lot of people is that the resource allocation for mental health policies was decreased by nearly 20 per cent—£17 million—in the secondary supplementary budget, compared to the first supplementary budget. What are the implications for the delivery of mental health? And I know that, perhaps, will reflect back to the health Minister, but all we hear is the increased need for additional mental health services. So, how do you reconcile that?

I think I'd just stress how important it is to recognise that the majority of funding for the mental health budget is set out under core NHS funding, and that is ring-fenced. For this year, that spend is around £774 million. It remains the area where we spend the most money within the NHS, and that hasn't been affected by the reprioritisation work that we did. So, the money that you're referring to is money that is held in a different budget line within the MEG, and, as I understand it, it hasn't resulted in cuts to front-line services, because that money had been allocated to the budget line, but hadn't yet been identified for particular projects, which is why it was available for reprioritisation.

Okay. It's difficult when we hear that sort of thing, because it would be very useful to know that—£17 million is a lot of money. If that was used for admin or something like that, that's fine, but if it could have been used for direct services, I have some anxiety about that. Perhaps we could try to achieve, Chair, some clarity on what the £17 million was actually for. I'm conscious, Minister, you may not have the answers for that, but somebody will have and I think we need to understand that.

Yes, we'll share more information on that, but I think it reflects the fact that there would be some delays in implementing plans, as well as some delays in legislation. So, it was really, as I understand it, available for release due to delays in planned spend, rather than cuts. But we'll definitely provide more detail.

Oh, I see. So, the money may still be available; it's just that it'll be used later.

It won't be available in this financial year, because it relates to the reprioritisation exercise, but we can get some more information from the Minister in terms of those plans, basically, and at what point they'll be delivered.

Thank you, Minister. I look forward to some clarity on that.

A final one from me, and we're going to go and explore how the funding and allocations for local government and schools responded to need and pressures. During this committee's scrutiny of the draft 2024-25 budget, we heard about the pressures local authorities are under this year, considerably. What consideration has been given to providing additional funding in this supplementary budget to alleviate the in-year pressures they're facing?

Much of the supplementary budget describes the activity that we undertook, which was announced in October, in relation to the in-year exercise, and I think the key thing that we did as part of that exercise was to protect the revenue support grant. We looked for cuts right across Government, but, as a Government, we decided that we wouldn't be looking to reopen the revenue support grant to make cuts from that. I think that the best that we could offer in this financial year was to provide that level of protection. It's not possible to provide additional funding over and above that, although we have provided £21.3 million in year for the element of the 2023-24 pay deal affecting the 2023-24 financial year. But I appreciate that that is a relatively small amount compared to the overall RSG.

Thank you, Chair.

Thank you. I'll bring Rhianon in at that point. Could we unmute Rhianon? There we are, you're unmuted now.

Am I unmuted?

Yes.

Thank you. One moment, please. What assurances do you have, Minister, from the education Minister that the funding provided in this supplementary budget is sufficient to cover cost pressures in schools and will avoid the reported reduction in the hours of teachers and teaching assistants?

Within the supplementary budget, again, I think that the story of the supplementary budget, insofar as it concerns local government, is one of protecting and avoiding reductions rather than additional funding. There was nothing more that we could offer, really, in terms of additional funding for local government this year—just protecting it was hard—and I know that there are going to be tough choices across public services as a result of that.

I don't want to mix this year with next year, but we've worked really hard for next year to protect funding that is going to schools and, again, to protect the local government settlement at the level at which we promised, and, of course, we've had the recent addition of the £25 million consequential funding, which was announced for next year. In receiving that, we've uplifted the planned cut to the social care workforce grant, but then also provided more than £14 million through the revenue support grant, and in doing so, we set out to local government that that was to recognise the pressures that they've been describing, both in terms of social care and education. So, again, that's a way in which we've tried to recognise schools and education in that sense.

If I may, before I bring Rhianon back in, with education spend in particular—and obviously negotiations go on between unions and the Minister with regard to pay and pension contributions and that sort of thing—what element of that is taken into account when you're looking at supplementary budgets and making sure that any additional above what's budgeted, if it's agreed by the Minister, is then allocated through the RSG, or whichever way it needs to, or in grants, to make sure that commitments aren't then burdensome on local authorities if a decision is made elsewhere?

