Finance Committee

So, we’ll move on to the third item this morning, which is our substantive item for this morning, which is evidence session 8 on the Welsh Government draft budget for 2025-26. We have witnesses here with us, and the Cabinet Secretary. I just wondered if you’d introduce yourself for the record, and your officials, please.

Good morning, Chair. Thank you very much. I'm Mark Drakeford, Cabinet Secretary for finance. With me this morning I have Andrew Jeffreys, head of the Treasury in the Government, and Emma Watkins, who is responsible for the budget and doing the day-to-day work to prepare the draft budget and the final budget.

We're very thankful to have you here for this session, and we have received a lot of evidence ahead of time. And of course, we had the session just before Christmas with you as well when the budget was announced. I just want to look first this morning—

—and explore the issues caused by the timings of fiscal events to start off with, including budget planning and scrutiny and some of those aspects. You know, it’s a long-standing subject that we as a committee—and I know that it impacts on you as a Government as well. So, how does the UK Government’s decision to have a major fiscal event in the autumn impact on your ability to publish the draft budget in line with the current budget protocol? And can you give us an update on changes you’d like to see to the budget protocol to enable meaningful scrutiny?

Diolch yn fawr, Cadeirydd. I think what the plans of the new UK Government do are to institutionalise, for the next four or five years, the difficulties that the protocol has experienced now since about 2017. Because, year after year, we have had to deal with the fact that we are committed to introducing our draft budget in October, and almost always a major fiscal event follows within weeks of us having done that, meaning that we’ve all got to, not start all over again, but certainly substantially revise the plans that we will have published and put in front of the committee. That is frustrating for the committee, it’s not great for witnesses, and it causes enormous additional stresses and strains within the Welsh Government. Sometimes, we’ve had as little as four weeks from the publication of that new information to having to come again in front of the committee.

My own view is that we need to work together, looking more fundamentally at how the protocol works, because we now know that this is what it’s going to be like for the coming period. My own view is that there is only so far we can go in the remainder of this Senedd term, because there’s another big contextual change that’s about to happen, which is that, after 2026, there will be a larger number of Senedd Members. There will be, no doubt, thoughts as to membership of committees, the number of committees, how many people sit on them. That will make a difference to the ability of the Senedd to scrutinise the budget as well, and I don't know that we are in a position to make decisions for those who will come after us in that new context.

I think there are things that we can work on, though, purposefully and usefully, in the meantime. There are some changes that we've introduced between us since the protocol was established. It would be useful, I think, if we could look at those changes, see whether they have been useful, would they be things we would want to recommend to a successor committee to preserve. There is a Finance Committee-led debate in the summer term. Personally, I think that is a very useful addition to the protocol, because it's a different sort of debate than when you're dealing with the detail. It allows the committee and the Senedd to stand back from the day-to-day stuff and think more broadly about the budget. You have a session now with the chief economist. I come in front of the committee early in the autumn. Those are all new additional strands in the original protocol. If the committee is happy to do it, then I am very happy to make my officials available to you, to review the operational side of the protocol, as we will, I think, have to manage it during the rest of this term, and then maybe to think ahead and see if there are any ideas we would put to an incoming new Government and new scrutiny arrangements, so that a more fundamental redrawing of the protocol can be brought about, to take account of the fact that this is how it's going to be now.

Because we've gone, effectively, in an exceptions process for six or seven years, rather than—. So, it's not an exception anymore.

It's not.

And we've been through quite a few different iterations of that, and reasons for the exceptional process. I think some of the work that I did, and the committee did, with your predecessor in getting to some consensus on some of that, I think we just need that final push to get over the line with a few other things.

Just on a slightly related topic, the UK Government has not published block grant transparency data since July 2023. Is the Welsh Government able to publish information regarding funding consequentials, once they have been received and confirmed by the Treasury? Is that something that you would be able to do?

Myself, I think the preferable arrangement is for the UK Government to publish that, and, for a number of years, it did publish it. But the Chair is right, of course, that a publication has not now happened since July 2023. Andrew and colleagues have made contact with Treasury officials to see if there is an imminent publication from the Treasury. We don't think there is. In default of that, Chair, I am happy that we will publish the information we have.

What's the reason behind them not publishing? Do you have a sense, from discussions you've had with Treasury?

I think, with the incoming Government, it is it simply that their hands have been very full with trying to get a budget within a few months, with a comprehensive spending review, and this is just—. I don't think they have an intention not to do it, I just don't think that it's—

High on the priority list.

—high enough for it to be imminent. Because it's not, then we are happy to publish the figures that we have, up to and including the October budget. The only slight health warning that I'd then attach is that those figures will probably have been overtaken by further events involving Barnett consequentials. So, it'll be accurate up to the date that we are able to do it, but it won't necessarily tell the complete picture. But that would be true of the UK's publication as well.

With Barnett consequentials—and we've seen late consequentials come in in a number of years—are you anticipating any more between now and the financial year end?

Well, I think the incoming Government has been helpful in giving us much earlier notification of its plans, and we're not anticipating as much of a late flurry as we've had in more recent years, but that doesn't mean that there won't be anything.

The second supplementary budget will be published in about three weeks’ time, and that will reflect the UK supplementary estimate for this financial year. There will be some changes from the numbers in the October budget, but as the Cab Sec says, it's relatively minor stuff, at the moment anyway.

Is that in the region of hundreds of millions or tens of millions?

A few tens of millions at most, we think. The UK supplementary estimate has not been finalised yet, it’s still sort of last stages, but not quite there yet. But our current understanding is, yes, we should only see some relatively small changes.

And that wouldn't impact then on your ability to use those within the timescales that they need.

It shouldn't be significant enough to make a big difference.

I don't want us to be in the same position as we were a few years ago when money went back.

There is sufficient room in the Welsh reserve for us to be able to accommodate the scale of changes that we anticipate.

Thank you for that. Moving on, then, to something that we talked a little bit about when you were with us last, your inclusion of a revised baseline for 2024-25. It's caused some confusion for some stakeholders when comparing revenue and capital spending year on year. Have you reflected on the way that that can be improved and improve that transparency, and minimise other changes to baselines, such as the IFRS 16 adjustments and the in-year transfers within Government's control? Have you given any thought to some of those discussions we were having, and maybe some of the evidence that you may have picked up on from stakeholders that we've been talking to?

I think my first reaction, Chair, is not to be surprised that some people find the Welsh Government budget difficult to follow and understand, because it is a complex business. It's £26 billion. There is just inherent complexity in the way in which information is provided. I don't know that we're always as clear as we need to be about who the intended audience is. Because if we think that what we're doing is trying to communicate stuff to the person on the top of the Grangetown omnibus, then we would have to present information in one sort of way. But we're also often trying to respond to much more expert groups. You will have heard from some of the most senior groups in the country, the Institute for Fiscal Studies and so on. Are those our audience? Is that who we're trying to present information to, so that they can make their sense of it? I think that's quite a difficult question sometimes, when we're trying to satisfy a multiplicity of audiences.

We publish this most enormous amount of stuff, as you know, alongside the budget, certainly far more than any citizen who has a sort of informed but lay interest in the budget would ever be able to absorb. And in some ways, those issues did crystallise around the point that you have you've raised. So, there was a choice for the Welsh Government. We could have presented the budget as a comparison between where we started this year and where we will start next year. That would have inflated the increase in the budget that we appear to have next year in a way that I thought was just misleading, because so much money had come in to us in-year that it was a more authentic and honest reflection of next year's budget to compare it with a restated budget in the current year, in which those baseline issues were put in, so we were comparing what we really would be getting as new money next year, not what might appear to be new money, but was in fact already in this year's baseline. Now, that is quite difficult to understand, and we could have done it the other way. I think we would simply have got a different set of anxieties from people looking at the budget, saying that we were overstating the amount of additional resource available for public services next year.

So, I am not suggesting that this wasn't difficult for some people to follow. All I'm suggesting is that there wasn't an obvious or easy alternative that would have eliminated all of those concerns without raising new concerns in their place. So, I think I would stand by the decision that we made, because, as I say, I think it gives a more accurate sense of the additional expenditure available for next year's budget than the alternative would have. In the meantime, we've sent you—I know it was only yesterday, so you wouldn't have had time to look at it—the additional information that we said we would last time, which compares the 2023-24 outturn restated to the current main expenditure group structure. We hope that that will be another way of trying to get a proper sense of how money has moved and what's now available that wasn't available previously.

I briefly looked at that last night and it seemed to answer some of that concern. It's more about tracking year on year. And where there are changes in-year, I know it's difficult, but it's trying to get a sense of where the money's flowing, to be able to track where decisions are being made. Because, effectively, decisions are being made and things change in-year—we understand that—it's just trying to track the narrative of what the Government is doing. So, I think that will help and thank you for that. Andrew, did you want to come in on that?

I just wanted to try and explain a bit more about the choice that the Cabinet Secretary is referring to there about how we showed 2024-25. Yes, normally we would compare to the final budget position. There were lots of changes in 2024-25, so we thought we needed to show those changes. What is included is changes to baselines, so funding, for example, for things like pay and the changes in pension contributions. Those are things that are in baselines and then follow through all the way through into the future.

Some of the money that we've received in 2024-25 is being used for non-recurrent purposes. Those allocations—all of which will be shown in the supplementary budget in a couple of weeks' time—are not baselined, so we didn't include those in the comparison for 2024-25, and I think that was one of the things that was being challenged in some of the evidence you had: 'Why have you got some of the 2024-25 money in, but not all of it?' I think the Wales Governance Centre were highlighting that. In a sense, that's slightly misleading the other way, in that it doesn't include all of the money—it only includes some of the money that arrives baselined. But that's the distinction we were trying to make: that we've shown all the money that's in baselines, and then shown 2025-26 growth on top of that. We thought that was the most meaningful comparison to provide.

But just to add on 2023-24, I think that does show something useful in addition, so something perhaps we should think about for future years is to try and find a way of incorporating that previous year outturn, if we can, into the budget information.

Because it's closer to apples and apples then when you're—

It can be, yes. It can be when you've got a strange year like the one perhaps we've had this time around.

We seem to be having strange years every year.

That's a fair point. But I guess the answer isn't always more information. Maybe showing that extra year is something that could be helpful in the future.

Thank you for that. The UK Government are doing a spending review. You've committed to doing a Welsh spending review. Could you talk about timescales with that and how that will be fed through, and how those results will be described and maybe the process that you're going through and how long it will take? When will we have some clarity as to when you're getting to the end of that review?

Thank you, Chair. The process is under way. I discussed with the First Minister earlier this week the next phase, which will involve all my Cabinet colleagues in a more fundamental look at the way the budget is currently dispersed, the pressures and ambitions that we will see for the future, how we will use the opportunity of the three-year and four-year horizon that we're promised by the UK Government to make sure that we have the best alignment we can between the resources that we have and the things we want to see happen in Wales. I don't myself regard our spending review as a process that starts and finishes. I want it to be a continuous way of us taking this opportunity to stand back a bit from the year-on-year way we've been driven by having only annual budgets. I don't think it will just be an episode, which will come to an end; I think it will be a way of thinking about the budget. I think you will start to see the impact of that work in next year's budget, and you will see the bulk of it in the next Senedd term. We're expecting the UK Government's spending review to conclude in about June. That will allow us to begin to use that in our preparations for next year, but I think it will go beyond next year and into the next Senedd term.

It sounds like there's likely to be a bit of a cultural shift amongst departments in the way in which they prepare for budgets in the future. I'm reminded often of the words of my old section 151 officer, who used to always describe things as a process not an event—I guess that's the thinking. But I wonder how responsive your colleagues around that Cabinet table are to this at the moment—how much they are welcoming this change in approach.