In my letters to local authorities, in which I set out the details of the local government settlement for the next financial year, I do state within those letters that we would expect that settlement to cover teachers' pay and those other pressures. I'm usually quite explicit in that that additional funding shouldn't be expected as a result. However, there have been points within recent financial years where we have been able to provide additional funding in year, through supplementary budgets, and we've been able to do that because we've identified underspends elsewhere in Government. It's something local authorities shouldn't plan on, and shouldn't count on, but, when we have been able to do it, we have been able to provide additional funding to recognise those decisions, but I'll just ask Emma if there's anything to add on that.

Just those regular discussions at ministerial level between—well, the finance Minister with her finance Minister hat on, but also the local government hat as well, and with other Ministers with public sector pay within their portfolios—so, education and health—and the Minister has discussed that, and that's replicated at an official level. We've got a cross-Welsh-Government working group at senior official level on public sector pay and pensions. So, we operate on the basis of no surprises, really, and certainly that's the approach that we've taken in relation to next year's budget.

And then, in those discussions between Ministers, do you then have a wider discussion then with the Welsh Local Government Association, to understand the implications of decisions made at that level to local government leaders and portfolio holders and that sort of thing?

Yes. So, Jeremy will meet regularly with the WLGA education leads and have those discussions, and also with education portfolio leads from across Wales. And then I also have meetings with the WLGA very regularly. So, I attend the WLGA executive meeting quite regularly. We've got the finance sub-group, of course, which is a critical point at which local government can raise particular pressures and have those more detailed conversations. So, I think there are lots of opportunities, really, for us to be having those conversations. And I think the flow of information is very good at official level as well. So, local government is very open with its data in terms of providing us with detailed breakdowns of the pressures that they're facing, and, similarly, we listen very carefully to that. Officials meet very regularly with the Society of Welsh Treasurers, so those would be local government finance officials, and, again, that's an opportunity to understand the detail of the pressures as well. So, the conversation is always going on, and it's very good.

But, obviously, the knock-on effect is, if the money doesn't come from the RSG or from grants, then it comes from local taxation in council tax, and we're seeing big numbers of council tax rises in certain parts of the country, so they're interrelated: if it doesn't come from one place, it's got to come for another, or you cut teachers or cut whatever it is. So, it's just understanding that you've got that understanding and those conversations are had, and I'd hope that those discussions are robust and able to challenge and to, both ways, be able to put those points across and that you are in listening mode when it comes to that sort of thing from our colleagues in local government.

Yes. Those conversations are often very robust, and I think that we're able to have those often very difficult discussions because we do it from a position of trust and respect, and I think that that is really important. So, we've built up that really strong relationship where we can have tough conversations and understand that, after those conversations, we will still work in social partnership, we will still work well, and we will jointly try and solve the problems that we've been talking about.

Thank you, Rhianon. Sorry to cut across there, but—. Oh, hang on. Can we just—? There we are, you're unmuted. Go ahead.

I said—. No, that's absolutely fine, and, obviously, those conversations are very tough and that local government budget has been protected as much as it can, in my personal view. In the supplementary budget, Minister, you allocate UK Government funding for city and growth deals, so, given the £25.9 million capital has been moved to capital reserves, will that funding now sit within the Welsh reserves if it's unspent at the year end?

No. So, £17.9 million of that sits with the UK Government, because that's the UK Government's contribution to the city and growth deals, but it will be reprofiled into future years for when it's needed. And then the remaining £8 million is our contribution, so that will remain with us and it will be reprofiled for future years as well.

Thank you. And how are you monitoring the affordability and sustainability of the Transport for Wales allocations announced in the financial update and included within this supplementary budget?

So, the Deputy Minister for Climate Change has regular structured meetings with Transport for Wales to maintain that appropriate oversight. So, he will meet quarterly with the chair and the CEO to discuss performance and also discuss any future issues—I was going to say 'that might be coming down the track'; in comedy mode there for a moment. They also have a monthly joint steering board, and that does provide strategic oversight and accountability, and it allows the Welsh Government's senior officials to hold to account the chair and the CEO of Transport for Wales as an additional accounting officer. And the Transport for Wales performance board takes place on a quarterly basis, and that reviews progress against Transport for Wales's annual business plan, and monitors and challenges progress towards the key performance indicators. And then, Transport for Wales and Welsh Government finance teams meet on a monthly basis, to discuss current year forecasts and also future budget planning as well. So, there are a lot of key points where we have these ongoing discussions with Transport for Wales, and provide the requisite challenge.