Well, I think they do, because I think hand-to-mouth budgeting, annual budgeting, is not a comfortable experience for any of our colleagues. The Chair asked me about that process, so I'll just tell you this one bit, because I think it does help to answer a bit of Sam's question. We are looking at a series of long-term issues with which we will grapple as a Government over the coming period: the need to improve health in Wales, not just treatment of ill health; how we grow the economy, because our ability to fund public services depends on us being able to grow that economy and grow the tax base here in Wales; how we shift towards preventative spend—to quote a former Chancellor, in this case, how do you use public money to create the conditions of success, rather than dealing with the consequences of failure. That's what preventative spend should be. So, there are a series of those fundamental questions to ask in a comprehensive spending review. The way I want to structure it with my colleagues is that I want to ask my colleagues to make a contribution by looking at parts of the Welsh budget for which they are not responsible. Because I think that frees up somebody around the table to be able to participate in that thinking, without always having to worry about how this will affect their own responsibilities and the budgets they have to discharge them. So, that's how I'm hoping to make sure that all Cabinet colleagues have an interest in this longer term piece of work. I want to free them up from the day-to-day anxieties and responsibilities they have, and, therefore, align them with part of our thinking that's not so much directly in their own portfolio area.

Thank you. I'm just trying to think of the people on the bus that you were talking about earlier—maybe not necessarily those, but our stakeholders, local government, some of the people that we've had in front of us giving evidence. What will they see from this? Will they see, if it's a rolling, say, three-year period, when you come to be—? This is my thinking, and maybe you can correct me if I'm wrong: you would have this year's budget, with a forecast for the next three; then, next year, you'd have that budget, and a forecast for the next three, so it's a rolling period. So, it's not just, 'These are the three years and you have to spend it all within that three years' and then you start all over again; it's more that they are able to then say, 'Well, actually—'. And obviously, events—'Events, dear boy, events'—these things happen as well. Everybody's quoting everybody this morning. But it's more about being able to plan and successfully plan, especially in front-line services, to know what's happening. Is that what you're trying to achieve?

Absolutely. The last time we were able to do this was the last time I was the finance Minister, so it's a long time ago. But we did have a period in which we were able to offer our public service partners a three-year horizon: certainty for year 1; indicative budgets for years 2 and 3, because we had that budget from the UK Government that allowed us to do it. The incoming UK Government is committed to doing this every two years. They've truncated that timetable, which ought to make it easier for us to be able to provide a system exactly as you've suggested. Even if the news is difficult in year 3, it allows you to prepare for it over that medium-term horizon. And so it ought to drive better decision making amongst our partners, given that they have a longer term certainty of the resources that they'll have available.

Some of the work that the OBR have been doing, and others, is looking at the effects of climate change—I know the Future Generations Commissioner for Wales obviously looks at that longer term, and we've got the Act to do that. In this way that you're looking to budget, going forward, how do you take into account some of those aspects, to make sure that they are captured within reports, and to help inform your Cabinet colleagues, to make sure that they are mindful of the longer term—beyond the two, three year period; you're looking 10 years plus? How do you bring that into the forefront of your mind, to make sure there are either transitions or things that actually work within a longer period, beyond the next election as well? Because that's always an issue with politicians; we're always looking at elections, and planning beyond those is sometimes difficult.

I'll probably ask Emma to help, because she's been actually trying to do this. Because even with this one-year budget that we have now for next year, we have tried to draw on some of the information, particularly the information that is provided through the Well-being of Future Generations (Wales) Act 2015. You'll know that the Act requires the publication every term of a future trends report. I've often thought, more broadly in the Senedd, we don't make enough of that report. It's a really interesting report. It does the things, Chair, that you've just said: it looks well beyond the horizon of a single Senedd term, looks at what we're learning about those future trends. We've tried to use some of that, even in this one-year budget. We've certainly used the well-being goals, the national indicators and all of those things, because they do tell you, in the shorter term, how things are changing and how we are measuring up to the goals and milestones that we set there. So, there is a wealth of information that the well-being of future generations Act generates that we can draw on, to try to look beyond the immediate horizon. We've done that even in this year, but we'll be able to do it more so if we have three and four-year budget horizons to draw on. And there is the work, as you say, from the OBR, its own fiscal risks report and so on that we are able to use as well. But Emma might tell you a bit more about how we've actually tried to do that this year.

Thank you. In terms of the budget—but, more importantly, looking to the spending review—there's probably a handful of things I would highlight: the reports that the Cabinet Secretary mentioned and how we've used those within the budget, but crucially, how we're using those as we go forward with the spending review. As well as engaging with the OBR, we're engaging with the Institute for Government, the Wales Centre for Public Policy and a number of organisations to help us with this thinking as well. There's no monopoly on good ideas on this.

In addition to the key areas that the Cabinet Secretary talked about, we've got a number of cross-cutting things that we're looking at. Obviously, the future generations Act runs through all of those, but climate change and our work on net zero and the findings of the climate change commission is a very key thing that is running across all of the work, along with 'Cymraeg 2050' and digital as well. And I think the principles within the Well-being of Future Generations (Wales) Act 2015 are really embedded within the spending review work. The Cabinet Secretary talked about Ministers looking at issues outside their own portfolios. We're doing that at official level as well, so really looking at integration and collaboration and cross-Government working, perhaps in a way that enables us to do so over the longer term when we're not just pressed up with our nose against the glass trying to deal with the immediate here and now of the budget. So, we obviously do that within the annual budget cycle, but the spending review creates a greater opportunity to do that, and we're definitely utilising a lot of sources and engagement through that work.

A letter we've been copied into, to Welsh Government from the future generations commissioner, urges it to protect and ring-fence funding for prevention in future Welsh Government budgets. So, have you had sight of that letter? And how do you go about doing that? And what are your thoughts about ring-fencing or earmarking funding for preventative measures, especially some of the aspects that we'd heard from the NHS Confederation and others specifically in their evidence? So, I'm just wondering, it's more about there's the principles and then there's the 'how do you do it?' within budgets. I don't know if Emma wants to talk about that or whether the Cabinet Secretary wants to take that.

Well, we continue to use the work of the previous commissioner, which we did jointly with the finance committee some time ago, in trying to get a finer grain sense of what we mean by 'prevention'. So, you'll recall, Chair, that there was a four-layered sense of moving from primary prevention at one end to straightforward crisis spend at the other end of the spectrum. So, we continue to use that in the lens we apply to prevention. As I said when I was in front of the committee before Christmas, I'm very keen to continue to do some work with the committee to refine our thinking on what would we be ring-fencing, what would we count within the ring fence.

I think, in health, the Cabinet Secretary, when he was in front of the health committee, provided a figure of his budget that he believes can, authentically, be described as preventative spend, and, in that sense, some of that is already ring-fenced because it is given to health boards for particular purposes that they must then use. I think, in the case of local government, it would be more of a challenge and, in some ways, it would go against the grain of the policy that we have, no doubt not entirely to the satisfaction of our local government colleagues, but I think we have made an effort in recent years to move money into the revenue support grant so that it's not ring-fenced. The complaint from our local government colleagues, to which I have largely been sympathetic, is that we send lots of small bundles of money out, all wrapped up in ribbons and with all sorts of reporting requirements and everything, that costs us all money, but, in tough times, it is better to put money into the RSG and allow local government to manage that money with greater flexibility. So, I think a move to ring-fencing would be counterintuitive to the policy thrust that we've developed with local government in recent years.

Talking a bit about bundles of money potentially going to local government in particular and possibly a wider context rather than just local government, but in terms of the national insurance contributions, it’s come up nearly with every single stakeholder that we've spoken to, I think—have you received confirmation yet from the UK Government on how associated consequentials for the public sector will be calculated, and whether these will be in line with your estimates? And then, what are the consequences for devolved public sector organisations if the funding does not come in full? It was a question I asked your colleague yesterday in the Chamber, who said discussions were ongoing. I'm assuming you're having those discussions rather than Jayne Bryant having those discussions. Could you illuminate us on how those are going?

Well, the answer to the first part of the question, Chair, is that we don't have any further certainty. We have what the Chancellor has said about that there will be help for public sector employers using the Office for National Statistics definition of what a public sector employer is. I wrote to the Chief Secretary to the Treasury just before Christmas, setting out our estimate of what those costs would be, and arguing that a Barnett consequential of what would be provided in England would not be the right way in which to cover the costs of public sector employers in Wales.

I think you’ve described it as fundamentally unfair.

Well, I would regard it as fundamentally unfair. The Chancellor’s guarantee was that the cost for public sector employers will be covered in full. I do not think it can be fair that that applies to one part of the United Kingdom and not another. And the risk is—and I’m not saying that this risk has materialised—that English public sector employers are covered in full, we get a Barnett consequential of that, which means that Welsh public sector employers are not covered in full. I don’t think that is fair. I don’t think that’s what a commonsense reading of what the Chancellor said in the first place would lead you to conclude.

So, I’ve made all those points to the Chief Secretary to the Treasury. I will be in the Finance: Interministerial Standing Committee with him next month; it will be here in Cardiff. I think it’s an issue that will be raised by all participants from the devolved Governments there, and that will be a chance for me to press those points with him again.

Taking that forward for public services in Wales—some are done in-house, and they are public service employees in that definition—and then you have third sector and other bodies providing front-line services in our communities that are contracted out—that fundamental unfairness then potentially impacts on those people. How do you foresee local government in particular handling that, and have you thought through what support you might be able to offer, whether the money that you get and the money that you need don’t match up, and what will you be looking to do to try and alleviate some of that?

Well, it’s a different sort of unfairness, Chair, isn’t it? The unfairness we were talking about a moment ago is where there is money provided for public service employers within the ONS definition, which fully covers their costs in one part of the United Kingdom, and may not cover those costs in Wales.

What I’m not going to be in a position to do is to provide money to organisations in Wales for which the Welsh Government is not being provided with funds. Any money we get to cover the costs of public sector employers we will pass directly to those services. We’re simply a pass-through for those purposes. But I can’t magic money out of the Welsh Government budget to cover costs that are not being covered elsewhere. And I’m afraid—. I’ve been following what my colleagues have been saying in front of all the committees, and this has come up absolutely regularly—‘How are you going to help this organisation? How are you going to help that organisation?’ The answer is: ‘We’re not going to be able to beyond the help that we are providing in general.’

So, in local government, as you said, there is a 4.3 per cent uplift in the revenue support grant. I’ve been continuing to have discussions with my colleagues, of course, as we move to the final budget to see if there are any further pressure points that we might be able to assist with. But, at that point, we will have exhausted the Welsh Government’s ability to help. I have been working very hard with my colleagues this year to maximise the amount of money we are able to provide for our public services next year, and we will reach a point where there isn’t anything more that we have to give. And what I’m very reluctant to do—partly because I just don’t have the wherewithal, and partly because I have some objections of principle—is to divert money that has come to Wales for our public services, for our responsibilities, to cover responsibilities that are exercised elsewhere.

Yes, it's a very complicated issue, because every local authority—especially local authorities—are at different stages of managing their budgets, and you give them the autonomy to do that, but some might have made decisions and, in hindsight, they might have changed that decision, whether or not this was coming down the road. So, it creates a sub-problem within that, because they're doing what you're asking them to do in managing their budgets within their means, and by doing that they've made decisions, maybe a few years ago, and now this is coming back to bite them on those decisions. So, it feels unfair, then, rather than—

I do understand that and, as you say, it's complicated because local authorities will have made different decisions. If you've retained more services in-house and those workers are covered by the Chancellor's definition, then you will get assistance with that. If you've made a different decision and those services are now being provided through a contractor, then you won't get that help. And different local authorities have different mixtures of that, don't they? And even within local authorities, different services will have different proportions, and things like that. So, it is very complicated. But I'm afraid I can't say this morning that the answer to the problem is that the Welsh Government will provide.

Okay, thank you for that. Just finally from me, and I'll come to John Griffiths after this: some of the discussions that you've been having with UK Government—well, I hope that you've been having them with the UK Government, and I believe that you have—are on the fiscal framework. And you mentioned the FISC as well, which is another place where you would discuss these things, as well as directly with your colleagues in the Treasury. When can the Senedd expect to see changes to things like the annual and overall limits on the Welsh reserve, borrowing powers and those aspects? Have you made any progress yet, or is it still bedding in, I suppose, with the new Government, even though they've been in Government now for six months, and maybe you'd hope to see them further down the line with some relatively straightforward decisions, from my point of view and possibly from your point of view, but maybe not making it to the ears of the Treasury?

Well, they have made it to the ears of the Treasury, because I have raised it directly, the First Minister has raised it directly. There is a UK Labour manifesto recognition that the fiscal framework is out of date and needs to be updated. I certainly myself, Chair, share your feeling that some of these things are very straightforward and that it's a bit frustrating that there's been delay in getting them put right. For the time being, I'm happy to stick with the benign explanation, which is that this is all part of a comprehensive spending review thinking that the Treasury team have been reluctant to separate individual bits of that and make announcements ahead of the wider package that they are going to make. This is a matter quite certainly that is of concern in Northern Ireland and in Scotland as well—flexibilities in managing our own money. It's a bit like the conversation that we've just had about local government being able to manage its money more flexibly. Well, we certainly think that we need more help to do that. It will definitely be on the agenda at the FISC in February. So, we'll be pressing it again.

The case does seem to be very straightforward, for the modest end of this, the simple uprating in line with inflation. The figures that were agreed with the previous Conservative Government in 2016-17, they've been stuck at that level ever since. There's cross-party agreement here in the Senedd that, at the very least, their real value should be restored, given that the budget that we're managing is many billions of pounds larger than it was back then and the tools we have to manage that are no longer as effective as they were when they were first set. Just putting that right would seem to me to be not difficult to do. There's more we want than that, but that would be a good starting place.

Could I—?

Certainly, yes.

I certainly want to lend my support to the Cabinet Secretary’s words there. There seems to be a lack of common sense on this particular issue. I just wonder perhaps—and it goes back to the very first question that the Chair asked around the budget protocol as well—do you think there is any movement in the appreciation from Treasury that this is a Parliament and devolved Government, which is very different to a departmental spend within England, and that the scrutiny process by which that is then dealt with is very different to a Minister sitting in front of a select committee in Westminster? Is there a growing appreciation or understanding of the difference that there is?

My colleagues deal with the Treasury day by day much more than me. My own impression is that the culture in the Treasury is very entrenched and that you need very determined political direction in order to shift some of that thinking. I don’t think it’s an unfair or remarkable thing to say that, a Treasury that has worked for 14 years with one set of political parameters, it’s going to take a while maybe to catch up with the culture, take a while to catch up with new political direction. I think the direction of travel in the Treasury is in the direction that Sam Rowlands has suggested. There is a growing understanding that we are not a department. But I wouldn’t describe the pace at which that change is happening as rapid, and there certainly is a lot of catching up to do.

Thank you, Chair.

Thank you. Good question there. That's something I'd echo as well. I'll now bring John Griffiths in, if I may, and I think he's going to talk about some of the tax and economic forecasts. John.

Diolch yn fawr, Cadeirydd, and bore da, Cabinet Secretary, and bore da to your officials as well. Yes, some issues around tax and economic forecasts and, firstly, we now have analyses from the OBR showing outcomes against previous forecasts and digging a little into how Welsh tax revenues have grown, compared to England and Northern Ireland. So, I just wonder, Cabinet Secretary, whether you would be able to work with the OBR, and also in terms of your own budget documentation, to achieve a presentation that would allow the Welsh public, as we spoke about earlier, to more easily see the impact of tax devolution and that relative growth in Welsh rates of income tax and indeed other taxes? Could it be presented in a way that made it more accessible and understandable?

Well, Chair, I thank John Griffiths for that question, because I think it points to part of the contemporary landscape that has been underappreciated in some ways. The successful way in which the Senedd has discharged the fiscal responsibilities that came our way with the 2017 Act means that, next year, we have £317 million more to spend than we would have had those responsibilities not come to Wales. And over the period since the responsibilities have come here, Welsh public services have benefited to the tune of £1.1 billion as a result.

And, Chair, I remember very well, at the time when those responsibilities were coming to Wales, there was a lot of talk amongst some of the commentariat that Wales wouldn’t be up to managing these responsibilities, that we’d fall behind the rest of the United Kingdom, that the block grant adjustment would work against us, and that that would give us the shock we needed to do the things that needed to be done in Wales. And, actually, the picture is exactly the opposite, and John’s question points to that and how we can make sure that information that allows people to track what has happened is made more easily available.

Look, we are very keen to work with the OBR on the Wales tax outlook report. That is their report; they are an independent voice in all of this. But there are two ways in which the information they provide is due to change, and we're very happy to have further conversations with the OBR to improve it still further.

Next year, the version of the Wales taxes outlook that the OBR will publish is going to be reviewed and redesigned to try to provide some of that extra clarity that John Griffiths asked about, and there will be an updated Wales taxes outlook report published by the OBR alongside the final budget as well, and that will take account of the most recent outturn information. It will include evaluations of the 2023-24 forecasts for land transaction tax and landfill disposals tax, and the 2022-23 forecasts for Welsh rates of income tax. So, I think it will provide in a bit more granular and specific detail some of that information that, as John Griffiths said, if we could find a way of explaining it to people, would allow them to have a better appreciation of the way in which these responsibilities have been discharged over the last five or six years, and the difference that that makes to the amount of money we have to do the things that the Welsh public would like to see done.

Thanks for that, Cabinet Secretary. I do think it's important to make that positive case for the tax levers that Welsh Government has and their use and their benefit, so that will certainly be welcomed.

Moving on to some comments to the committee from the Institute for Fiscal Studies regarding land transaction taxes, the institute considers that increasing those land transaction taxes increases rents for young people by reducing supply, and also increases house prices, therefore negatively impacting on affordability. How would you respond to those views, and do you consider that a more joined-up approach to property taxes is required?

Well, I think my first reaction is that it's a rather curious point to make in a budget where we're not doing what the Institute for Fiscal Studies complains about, because we're not increasing land transaction tax for 80 per cent of transactions in Wales. So, I'm a bit puzzled, really, as to why they would make that point in a year when we're not doing what they complain about.

I think the second point is that I'm not sure that I completely share their analysis, because it seems to me there are so many factors that play into people's decisions as to whether or not to move home, acquire another property, all of those things, and I'm not sure that LTT is always the most decisive thing in people's minds, really. So, it plays a part, but I think you can overstate the part that it plays. I do remember, when we were taking the LTT legislation originally through the Senedd, there were anxieties expressed then that the levels of LTT we were introducing for non-residential properties would suppress non-residential sales in Wales. It turned out not to be true at all.

So, I think singling out the tax in a cause-and-effect way—. That's what the IFS have suggested; I think it's a bit more complicated than that and I think the—

I think Mike Hedges might want to come in just on that point, if I may bring Mike in.

Yes, please.

The big thing is the price of houses. That is the driving factor, surely, Minister? It's not a minor tax that adds a small amount to the cost; it's the increasing cost of houses, which is being driven by the failure to build enough houses. So, I'm bemused by what the IFS said. I said that in our discussions. And also, what's going to happen to these houses? Are they going to be left there, so people are happier to have no money than have the money they're getting? And the rent people are paying is driven by their ability to pay.

I'm much more with Mike Hedges in this argument than I probably would be with the IFS. I'm not dismissing the point they make; these things do have an impact. I don't think, myself, it's a determinative impact, and other points—Mike's point about the price of housing, just about what economists call the animal spirits in the economy—make a difference to people's disposition to make major decisions about whether to move house, try to move to a bigger property. All of those things, I think, are at play, not simply the level of LTT.

And then, just on John Griffiths's final point, I'm not sure what a more joined-up approach means in this context. I am responsible ministerially for almost all the property tax considerations inside the Welsh Government, and I think that does allow me, with my officials, to take a pretty rounded view of the decisions we make.

Could I just add, as well, that it's worth remembering that the threshold for LTT in Wales is £225,000; in England, stamp duty land tax [correction: the threshold for stamp duty land tax] is going to go back to £125,000 in April? Obviously, average house prices in Wales are significantly lower than in England, and so many, many more transactions in Wales are outside the scope of LTT than the proportion of transactions outside the scope of SDLT in England. So, I think that's quite a significant difference in the regimes that is worth remembering.

I think, from memory, with the IFS, it was not the 80 per cent that they were talking about, but the 20 per cent of the properties that were then becoming second homes, as opposed to primary homes, for people. It was that aspect that was—it goes back to the arguments around second homes policies and holiday homes and those aspects—driving some of those comments, I believe. I know you've articulated, but I think that's where they were coming from, rather than—. So, just to give a little bit of context as to—.

Even there, Chair, I think the evidence is contradictory. As I say, I'm not dismissing the argument that the higher residential rate [correction: the higher rate for additional properties] might have an inhibiting effect on people in the buy-to-let market, and that that then reduces supply and that then drives up costs. That is a sensible—. But if the effect of higher rates is to release more property into the market because fewer second home owners come into the market, then that has the opposite effect to the one that the IFS is suggesting, because now there's more property available for general purchase and, therefore, for rent. So, even in that 20 per cent of the market, I think the argument isn't just in one direction.

We'll go back to—I know he's not in this committee as it—the Chair of local government and housing there. But, John Griffiths, you might have a view yourself on this, but we'll move on. Time is marching on with us as well, but maybe—. I'll come back to John now, with his next question, but maybe a comment on that last bit.

Diolch, Cadeirydd. There's plenty of food for thought, isn't there, for all of us, I think, as committee Chairs. If we get back to forecasts, the committee has heard that funding for the next financial year may be relatively generous compared to the years that follow on from the next financial year. We'd heard that there is that expectation that UK Government spending plans will be much tighter following 2025-26. So, I just wonder, Cabinet Secretary, whether you've considered the medium-term budget situation, and does this budget for the next financial year prepare in any way for tighter settlements that may follow?

Well, Chair, I think there are a number of ways in which it does that, and, of course, I've read all those things too, that the state of the economy may be such that future settlements will be less generous than the current one. The Chancellor did say something, I think, in October about front loading investment in the UK economy in order to stimulate growth. So, here are some of the ways in which I think we can prepare for that. First, this has been my own effort in the discussions we've had internally—if the percentage increase in future budgets is going to be more modest, then you want to build the baseline as high as you can, because a smaller percentage of a higher amount will still give you a better outcome. So, I said earlier that—and I'll be the same with all my officials—I want to make sure that we maximise the investments we're able to make next year because it builds that budget higher for the future. And if there are to be smaller percentages, well, at least we've got the best base we can proceed from. So, that's been very much part of my approach to next year's budget.