I think Mike would like to come in there. We're all cutting across you today, Rhianon—sorry about that. Mike, go for it.

As you know, Chair, we were told that the average subsidy per passenger on trains in Wales was £13 to £14. Do you recognise that number, and do you think it's an acceptable number?

We'll have to come back to you with the details on that. We'll have some conversations with climate change colleagues, to check what the current figure is.

Rhianon.

Thank you, Chair. Minister, you've transferred £16.5 million to reserves from the resources budget in the central services and administration MEG, which is said relates to the in-year savings exercise. How have these savings been delivered, and are they recurrent, and is there any implication for the administration of the Welsh Government?

So, the reduction to the CSA MEG relates to a one-off technical accounting exercise, so there's no impact on the administration of the Welsh Government as a result of the exercise. But I will ask Sharon to provide more details on that.

As the Minister said, it's a one-off technical exercise; it's following an Audit Wales recommendation where, essentially, costs have been accrued over prior years and we have taken—. It is quite a resource-intensive exercise to look through, because it's quite a lot—a high volume of low-value items, which have to be looked at quite closely. As a result of that, we've been able to release credit back into the system, and that's what has generated those savings this year. But it is a one-off exercise, which wouldn't be recurrent and not repeated, going forward.

And potentially, those—. Obviously, savings have to come from somewhere, but, in terms of the detriment of having made those savings, could you point to any?

There's no practical disadvantage to that. It is where we've, essentially, reflected expenditure in prior years, when in fact that activity has not happened. So, annual leave is an example, where there were higher levels of annual leave, particularly over the COVID years, if I refer to it like that. Actually, levels of annual leave have now come back down to more usual levels. So, where we've accrued those costs, they've now been released back into the system. So, there are no practical implications of that in terms of delivery.

Okay. Thank you very much, Chair.

So, that part is the civil service costs, effectively, isn't it?

Absolutely, yes.

So, it doesn't have any knock-on effect into next year, into the baseline and—

No.

But then there are some changes in the final budget, though, aren't there, for next year now as well, I think.

As part of the overall reprioritisation of savings we did for the 2024-25 budget, the majority of MEGs were reduced, and that did include the central services and administration MEG, which, you're right, is the MEG that accounts for staff costs, the estate, the IT kit—it's the Welsh Government's running costs. So, there are some reductions proposed to that MEG. Clearly, how to manage those is a matter for the Permanent Secretary and his senior team—obviously in conjunction with the First Minister and the finance Minister.

And does it have an impact then, obviously, on legislation? Because if there are any reductions in headcount, or reallocation of time, does it affect what we do here, as in the ability of the Welsh Government and your legislative programme? Does it have any effect on that?

It's probably too early to say at this point, because I suppose—. So, you've referred to a reduction in headcount. I suppose it would depend where that fell—

How it happens, yes.

—within the organisation. It's too early to say, I think.

Okay. Thanks for that. Rhianon, did you have any more questions or are you okay?

No, I'm okay. It's just, obviously, £16.5 million as an almost desktop exercise is quite a large amount, but, no, that's fine. Thank you, Chair.

Okay. Thank you. You've talked about—. When you were setting the budget, I remember we were talking about reprioritising—. When we were talking about capital projects, you said last year, for the 2022-23 financial year, you didn't have to pause or reprogramme any capital projects. Given that you've drawn down all your available capital funding in the Wales reserve, will you be in a similar position in the next financial year—in this financial year, sorry?

So, in this financial year, it is different again because one of the ways in which we were seeking to manage the pressure earlier on in the year was to ask the UK Government for that capital-to-revenue switch. So, we've made some adjustments to our plans accordingly. Obviously, things have changed since then, since we've had the supplementary estimates figures through, since we had the confirmation that the UK Government isn't going to approve the switch to a level that we would have liked. So, we have made some late capital allocations as a result of that.