Secondly, we will have the multi-year settlements that we discussed earlier, and if money is to be tighter, then at least managing it, knowing that over the period, will help. I am hopeful that, by the time we get to that, we will have those additional budget flexibilities that the Chair asked about earlier. So, that's a third strand in how we are preparing, in this year's budget, for what might be tighter times ahead. But then, over the period ahead, we need to do everything we can to align ourselves with the UK Government's ambitions for a growing economy, and that's part of this budget as well. We were debating this week on the floor of the Senedd the free ports measures that we are putting in place to align with the measures that the UK Government is taking. We are proceeding with investment zones alongside the UK Government. The industrial strategy Green Paper, I think, is significantly important for us in Wales, in which we will be identifying jointly growth opportunities in the economy and aligning Government support alongside that. So, this budget needs to prepare us in the Welsh Government to maximise the contribution we can make in Wales to a growing economy, so that even if there are some tighter years ahead, beyond that, tax revenues and all the things that allow investment in public services will be more buoyant, and we'll get back to closer to the growth we've seen over the longer haul of the UK economy since 1945.

Diolch yn fawr, Cabinet Secretary. If we move on, we've already touched on preventative spending and we've heard from organisations responding to this committee's consultation what they think might be beneficial in terms of preventative spending and, indeed, issues relating to the productivity and efficiency of our public services here in Wales. So, we heard from the Welsh Local Government Association and the Welsh NHS Confederation that they think it would be valuable if the Welsh Government were to earmark funding for prevention and early intervention, and then hold spending bodies to account for how that funding is used. So, I just wonder if you could say something about how the Welsh Government evaluates how funding for preventative measures is being used. And are the results of that reflected in your spending decisions in subsequent budgets, budgets yet to come?

Well, Chair, listening to John Griffiths's question, I'm probably not surprised to hear the NHS confederation say that, because that is a closer reflection of the way in which funding in the health field is currently constructed. I think I am considerably more surprised to hear that the WLGA was arguing for ring-fenced funding, because that would be very different to the messages that I've heard from them over many years. I'm very happy to pursue the point with them and see if I've just misunderstood what they were getting at—

It was in the context of social services and health, the interplay between the two, as well, so, potentially—

Yes, okay. Well, that is a bit more understandable and I can see how some of the money that is jointly determined in the RPBs and so on, how that might be an argument there. So, I’m very happy to have that discussion with them.

I am myself interested—I’m not sure whether our local government colleagues will be—in some work on how funding flows for children’s services. This work is yet to be done, so I’m speculating rather than knowing, but I would be not at all surprised to find that the funding formula for local government sends more money to a council for every child that council takes into care. Yet, the policy of the Welsh Government, and it is a shared policy with local government, is that we should be reducing the number of children who go into care. In a way, it seems a bit perverse that the funding formula rewards you for doing the very thing that we are all agreed we shouldn’t be doing, and doesn’t reward you for preventative work that allows you to achieve the joint aim. So, I am myself interested in doing some work over the coming months to see whether our funding streams are actually aligned with the preventative outcomes to which we are jointly committed. I think children’s services particularly is an area that is worth exploring in that way. I’m not arguing now for a minute, to be clear, about reducing the amount of money that goes to local government for children’s services; I’m just wondering whether we align that money with the policy outcomes we’re all trying to achieve in the most effective way, and particularly to ask whether we are rewarding those local authorities who are investing in preventative services that achieve our shared aim, rather than perversely the system providing the most money to the local authorities who are doing the least in that direction.

Just on that point, broader than children’s services, just in general as a Government, how often do you review the, effectively, rules that you put in place to drive the right behaviour? How often do you look at the behaviour you’re trying to do and then create the rules to drive it there—rather than, as you say, possibly a perverse aspect of, because there is a rule that’s been in place for x amount of years, it drives a certain behaviour in a different way to the way that you actually want it to do, and whether or not there’s a larger piece of work there to check that the outcomes that you’re trying to get to aren't being subverted by the rules that you’ve put in place, and create the wrong outcome, if you like?

I think the fairest answer to your question would be that we do it to varying extents. Actually, I think the local government funding formula is one of the better examples, because that is always under review. There is always work going on on different strands within it. It is led by the expert advice that the finance sub-group work on, and it has led to changes in the formula fairly regularly. So, I think that’s at the better end, but there are still aspects I would like us to look at.

I think, where new funding streams are being created, when new grants are being created, then there’s a very direct attempt to make sure that the money provided is driving the outcomes that we’re looking for. Whether historical funding is reviewed to keep it up to date with new ambitions and new policy directions, I think that probably isn’t—

And looking at those unintended consequences that have only come to light after a few years.

The spending review that we talked about earlier is an opportunity to do a bit of that work on a more sustained basis across the budget, rather than it being done, as I say, when there’s a new piece of funding coming up and not necessarily with the depth across the budget as a whole.

Okay. Thank you. John.

Diolch, Cadeirydd. The Institute for Fiscal Studies, Cabinet Secretary, told the committee, in its view, it didn’t detect from the draft budget documentation the necessary sense of urgency to tackle issues around performance and productivity in Welsh public services, which it thinks is necessary. So, how do you respond to that in terms of how you think the draft budget, when implemented, will drive improvement in public sector performance and productivity?

Well, Chair, I think my starting point would be that I agree that issues of performance and productivity are very important to us. It's a more complicated, as usual, question than it looks on the surface. When I first came to work in the Assembly, as it was then, working alongside the health Minister at the time, it would have been absolutely normal practice in the health service for a consultant to start an operation in one operating theatre, leave that operating theatre, go and finish off an operation in another theatre, and, in between, the work would be done by a registrar or somebody not of a consultant level. Now, we don't do that anymore. You might have said, from a productivity sense, in the old world, that consultant was doing two operations for every one that she might be doing now, but there are quality considerations, as well as productivity considerations, aren't there? So, just more of something isn't necessarily the only test of it. But I do agree—. And the way that this budget begins to make an inroad into that issue is in the way in which we have treated capital expenditure, because, in all my conversations with my colleagues, what I have said to them is that I will have been especially keen to allocate capital to them where they are able to use that capital to drive efficiencies in revenue. And, again, to give you the obvious example from the health service, we have been starved of capital in our public services, so that somebody who is responsible for processing tests that come in through the health service, if they're working with equipment that breaks down all the time or was state of the art 15 years ago, but isn't state of the art now, they are not going to be as productive as they could be if we're able to invest capital alongside them. It'll be the same person, the same revenue expenditure, but now they will be more efficient and more productive because we've been able to put capital investment alongside them. We've got a significant uplift in capital in this budget—it's over £3 billion for the first time—and in all those budget preparation meetings that lie behind the draft budget, my conversations with my colleagues were, 'If you can show me that you can use capital in a way that makes your revenue more efficient, that will increase the chances that I will be able to provide that money to you.' So, that's been a theme of this budget and its preparation.

It's definitely a key element in the spending review work, because I think, often, your options, your opportunities to improve productivity and efficiency are easier to identify when you're looking at a medium to longer term, rather than just setting one-year's budget, as we have been in this budget exercise. A key theme running right through the spending review is how do we find ways to improve productivity and take those opportunities to modernise and reform.

Great. That takes us on to health and social care. I think John's got one question, and then we'll move on to Sam.

I just wonder, before I go on, if we just look at the issue—I know we haven't got much time, Chair—of digital infrastructure in the NHS, because we heard from the Welsh NHS Confederation that that digital infrastructure, if it was improved, if it was put in place, would have a very significant effect in terms of improving productivity. You've previously stated, Cabinet Secretary, that the capital funding allocated was probably at the top end of what could be used, getting back to that issue of use. I just wonder how you've determined how geared up the NHS is in terms of being able to spend more capital in that way, and how you've ensured that capital funding in the next financial year will focus on the priorities that the sector has, which very obviously include digital infrastructure.

Chair, there's a 40 per cent increase in the capital budget available to the NHS next year in this budget. Some of that is earmarked for inescapable expenditures on IFRS [correction: on IFRS 16 lease costs] and so on, but even when you take that out, there is a very significant uplift. It's a judgment, isn't it, as to how much a system can absorb? I was reflecting a judgment that I’d arrived at following conversations with the Cabinet Secretary for health, and so on.

A system that has been starved of capital doesn't have people just sitting around waiting for the day when capital comes through the door. So, 10 years ago, there would have been teams of people who were used to dealing with larger capital programmes. Those people don't exist to the same extent. Plans ready to go in the drawer atrophy in a period when there isn't any money at all to be able to use them. So, you've got to take all of that into account. How prepared is the system? How fast can you turn the tap on, and that it can absorb that additional investment effectively? You have to be anxious in all of this about the way in which there are supply constraints, because even if you've got the money, if there aren't the builders there or the architects there or whatever it will be, putting more money into the system simply drives up the price of the supply you've got, because if demand exceeds supply the cost of supply will go up. So, there's another calculation you have to make there, because if we were talking a moment ago about efficiency, what you don't want to do is to engineer a position in which your money is going less far than it would have done because you have pumped money into a system that can't absorb it.

So, those were the thinking processes that lie behind the calculations we made. I wanted to maximize the amount of money that we could make available to health and capital spending, but I didn't want to put more money in than the system could sensibly absorb in a single year, and that's how we came to that.

On John's point about digital, I know that the Cabinet Secretary for health will want to do that, because, just to make one very final general point: who knows—because this is well beyond my ability to grasp—but we might be, and some people certainly think we are, just on the verge of one of the major productivity shifts in modern economies with the use of artificial intelligence. Certainly, if you think of it in the health field, the ability of a computer to give you a diagnosis in dermatology, given the hundreds of thousands of scans that it'll have in its memory, is well outstripping, probably, the ability of human beings to do that. So, digital infrastructure is a gateway to the ability to use artificial intelligence in a way that drives productivity, and that's a point that the Cabinet Secretary for health is, I know, very alert to in the spending decisions that he will make.

Mike wanted to come in very briefly, and I'm conscious of time, so, your answers are very fascinating, but could we keep them shorter, please? Then, Mike.

There are no constraints on ICT expenditure by amount available. The NHS has got a very poor record of ICT upgrades. The money could be very well spent there, and that could actually improve productivity. I agree with what you said about artificial intelligence, but we need to make it work and for that we need the ICT behind it.

Thanks for that, Mike. Actually, John, I might just go straight to Sam, if I may, and he might be able to start with that, unless you've got one brief question to come in at the start.

Yes, if I could, Chair.

Certainly, yes.

Sticking with health, back in December the Cabinet Secretary told the committee there's adequate funding in the draft budget to allow the Cabinet Secretary for Health and Social Care to make inroads into hospital waiting lists and waiting times, and for him to be able to pursue other priorities. So, I just wonder what specific outcomes is the NHS expected to deliver for the funding, and how will Welsh Government ensure that improvements in delivery are sustainable?

Well, Chair, I really think that is a question for the Cabinet Secretary for health rather than for me. The way that I try to do this job is that I try to manage the Welsh Government's finances in the round. I try to maximise the resources available to my Cabinet colleagues, and then I'm not in the business of micromanaging the decisions that they make with the resources that they have. As I said, I've read an account of Jeremy's appearance before the health committee. He was asked exactly those questions and that's, I think, where those questions are properly asked.

If my colleagues come to me and ask me for additional money over and above what has been allocated, then I think it is legitimate for me to ask them, 'What's that money going to buy?' So, when £50 million was provided in-year for the health MEG for reducing two-year waits, I knew that that would buy 1,000 patients [correction: thousands of patients] being treated who otherwise wouldn't have been treated. But I'm not in the business of trying to be the health Minister one minute, the housing Minister the next minute, the education Minister the next minute. My job is to allocate the resources and then it's Cabinet colleagues' responsibility to decide how to match those resources against the calls that they face for them.

That's unless you're appointed to those roles, as you have been over the last period, but there we are. [Laughter.] Sam Rowlands.

Thanks, Chair. Just a brief question on the capital side we mentioned earlier. Do you think Welsh Government is utilising private or external capital in the most effective way?

I remember devising, when I was the finance Minister last time, the capital hierarchy that we continue to use, and the capital hierarchy is simply, Sam, driven by this: that we should always use the cheapest form of capital first. So, we use the money we get in capital grant first and if that isn't sufficient—and it certainly hasn't been sufficient—we move on to the next form of capital that is the next cheapest. And we have used private investment through the MIM, the mutual investment model, for example, but it is the most expensive form of capital that we have. If I could cover all our capital needs without needing to go to the most expensive part of the market, I would. We've not been in that position.

And I think the mutual investment model has been a successful development in Wales. We know our Scottish colleagues have not copied, but adapted quite a lot of it for their needs, and that there's been interest even in the Treasury in it as well. But my principle is: cheapest money first, and then only go to other forms of money if you can't satisfy your needs from those sources.

Thanks, Chair. We haven't got time, sorry, but it's just thinking through your previous responses about the way in which capital is then used to create efficiency and productivity. And whilst there may be times when something like capital may be more expensive, if it is of benefit in terms of efficiency and productivity, I guess it's that balancing act that you'll continue trying to pursue to make sure that that balancing act is about right.

Just coming back to questions that John Griffiths asked around the funding for health, I appreciate your response, but in particular on primary care services, do you think the allocation to fund primary care services is adequate and will ensure that services are provided appropriately?

It's been an ambition of successive Welsh Governments to move activity in the health service out of hospital into the community and into primary care. It's a lot harder to do than it is to say, because the system is institutionally driven by secondary care and by the way costs are concentrated there. But I do think that the budget reflects the success the Welsh Government has had in contract reform in primary care. We have agreement with three of the four contract professions. That involves significantly more activity in pharmacy, where the growth in prescribing pharmacists has been huge in Wales. It will allow more activity to take place in high-street ophthalmologists than ever before, moving activity out of secondary care and into primary care. We've got thousands more appointments in dentistry—I know that's more controversial, but I think the figures do demonstrate that, as a result of contract reform. The one contractor profession where we haven't been able to reach agreement is with GPC Wales. There's been a period when negotiations were at a standstill, but I'm told that they are resuming, and that the Cabinet Secretary will wish to use resources he has to conclude contract negotiations for this year there as well.

Thanks, Cabinet Secretary. The other significant area of spend within care, of course, is social care. The Association of Directors of Social Services Cymru told us last week, and I quote:

'there is a significant gap between the funding that has been made available and the funding that's required.'

Would you acknowledge that, and what sort of impact do you think that has on local authorities' ability in terms of their responsibility for providing social care?

Well, expenditure on social care per head in Wales is 37 per cent higher than it is in England, and I think that is a tribute to our local authorities. I think, in very tough times, you will see, across Wales, that local authorities have prioritised their social care responsibilities and their education responsibilities, and that they have moved their money to match those things. We know that has downsides—of course it does—in the non-statutory services, but given that these are the core responsibilities of local authorities, I think it's commendable the way that they have aligned resources.

There is more money for social care in the draft budget. I have been following very closely the evidence that has come to Senedd committees—and it wasn't just to the health committee—on the pressures that local authorities are facing in social care. There's still the best part of a month to go before the final budget is laid. I'm trying to work out with our officials which of the many calls for additional expenditure we can try to match in the final budget. I can't make any promises today, but social care is one of the cases that does come through very strongly in the evidence committees have heard.

Thanks, Cabinet Secretary. On a broader issue, then, of local authority funding, you will know, I'm sure, that local authorities will be looking at balancing their books, through a combination of council tax rises and cuts to services. Are you comfortable with the way in which local authorities may have to change as a result of this budget, and do you believe that local authorities are moving at the pace necessary to manage these changes?

Well, I think the RSG uplift of 4.3 per cent is probably at the better end of what our local authority colleagues had feared. I don't say that it solves every problem that they face. It understates, actually, the amount of additional investment that local authorities will have next year because of the money we've provided for teachers' pay and some other pay pressures, which takes it nearer 7 per cent than 4.3 per cent.

I'm concerned about lots of things in this field, Sam, but my main concern, probably, is that the spread within that 4.3 per cent average is broader than it has been in some years. So, some local authorities, as you know, will be getting uplifts of more than 5 per cent, and some will be getting uplifts of less than 3 per cent. So, in the exercise I described a moment ago, of trying to work out as a result of Senedd scrutiny where some changes might be possible in the final budget, where my current discussions have been with colleagues is whether or not we can do something—I'm reluctant to use the terms, because I don't want to give people false impressions that decisions have been made, and so on. But a funding floor that will assist those local authorities that are furthest away from the 4.3 per cent average is where my current explorations are concentrating.

Thank you for those comments on the funding floor. I think we've heard them clearly here today. I think that will be welcomed by local government.

Just on that, with your analysis of what that might cost and where it might come from, have you looked at, if you were to, say, put a floor in at 4.3 per cent, at the average, roughly how much that would cost? Do you have that idea—

I do have those figures, and every decimal point that you increase the funding floor, the amount of money you need rises geometrically. A funding floor of 4.3 per cent is not a funding floor. The conventional sense of a funding floor, in the way I understand it, is where you take those local authorities that are furthest away from the average and you try and put a different floor underneath them. A funding floor of 4.3 per cent would have well over half the local authorities in Wales covered by a funding floor; that would not be conceptually consistent.

Based on the discussions that you've been having, where would the money come from? Is it that you're anticipating, possibly, late consequentials or something else, to be able to find that extra to give a little bit more to those below the average? Is that part of the thinking of where it would come from? Or is there money that is unallocated at the moment that you're thinking, 'What shall I do with this?'

There's a series of calculations you have to make as the Cabinet Secretary responsible for finance. I don't think it's illegitimate for somebody in my position, wanting to listen carefully and respond where I can to Senedd scrutiny, to have left myself some small room for manoeuvre in order to be able to do that. If I really had spent every single penny that I have in the draft budget, the work of Senedd committees would be marginal, wouldn't it, at best. I wanted to be in a position where I can listen carefully, and, where I am able to respond to the most urgent needs, to be able to do that. So, I have given myself a very modest amount of leeway to do that.

It competes with other things that I need to do. I am very keen to make sure that we go into next year with the Wales reserve full, because I've got no other contingency. There's no reserve in this budget, as I explained at the draft budget stage. You can have sleepless nights as a finance Minister, trying to manage a budget of £26 billion without a centrally held reserve. The centrally held reserve I will have will be what is in the Wales reserve, and that's £125 million in revenue and £50 million in capital. I have to manage things to have that money available to put in the Wales reserve, so I've got it to manage next year, so that's another competing priority. There are lots of moving parts to manage here, but one of them is having a very modest sum of money that I hope to be able to deploy in the final budget, to meet some of the calls that will have come through from Senedd scrutiny.

Thanks for those responses, Cabinet Secretary. Just moving on to potential risks around the long-term resilience and sustainability of local authorities here in Wales, we've heard, in the past, of potential section 114 reports coming through. The WLGA believe that that is not a risk in the immediate future, but in the medium and long term, it could be. I just wonder how you assess that as the Cabinet Secretary for finance, and whether you have plans to provide those multi-year settlements to enable local authorities to plan further into the future.

Thank you for that question. As ever, I'm very grateful for the joint work that the Welsh Government has been able to do with our local authority colleagues to avoid the dangers of a section 114 notice. Because that really is last resort territory and territory that comes with very significant harm, as well as managing the circumstances that have led to that. We haven't seen one in Wales. I was cheered up to read that the leader of the WLGA had said to a Senedd committee, maybe the Finance Committee even, that he didn't anticipate that that risk would crystallise in the coming year. We will work hard with our colleagues to go on being in that position. One of the ways will be to try to offer that three-year horizon. Once we have it from the comprehensive review, I will want to provide it to our partners.

There is also work going on through the Cabinet Secretary for Housing and Local Government to develop a protocol that would apply in circumstances of significant financial challenge. That isn't about more money. That might be about giving local authorities some different ways of managing the money they have. Capitalisation and so on is one of the things that I know they've been talking about. But it's also about making sure that early expertise is available to local authorities who are anxious that they may be heading in that direction, to avoid them coming to that eventuality. The protocol isn't finalised, but it is being actively negotiated, and I think that will be another brick in the wall that we want to construct to avoid a position where any Welsh local authority has to issue such a notice.

Thank you for that. Just a final question from me, Cabinet Secretary. You mentioned earlier the big budgets in local authorities around social care and education. You'll be aware of the significant changes that schools and education have had to deal with in recent times—the curriculum change, additional learning needs reform, and other initiatives as well. Do you feel like you have a clear picture of the cumulative impact of those changes? Do you think that you are able, therefore, to provide the finances to ensure that those things are a success in our schools?

My Cabinet colleague the Cabinet Secretary for Education certainly has a clear grasp of the cumulative impact. I have some additional insight into this myself, because I'm also the Cabinet Secretary responsible for the Welsh language, taking the Welsh language education Bill through the Senedd. Lots of the debate about that Bill has been about the cumulative impact of the changes that are being introduced in the education sphere. Through that work, I've got a sense of it as well. But my sense of it comes much more from the information that Lynne Neagle will have provided to me as part of the budget-making process, and that's why we've been able to provide additional funding for that part of the Welsh Government's responsibilities, significantly in-year, as well as next year. The education MEG was the single biggest beneficiary of in-year additional funding, and that was funding that the Cabinet Secretary then used across a wide range of her responsibilities, including those school standards responsibilities and ALN provision. There was £20 million to support Medr and higher education, and capital funding was provided to the sector in-year.

Next year’s budget does come on top of an injection, not all of it recurrent, but a significant in-year injection. The reason we were able to do that was that the Cabinet Secretary was able to provide evidence of the cumulative impact of changes in the curriculum, in ALN demand. We won't have talked this morning, so far at least, Chair, very much, about how we deal with demand in public services, rather than how we supply that demand. We've talked a lot about how we provide things. We haven't talked very much about how demand is generated. To an outsider, as I am, the growth in the number of young children identified as having additional learning needs is extraordinary, and actually quite hard for a lay person to understand. So, I think there is work that we need to do that interrogates demand as well as focuses on how we are able to supply extra money and so on. That was the case that the Cabinet Secretary put to me—the cumulative impact—and that’s why we’ve been able to make the allocations that we have.

I’m very conscious of time; we might run over a little bit, if that’s okay. I just want Mike Hedges to be able to ask a few questions at the end, Cabinet Secretary. I’ll bring Mike in now, and maybe brevity would be excellent in some of these. Diolch, Mike.

On the first two questions, the answer is either 'yes' or 'no'. Is phase 3 of Flying Start being funded in next year’s budget?

It’s not quite as simple as 'yes' or 'no', I’m afraid. My ambition is that it will be funded in the final budget. We are still interrogating the returns that we’ve had from local authorities on what it will cost to implement phase 3, but it’s a commitment in the co-operation agreement. I am committed to funding those. The Cabinet Secretary concerned has found the money for the hourly rate uplift, because there were two cost pressures in relation to childcare—the hourly rate and phase 3. My ambition is to assist with phase 3 funding in the final budget.

Thank you. The same question regarding baby bundles.

My understanding of this is that the scope of baby bundles has had to be drawn in. It was originally meant to be for every child; it’s now going to be focused on children born in Flying Start areas. There is some work being done to make sure that the content of the baby bundles matches the needs of those communities in the best way possible, and, then, the baby bundle scheme will go ahead, albeit on that reduced geography. But that means it’s there for expansion in the future when circumstances allow.