Thank you very much. And finally as we come to time, you've discussed previously proposed changes in the financial update with this committee. Can you summarise the key changes beyond that in this supplementary budget, and what do you intend to achieve with it?

So, the key changes since October—really, I would suggest the key announcement is the one that relates to the NHS and the additional funding to make sure that the MEG comes in on budget. And I suppose that's what I want to achieve by the whole supplementary budget in the sense of bringing the budget in, landing it where it needs to be, making sure, actually, that we have some reserve now to take into next year and we can be in a better position than anticipated moving into the next year as well.

Rhianon. Hang on a sec. Just unmute. There we are. You're unmuted.

Yes. Sorry, Chair, you shouldn't have asked me if I had any other questions. I don't know—. The circumstances are very different, but in terms of both the Wales Audit Office and the other request around the supplementary budget for more money, compared to the Public Service Ombudsman for Wales, who said they've got a discount, they wanted to take it down, is there any further comment on that actual mechanism in terms of funding those bodies, because, obviously, it's not ideal? I don't know if there is any comment on that in terms of the variability between those asking for more money and those who are saying they don't need as much money.

I believe that there is an increase in the Wales Audit Office of £94,000 but it's a non-cash international financial reporting standards thing. So, I don't know. That's an accounting element, so it's non-cash, but whether or not—. Our comments are on Rhianon's question.

Shall we get you a note on that? I don't know if you want to—[Inaudible.]

Yes. In terms of the changes that we're seeing, obviously, the process that we follow for supplementary budgets, if the direct-funded bodies, as we group them, have changes, they are required to provide a supplementary estimate memorandum or a supplementary budget memorandum to the Finance Committee. So, that is covered and, obviously, scrutinised separately to the Welsh Government's budget. I think those small changes in terms of IFRS 16, as I said, they're more technical changes rather than anything substantial there, and because that was covered by allocations provided by the UK Treasury, for this spending review period, it hasn't had an overall impact anywhere else.

I suppose it goes down to some of the things that we were talking about in the debate, around timing and the process that we go through, and, possibly, because of the way the directly funded bodies have to account and have to produce supplementary budgets at certain points in the calendar year, our process doesn't help them in that instance. They think, at one point, they might need more money and then, later on, they say, 'Well, actually, because things have transpired and time has moved on, we don't.' But it's that clunky process, in a way, of only being able to put a supplementary down when the Government lay a supplementary budget.

So, that's the frustration, I suppose, from some directly funded bodies, in managing their own budgets and when it comes to pay awards, and especially decisions made elsewhere that have an impact. It's then how to manage those directly funded bodies. Because we obviously take evidence from those directly funded bodies, and I know the Llywydd's Committee takes evidence from another directly funded body, so it's a little bit difficult for them to be able to manage that.

Some of the work that we've been doing around the budget protocol and that sort of thing is how best to accommodate that, and how best to understand how the Commission or Audit Wales or the ombudsman or the Electoral Commission are able to do that. They have to wait for you to lay a supplementary to be able to do any of that. So, I don't know if you've got any comment on how practically we could actually improve that process.

I think we'd have to give that some thought.

Yes. It's something that we've been grappling with as a committee in understanding. Some of it is in legislation, some of it is in understandings between you and the directly funded bodies, and our role as a committee in that, so it's just understanding all the moving parts and seeing how best—. You'll know yourselves how difficult it is when you have a late decision made in Westminster, so it's trying to work together for a better process, basically. There we are. So, that was more of comment than a question, but any thoughts from yourself, we'd be interested in those, but, obviously, going down the line.

We've come to time. Thank you so much for your time this morning. Obviously there'll be a transcript for you to check its accuracy. Anything that you pick up, if you could get those to us as quickly as possible, that would be useful for us to be able to put into the report. I think we're on a very tight turnaround on that. We understand, obviously, if it takes a bit more time, and we'd have to consider that at a future time, if we can't get it into this report on this supplementary budget, but we'll keep track of that. Thank you very much.

Under Standing Order 17.42, can we resolve to exclude the public from the remainder of this meeting and the meeting on 6 March? Is everyone content? They are. Thank you very much.