The Bevan Foundation noted the usefulness of the role of the Wales expert group on the cost-of-living crisis in engaging with Welsh Ministers on different priorities. Given that the cost-of-living crisis has certainly not gone away, do you think there is a potential role for a standing committee on the cost of living and poverty in regard to future budgetary plans?

I was able to meet the expert group on a number of occasions; their advice was very useful. I’m happy to discuss with Jane Hutt whether she thinks a standing committee would be of continuing benefit in this area. I’m probably reluctant to commit to permanent additions to the advisory structure of the Welsh Government in the final year of the Welsh Government, but I’m very happy to talk to Jane about preparatory work and whether she would find this a useful addition.

It could be a manifesto commitment by one or more parties.

What is the status of the two remaining gender budgeting pilots, and what are the timelines for publishing the results? And how are you going to reflect the outcome in future budgets?

Emma has been leading on gender budgeting and its impact in this round, so I might ask her to provide the information Mike is looking for.

There were three gender budgeting pilots. One is the young person’s guarantee, one is personal learning accounts, and one is E-Move, the active travel programme. The three pilots have now been finished, and some of the early evaluation of the pilots did help influence some of our budget setting. We are intending to publish the findings of the evaluations at some point over the next few months in this year, but I think they’ve already pointed to things like ensuring that gender budgeting is considered from the outset of policy development, and also ensuring that, when a policy is being revised, or seeking new funding, the evaluation and learning can be built in again right from the start. And it has also provided us with some useful findings in terms of capacity and resources as well.

Thank you. The Bevan Foundation welcomed the funding for the social housing grant and transitional accommodation capital programme. But it highlighted—and I agree with them entirely—that there’s a shortage of council housing in Wales. That is not necessarily in your power, because it would need a change in Treasury rules to the 1950s, 1960s and 1970s rules, where borrowing for council housing was not treated as part of the public sector borrowing requirement, but was treated more like transactional capital has been by the previous Government. Have you had any discussions with the Treasury about this?

Not that I'm aware of, on that narrow point, Mike, but I can find out and, if there is anything to report on, make sure that we do that.

I share the Bevan Foundation's wish for us to do more and to do more quickly in this field. There is £81 million more capital in next year's budget to accelerate the delivery of more homes. And I was especially keen to be able to make that allocation early in the draft budget so that local authorities could bring forward more of their schemes for transitional accommodation capital, which has been one of the success stories of the last couple of years. And knowing that there's more money for that, I think, has allowed them to accelerate those plans. And challenging as it is, the Government remains committed to that 20,000 figure of more social homes for rent.

And finally from me, we've spent a lot of money on public transport. Are you happy that the share between buses and rail is going to stay at that level, or can you see an increase in bus support? Because the constituency that I live in has one railway station and it has a whole bus network.

Well, I can see that changing over time, as franchising becomes a reality in Wales. I do hear this argument from time to time that only posh people go on trains and other people go on buses, and that the Welsh Government's emphasis on train expenditure is regressive. I don’t buy that completely. I think the investment that we will have made in the core Valleys lines over a 10-year period is—I try and avoid using this word, Chair, I don’t like it at all, but I’ll use it just in this instance—transformative, because it turns on its head what is almost 100 years of economic policy. Because economic policy in Wales, since the Treforest industrial estate in the 1930s, has been predicated on taking jobs to people, and what the core Valleys lines will do will move people to jobs. And when it’s all up and running, that metro is really going to transform the way in which opportunities for people in that part of Wales—economic opportunities—are generated. Transport for Wales is expecting to see a 17 per cent increase in its farebox this year, and that’s pretty remarkable, given what’s happened in the post-pandemic era.

Bus franchising will, I think, allow us to make much better use of the money that the public invests in bus services, driving those services in the public interest rather than the narrow pursuit of private profit. And that will mean that, in future, investment in the bus industry will gain greater returns for the public. So, I think the short answer to Mike's question is, ‘Yes, I can see that in future’, but I do think that the investment we've made in train services in Wales is going to pay real dividends.

Can I thank you for that, and just add that we might have had an economic policy that was moving jobs to people, but we've had the reality of the growth of the cities along the coast and the decline in population, and certainly a decline in jobs, in the south Wales Valleys? Are you now suggesting that the economic policy means that we're more providing jobs along the coast, rather than trying to put jobs in places where it's been incredibly difficult to provide them?

Well, I think that that is what two major transport investments of the Welsh Government will allow to happen more easily. So, the Heads of the Valleys road, which is a 20-year project, £1 billion, I think that will increase connectivity at the Heads of the Valleys. That will drive—. As Alun Davies always says on the floor of the Senedd, it’s much more than a road; it is an economic driver as well. And I think that the south Wales metro will mean that it will be easier for people to live in one place and work in another place and for that to be manageable in a convenient and affordable way. So, yes, that’s why I used the word, which I’m normally reluctant to use, that this is a transformational change in the way we think about economic policy.

Diolch yn fawr. Thank you very much for that session this morning—lots for us to digest and a very short time frame for us to come to some conclusions and recommendations in reporting. But thank you for your time this morning; we've gone over slightly, but I appreciate that.

So, thank you very much for your time this morning.

In accordance with Standing Order 17.42(ix), I propose that the committee resolves to exclude the public from items 5, 6 and 9 and the start of the meeting on 23 January 2025. Is everyone content? [Interruption.] Sorry, that's 30 January, to get the date right. Is everyone happy? Yes. Great, thank you very much.

A warm welcome back to this meeting of the Finance Committee. We have two sessions this afternoon on the Visitor Accommodation (Register and Levy) Etc. (Wales) Bill, and this is the second evidence session.

So, this is our second evidence session, and we have our first witnesses this afternoon with us. And if I could ask you to introduce yourselves for the record. We'll start in the room.

Okay. I'm Dr Rhys ap Gwilym. I'm senior lecturer in economics in Bangor University.

Great, thank you very much. A warm welcome to you.

And we'll go online—Linda, do you want to just introduce yourself?

Yes. Linda Osti, senior lecturer in tourism management, Bangor University.

Lovely. Thank you so much to you both for coming this afternoon. This is the substantive part of our deliberations on this Bill. We've already heard from the Minister in charge. That was in December, but we are now taking evidence and we've got a series of evidence sessions today and next week and beyond.

I'd like to start with looking at your evidence and what you've submitted for us, and thank you very much for that written evidence that we've had. You've referenced the changes implemented day to day in regions included in your case studies and note that your consultation response on the Bill in its current form only applies to overnight stays, but not to day visitors. Maybe you can start by just giving, maybe, an overview of your evidence, and then addressing that initial question, really, of elaborating on this and how applying the levy to day visitors could have been achieved if we'd have gone down there. So, do you want to—?

Shall I start, Linda, and then maybe you can jump in as you see fit? Yes, I guess, in that introductory section of our written evidence, we were just looking at the principles underlying the imposition of a visitor levy. And as we understand it, the justification is essentially twofold. Firstly, that visitors make use of public services and public infrastructure in the destinations that they visit and that this is a way of ensuring that visitors make a contribution to the public purse to finance those services and that infrastructure. And, secondly, that there are externalities, external costs caused by visitors visiting destinations, and in a straightforward Pigouvian sense, we should be internalising that external cost through taxation. I think our point was simply that there’s no reason to think that overnight visitors have any greater impact in either of those two senses than day visitors, so we’re just noting that this legislation is very much targeted at overnight visitors, but our feeling is that—perhaps not particularly relevant to this legislation, but the fact that day visitors also give rise to those external costs and that they use that public infrastructure is something that should be recognised and thought about.

Linda, would you like to add anything to that, or some initial thoughts from yourself?

Yes. As Rhys said, the problem is that also day visitors would have an impact on the destination. Whenever we’re trying to cover the externalities of tourism, we have also to think about the benefits of tourism, and overnight stays quite often have more benefits than day visitors in terms of positive economic impact. We cannot forget that, but sometimes it’s also a question of trying to find the balance between the positive economic impacts and the environmental or social and cultural negative impacts, and overnight visitors seem to have more positive economic impacts than day visitors, but with this legislation, they are taxed, and not day visitors.

So, do you think the Government may have missed a trick in not legislating, or is it more of the practical view that this is the easiest way to bring this levy into place?

A lot of the destinations, most of the destinations, are taxing overnight stays. It’s easier, it’s a way to do it. Very few destinations are taxing day visitors. In a sense, it’s done in national parks, for example, where there is an entry at an entrance and an exit. Otherwise, it’s very difficult to understand how to do it. Venice, for example, is one of the first destinations in the world that is doing it, but, again, it’s a situation where it’s a little bit easier to find where tourists are coming in. But they’re randomly checking through a QR code, for example, in Venice, so you can enter Venice from different ways, different means of transport, and you need to have a QR code, and people are randomly checked through a QR code, for example. But, historically, it’s an overnight stay tax.

There we are. Sam, did you want to come in?

Thank you, Chair, and thank you, both, for taking the time to be with us this afternoon. It’s really appreciated. I just wanted to put on the record the significant difference in spend as outlined between a day visitor and an overnight stay visitor. I believe a day visitor spends an average of £32 in Wales and an overnight visitor spends around £239 per stay, so it’s a scale of seven and a half times the difference in terms of economic impact. And Rhys, you described some of the logic behind why a visitor levy could or should be put in place, and, of course, one of the reasons taxation is put in place is to drive behaviours, as well as bringing in revenue to deliver public services. Do you think this visitor levy, then, would drive the wrong types of behaviours in terms of attracting the wrong type of visitors we want to see in Wales? Because if there is higher value in overnight spend, they’re surely the types of people we want to see coming to Wales to support our communities with the spend that they provide in our communities?

So, I think, were this tax to, for example, encourage people to come on more day visits and fewer overnight stay stays, then that would clearly be a negative unintended consequence of the tax. So, I think that that is something that should be kept in mind and that ways of ensuring that day visitors do make a contribution to the public purse locally should be explored. But that, I suspect, is probably beyond the remit of this particular piece of legislation.

Okay, thanks, Chair.

Thank you. In your consultation response, you talked about the registration of visitor accommodation, that it would improve the data collected on the sector in Wales, and substantially improve that data collection related to tourism in particular. Maybe this is a question for Linda. Can you tell us what benefits or not that getting better data would have for the work that you carry out and what benefit that might have for Wales as a whole, or for Government in designing policies?

Data is essential for the industry and academia as well. For the industry, they can check trends, they can check seasonality, for example, and try to reduce the peaks of seasonality. They can try to understand the behaviour of tourists, try to have or prepare goals and objectives that at the end are measurable. So, through data, they can check if their goals are measured or not—sorry, if their goals have been reached or not, especially in times of disrupted situations. We've seen with COVID that having data can help to understand where to go and how to go. Data is essential for every resilient destination and monitors the destinations constantly. This is something for the industry, and also the small accommodation providers can benefit from data. I come, for example, from a region that is very rich in data, and data is shared through data hubs with every single citizen. Small companies can check data and can compare how they are doing against the average as well.

So, that's one thing, and the other one is, in academia, we do a higher, let's say, more advanced statistical analysis of the data. That can help in informing students, it can help in letting students exercise, in letting students understand what can be done with data, and as well in our daily research work to understand how a destination is doing. I hope this answers the question.

Yes, that's great, thank you. Anything to add to that in a—?

Yes, so I think I'd say—I did a piece of work with some other colleagues in Bangor back in 2022, I think it was, on trying to identify similar tourism economies to that that exists in Wales. So, for that, we carried out an analysis that required a lot of data, and in order to find data at a nomenclature of territorial units for statistics 3 level, so a reasonably disaggregated level, but not particularly local, the data that we were using was from Eurostat back in 2011, I think.

So, we do just lack granular data relating to the tourism sector in Wales. Most of the data that is available is survey based and it just struck both me and Linda that if you are introducing, firstly, a register, but also there are going to be some kind of tax returns, this is an opportunity where, actually, really valuable data could be collected at a relatively low cost. One of the things that I was struck by in the legislation is that it talks about the Welsh Ministers having the right to publish data from the register. Well, to my mind, I can't understand why there shouldn't be a requirement upon them to publish that data. Obviously, if there are legal and privacy concerns in compliance with the general data protection regulation and the rest of it, then—. But I think, for me, it would certainly be a strengthening of the legislation if there was a requirement for the most granular data as possible to be published.

I understand that, I'm a big fan of data and making data-informed decisions, and, obviously, that should help in managing resources better as well. You said that rates should be set at a destination level and that revenue should be managed at a subsidiary level via destination management organisations, or other appropriate bodies. Now, in the sense of this Bill, the appropriate body, as it's laid out and is my understanding of it—and I hope you agree—is the local authority. So, can you explain how that would work or how you'd foresee it working at a local authority level?

I guess I just think it's slightly perverse that we're in a position—. So, you represent south-east Wales, is that right?

Yes.

So, Abergavenny and Crickhowell could have different rates, but Abergavenny would have to have the same rate as Chepstow and Crickhowell would have to have the same rate as Llanrhaeadr-ym-Mochnant. Now, that, to me, just—it doesn't seem that there is any clear justification for that. If we're talking about a tax that is designed to address tourism infrastructure and tourism externalities, then, really, the geographic extent of that tax in terms of the rates that are set, to my mind, should logically be the level of the destination. Now, of course, there are some complexities in how you would define destinations, and we have a very heterogeneous tourism industry across Wales, So, in some places, maybe here in Cardiff, maybe the local authority does correspond to the destination—you know, people who are staying in a hotel in Culverhouse Cross are probably still coming into the centre of Cardiff to use the public facilities available here, but in somewhere the size of Gwynedd, that certainly isn't the case—Aberdaron is not the same destination as Bala.

So, would you—? I'll come to you for your thoughts now, in a second, Linda. But would you, then, advocate that it should be more granular, for example, in Gwynedd, it should be more on a ward level, rather than a local authority level, or how would you—? The balance, then, would be the complexity in management and people understanding and keeping it—. You know, one of the things that we heard from the Cabinet Secretary when he was presenting—and we had some of this discussion—is how do you keep it simple but then achieve your objectives? What would be your response to that?

I think my response to that would be: well, why does Welsh Government, or the Senedd, through this legislation, have to define that? Why can't that be left to the local authority, in its democratically accountable role? Why can't it define what the geographical boundaries for the levy should be? And if certain communities are particular hotspots for tourism and there's a feeling within a community that a higher tax rate is appropriate and there might be another community within the same local authority where they feel that a lower levy is appropriate, then why shouldn't it be within the powers of the local authority or others, maybe even community councils, within those local authorities to determine the rate?

Linda, would you concur with that? Or have you seen it done differently in other parts of the world? What are your thoughts on that side of things?

In our case studies, we have seen, in general, more flexibility, so less reliance on the national. There is a national framework, but then there is more flexibility on the rates. That is what we have seen in the examples that we have taken the case studies from, but, in general, there is more flexibility across a state, with counties being more responsible for the implementation of the legislation. It's not only if they want to implement it, but also how they want to implement it. In general, there is a little bit more flexibility, so that also marginal destinations can profit from perhaps lower rates, or in a way they can profit by aggregating. We're seeing, in certain destinations, that small communities are aggregating themselves and, therefore, they start building a destination; they start thinking together about the tourism system.

Thank you for that. You touched on it earlier; in your response you said that local authorities could use the new revenue stream to fund existing spending on tourism-specific public goods and the mitigation of external costs to tourism, while diverting existing revenue streams to other unrelated areas of expenditure. How could the legislation be strengthened to mitigate that risk, so the risk of unintended consequences, I suppose, of the legislation?

I think what we’ve seen in many of the destinations that we studied is that—. We essentially summed up that there were three different models that we saw across those different destinations. One was that government, in most cases local government, spent the revenue directly.

In most of the cases, we saw that there was some kind of body that was set up—. In South Tyrol, for example, the legislation there meant that municipalities had to set up a tourism association within their locality, and that was a designated body that got the funds from the tax, and they were then able to spend those funds relatively flexibly, as they saw fit.

In other places, such as Iceland, what they have is a designated fund, a bit more complicated in Iceland, in that there’s not a strong hypothecation, but they have a designated fund, and then organisations, including landowners and various groups, are able to bid into that fund in order to get funding to complete particular projects.

Those latter two models, I think, are ways where you have a much clearer hypothecation of these additional revenues, whereas under the first model, the one where local government just ends up spending it, there’s a less clear delineation between these new revenues from this particular tax and revenues from other sources. Given the evidence about the desirability of hypothecation of tourism tax revenues, I think there is a good case to support one of those latter two models, where the funds from this particular tax really are ring-fenced and there’s a clear link between the revenues raised and the projects that are being funded.

In the legislation, though, there is a part that says what the money can be used for and a way of reporting that through, so does that not go far enough, in your view?

Shall I carry on for a bit, Linda? Jump in if you want.

You can carry on on this, and then I'll go back to one point on what you were saying.

In the legislation, it does specify the particular areas in which these revenues can be spent, and there is a requirement to report how those revenues are spent. I guess that there are things that local government are already doing in those areas, so there is a risk that what happens is that these new revenues are simply used to cover those existing spending streams, and that means that existing revenue streams can then be diverted elsewhere. So, I think having a clearer process with more arm's-length bodies involved would make the hypothecation clearer and more obvious.

Thank you very much. Linda, I'll bring you back on that question and the one before, and then I'll come over to Sam for some further questions. Linda, did you want to comment?

In our interviews, what we have seen talking to destination managers or representatives of tourism boards is that accountability has been essential for the approval of the legislation or of the tax. We have noticed that when the industry can see the added value of the tax on top of what was done before, then it's much more accepted than otherwise. So, it's also the way that the revenues from the tax are spent and the way that there is accountability, explanation and reporting. That helps the acceptance by stakeholders.

Thank you very much. Sam, do you want to take some questions?

Thanks, Chair. I'm just going to come on to the research that you've shared with us here today. I just want to touch briefly on your consultation response in relation to the concerns expressed by industry bodies, and in particular the second concern where the industry in Wales believe they already have high tax relative to elsewhere in Europe. The response shows that the smaller businesses in tourism in Wales, comparative to other countries in Europe, are probably paying less tax, whereas larger businesses are probably paying more tax than comparative countries. That was from the research in 2022. I wonder if you've refreshed that research since the national insurance increase and the thresholds for national insurance have come in, because one of the drivers that you suggest in here is around the labour taxes being more progressive, and of course, there's smaller businesses that would have brought a significant number of people into paying national insurance. So, have you had a chance to do that, and if so, what has been the effect?

We haven't recalculated for it, but it's a valid point that you're making, that the reduction in the threshold for national insurance contributions means that that progressivity at the bottom end of the income distribution is much lower, and I think it's clear that that particular tax change will hit small businesses in the tourism sector. So, yes, it's a valid point that you're making, but, no, we haven't gone through recalculating those tax wedges.

Understood. Thank you. On the second point in relation to this, on the VAT side, you've highlighted—and I'll quote from the response—that

'the VAT rate in Wales on accommodation is significantly higher than in the majority of the comparator economies.'

And, of course, the threshold for paying VAT is higher also. Has there been a piece of work to show the proportion of affected businesses who are currently paying VAT? Because I would have thought—I could well be wrong—that the majority of overnight stay businesses in Wales would be paying VAT. Is there the data out there to show what the proportion is?

I know that there's ONS data that shows the—. I can't remember the exact breakdown now. The sector that it looks at, I think, is something like tourism and hospitality, where it shows that, but I don't think it breaks down by accommodation providers versus other tourism businesses.

Okay, that's helpful to understand, because one of the main areas of feedback from the industry is the VAT levels compared to other countries providing a similar service. Just going on to the report, you suggested that the understanding of the impact of the tourism tax 'remains limited' because of the challenges around the amount of information available. Could you elaborate on that a little further? What challenges have been presented for you in undertaking your research?

Do you want to go on that, Linda, or should I start?

Who wants to start? Linda, do you want to come in on that to start?

No, Rhys, maybe you start, because I'm struggling to understand whether it's the challenge to understand the impact of the levy in terms of tourism arrivals and overnight stays, or on other things. So, maybe you start, Rhys.

Okay. When we did this most recent report—the one that was published in November—our initial plan was to look at the literature and try to draw some conclusions based on work that had previously been done. But, looking at that literature, it was very sparse. There's not a lot of robust evidence about the impact of tourism taxes on the number of overnight stays or tourism arrivals. So, essentially, we ended up doing what we did in that report, taking that case-study approach, because we didn't have a good body of evidence in the existing literature.

Within our case studies, we've presented evidence on what's happened to overnight stays. In most cases, we have time series that show what happened across the implementation. Some of them don't go back so far. In Orange County, for example, I think it came in in the 1970s, so they don't have data going back as far as that. But, essentially, from the case studies that we could see, there's not a clear drop-off in the number of overnight stays following the implementation of a tourism tax. Now—

Sorry. Perhaps before Linda comes in as well, I wonder whether you could also just explain how you selected the regions for those case studies that you're referring to and how relevant you think they might be to a Welsh context as well, as part of your response.

What we did was we put a longlist of 61 destinations together, which covered as many destinations as we could find with tourism taxes. When I say 'destinations' in this context, some of them were countries, some of them were parts of countries and some of them might have been cities, but we had a longlist of 61 different potential case studies that we were going to look at. Then, we ranked those on, firstly, the nature of their tourism sector. So, as I said, in previous work with colleagues in Bangor, we did a cluster analysis to identify countries in Europe that had tourism sectors similar to that in Wales, based on a variety of different data. So, we used that to kind of rank those 61 destinations. We also considered the social, cultural and environmental context of those countries, and compared that with Wales, and ranked on that basis. And we also tried to identify whether the objectives of the levy were similar to the stated objectives of Welsh Government in implementing this levy, so, related to reinvesting revenues in tourism and promoting a sustainable industry. So, we ranked on that basis and came up with a shortlist, and then obviously there were constraints in terms of where we were able to find people who were willing to engage with us and talk to us about what was happening in those localities. There were some destinations that we had considered—I've got a few listed here—so, Malta, where we were interested in what was being done in Malta because it came relatively high on our rankings, but we couldn't find anybody who would engage with us on that case study. Within Italy, we tried to make contact with people in Genoa, but we hit a dead end there. So there were examples of places that we wanted to look at but we weren't able to find people on the ground who were willing to engage with us.

Thanks. I'm not sure, Chair, if Linda wanted to respond to this point as well.

Yes, anything further to add to that, Linda?

No, I just wanted to say we looked at both academic and industry literature. We searched what has been written, what is there, but there was a lack of information on the specific question of the impacts of the levy on tourism destinations. We went, then, on with case studies.

Okay, thank you. I just want to move on, then, to some of the information from the case studies. I was reading through those case studies myself and noticed in particular that many of them exclude children from being included within a tourism tax, and I myself—and, I'm sure, colleagues—have also received feedback from various groups who work with children, like scouts and outdoor activity centres as well, who are very concerned by the impact of the visitor levy. Could you perhaps just comment on that point, where many countries or many destinations do not include children, and the choice here of Welsh Government to include children? Do you think there should be a minimum age for applying the visitor levy?

Do you want to go first, Linda?

Yes. What I think is, and it goes back to flexibility given to the counties, it depends from destination to destination or from county to county what—. We know the objective of the legislation, but how we implement it and how we get the best results from that legislation is on the ground, and people working on the ground know better. We have seen flexibility in terms of children not being included in the levy, but also some destinations want to support longer stays, so the levy is only for the first four, five nights or one week, and then, to encourage people to stay longer at the destination, there is no levy. So, it's, again, going to that flexibility. One recipe cannot fit all, and I think this study showed us that different destinations have implemented the levy in a different way, and that the knowledge is on the ground rather than at state level.

Okay. So, can I just understand—? So, your response is that you don't think Welsh Government should consider a minimum age and it should be down to the local areas to manage it themselves.

Yes. The legislation should give that flexibility.

Okay. Can I just ask one more question?

Yes, one more and then we'll go to Mike, then.

Time's going. Do you have any research to suggest the impact that might have on larger families in particular? We know many parts of Wales are very attractive to families coming on their summer holidays, wherever it might be. Do we know the impact of children being included in the visitor levy on the attractiveness of an area to larger families? Is there any research that shows that?

Personally—. I don't know, Rhys, but personally I've never seen such research being done on families. So, in all of the literature that we looked at, impact on families was not included, I think. Rhys, I don't know if you've seen something different, but, that I recall, nothing about it.

No, I'm not.

[Inaudible.]—and I'll bring Mike in, then. What about educational visits? So, an overnight stay, similar to what Sam was suggesting there, with the Scouts, potentially, or the—. I can think of others, like the Urdd, where there are school visits, and that sort of thing. Is there anything that come through in your research that talked about that impact, and any comments on that?

No—[Interruption.] Yes, Rhys.

Yes, I don't know of any research in that area. I feel like I should declare an interest; I used to work in the outdoor sector and I've got a lot of friends who still work in the outdoor sector, and I was having a conversation last week with somebody who runs an outdoor centre, a good friend of mine, who runs an outdoor centre in Llanrug, making the case that there should be an exemption for educational visits. As the father of three children as well, I also have lots of sympathies with the idea that there should be exemptions for children. So, yes, on an emotional level, I think there are very strong cases for both of those examples. I guess, if you want to be very logical and go back to what Welsh Government says are the objectives of this tax, which are to fund tourism infrastructure or tourist use of public infrastructure and public services, and to mitigate the external costs of tourism, well, I guess is there a case to be made that children produce fewer externalities than adults, that they use infrastructure less than adults? Those on educational visits, do they use infrastructure less? My guess is probably not. So, if you want to be very logical and cold about it, then there are probably—. I suspect there's not a very good case for excluding particular visitor types. But, yes, on an emotional level, I think there's a strong argument.

Diolch. Thank you. I'll bring Mike Hedges in at that point, so—. There we are. Mike.

Diolch, Cadeirydd. I can't remember the last time I went on holiday when I didn't pay a tourism tax. That's been Spain, Italy, France, western Europe. It seems to be the norm. Perhaps we're taking a long time to catch up. Catalonia implements a tourism tax for all destinations within the region. Barcelona also has the ability to levy a surcharge. The question I've got for you is: how do the proposed visitor levy rates for Wales compare with other countries or regions you have researched?

I've listed these down, Linda, so shall I go? So, in looking at the destinations that we considered, the Balearics have rates that vary across accommodation type and across season as well. So, they have a low season and a high season rate, and they vary from 25 cents up to €4 per person per night. In Catalonia, they vary from €1 per night up to €6.25. That includes that Barcelona top-up that you were talking about at the higher end. In Iceland, it's 300 kroner, which is about £1.70 per person per night. In south Tyrol, it varies between €1.50 and €5 per night. And in the examples that we look at in north America, it's a bit different there, because they have sales taxes and various other taxes included in it. In each of the three cases that we looked at, they were all proportional rates. So, they vary from 6 per cent in Florida, in Orange County, up to a maximum of 21 per cent in Colorado. So, the headline rates in the Bill of £1.25 and 75p, to me, look like a reasonable starting place, if you're going to implement this kind of tax. They're at the more modest end, I would say.

You're leading into my next question very rapidly there, because accommodation in Wales—and I travel around Wales reasonably frequently; in fact, I'm in Caernarfon next Friday and Saturday—and the price of accommodation varies substantially more than the levy. I've paid, in a chain hotel in Caernarfon, and one in Bangor, less than £50 for a night, and I've paid over £110 a night; same hotel, just different times and different demand. So, don't you see this being a very small part of the charges that people are paying for accommodation?

Do you want to go on that, Linda, or shall I?

Linda. There we are.

Yes. So, £1.25 or £1.75 is a low rate, but it is there. If you sum it up for two weeks' holiday—and some families are coming for two weeks, and four or five people—it takes a percentage. So, if it's one person, one night, it's nothing; tourists wouldn't even realise that they're paying a tax, actually. In a lot of these nations, the tourism tax is not paid separately. So, it's included in the price of the hotel room, and then, at the moment, the receipt—it's separated within the receipt, rather than paying separately. So, for one person, one night, it's very low. When it comes to two weeks, one family, then it can become a little bit higher and it can be—. The market can be a little bit more sensitive.

I—

Again—

Mike—. Sorry, Rhys.

Sorry, yes, I was just going to say it's really hard to—. You know, how do you calibrate what is a reasonable rate or not? So, I think, making those international comparisons is illustrative, I guess. The only other comparison that I can think of is if we think about what the residents pay in terms of council tax. So, if you work out, on a per capita basis, on average, residents in Wales are paying about £700 a year in council tax. So, £2 per night, on average, across Wales, in council tax. So, is that a relative comparator? You could argue it is; you could argue it isn't. But I think that's the best way of trying to calibrate what might be a reasonable level for a tourism tax.

Can I come back to Linda? You talked about how much it would be if people stayed a fortnight, but, two people staying a fortnight, it would be under £50, wouldn't it? And when you look at two people sharing a room in some of the budget hotels, they're lucky to get it for under £700 and could well be paying well in excess of £1,000 or £1,500. So, as a proportion of what people are paying, isn't it very small?

Do we really want to go on proportions? I mean, the question is, is it—? To me, the levy is about trying to—or my understanding of this levy is it's trying to—sort, to mitigate, the externalities of tourism, and it should be done in such a way that a balance is kept with good development of tourism and the well-being of the local communities. Comparing examples, that's where it stands in most destinations, then there are the surcharges of cities and towns that are particularly attractive hotspots. So, they also do it for other reasons, and that is calibrating the tourism influx that there is. So, the Bill here is trying to mitigate externalities, but I think it's also trying to maintain a good, developing tourism industry, and it's also trying to give well-being to local communities. So, seeing other destinations that have similar objectives, I would say that the rate, it might be low for certain people, but it's what the industry is doing. It's the entry level to what other destinations are doing. In case the point arises that there are some destinations, some hotspots, that want to increase the levy, only because they feel that their resources are used for the tourism industry, their services are used for the tourism industry—. But, as a starting point, it's within what we have seen in other destinations.

Okay, thank you. There's a lot more I'd like to talk about, but time is against us, so I'll just finish off with my last question. You mentioned in your conclusions that funds may be allocated via grant-making processes, allocated to bodies with defined remits, or spent directly by Government. What are the strengths and weaknesses of these approaches and what are your views on the approach that's taken in this Bill?

I think that my colleague Rhys has also spoken about these different forms of spending. We have seen advantages and disadvantages in the different forms of spending. We have seen that there is more accountability, that it creates—. The spending that is done for projects or through designated bodies is done for tourism, to mitigate tourism, so that it helps the tourism industry, but it also helps the local communities. There is no shifting in public budgets.

Okay, thank you. I mean, on tourism in general, I have a number of people not living in my constituency and living in a neighbouring one who hate the summer because of the amount of extra traffic that comes on the road and the traffic jams that are being created by it. But that's a different problem.

Probably finally from me, why do you think that we are so far behind other countries in bringing in a tourism tax?

I've come to Wales recently, so maybe Rhys has a better knowledge of Wales to answer this question, otherwise I would only give you my perspective as a person who comes from a country that had a levy employed—Italy—since 2012. So, I'll leave it to Rhys first.

Thank you.

So, I think, first of all, I'd say it depends what you mean by a latecomer to this, because there's been a taxe de séjour in France for over a century, but very few other countries followed that example during the twentieth century. I think, on our count, Wales will be the fiftieth country in the world to have a levy of this type, but in many of those countries, the levy doesn't cover the whole country, it's just in particular tourism hotspots. But in most of those cases, a levy has been introduced in the last 10 to 20 years. So, I don't think we're way behind, but I think you're right to identify that there's been a big increase in the number of countries that have this kind of levy over the last decade or two.

Is it the biggest priority for Government? I don’t know. This is going to be a very modest tax. It’s not going to bring in massive revenues. I think there are very good opportunities with the implementation of this tax to improve the tourism offering that we have in Wales, and to strengthen the tourism sector. But it’s a reasonably modest proposal. I’m not surprised that it’s not been the highest of priorities, but that doesn’t mean that it doesn’t have its place.

Thank you for that. I’ll move on. We’ve got, hopefully, just over five minutes left, and I’ve got, probably, three more questions, so brevity might be good.

You noted that in most jurisdictions the assessment of the impact of the projects funded post spending is rare in practice. Do you think that the reporting obligations—we’ve talked about them earlier—for local authorities in the Bill are sufficiently robust to allow the visitors levy’s effectiveness to be assessed?

Shall I go first, Rhys?

Of course, yes.

Well, we have seen different examples, and we have seen, for example, in the United States, with Colorado, with Gunnison County, high accountability. And everything was there—they shared every single use of the funds with us. So, they don’t do any specific evaluation of the impacts, but everything is there. And they have—. The use of the fund is public—everyone knows. While we had other destinations like South Tyrol, for example, at a much smaller level, where we were told by the destination, by the tourism co-operative—that is the designated body using the funds—they were saying to us, ‘It’s a small place, so everyone knows what we are doing, they come back, and the person, the director is elected, so I will not be re-elected, I’ll not be here, if I don’t use the money correctly. I will not have members for my co-operative if I’m not doing things correctly.’ And in the United States, for example, the levy is voted on. So, every four years, the levy is voted on. So, one of the directors was saying, ‘We are here, we have voted.' It’s working or it's not. It’s people seeing the use of the levy in their daily life, and that’s how it is evaluated at the end.

Okay, thank you for that. I’ll just move on to the last couple of questions, then. I’m just a little bit conscious of time, but maybe if I come to Rhys first with the next one, and if there’s anything further he wants to comment on that—.

You noted that the visitor levy revenues should be available to fund both tourism-specific public goods and the mitigation of external costs to tourism. We covered a bit of that earlier. Does the list of permitted spending in section 23 of the Bill identify the most effective areas for use of the proceeds of the levy?

So, my view on that is that the Bill leaves a lot of power to local authorities to determine where those revenues are spent. But my view would be that that is an appropriate responsibility for local authorities or designated bodies to shoulder.

Okay, thank you very much. And seeing as we’ve talked about data quite a bit in this session, what data do you think should be collected to effectively monitor and evaluate the implementation of the levy across Wales, and what did you learn regarding the sharing of best practice from other parts, across other countries or regions? Does it go far enough in the Bill to specify what data should be collected, or is there anything further that you’d want us to pursue with Ministers? Linda, do you want to come in on that?

Yes, and Rhys maybe to join in as well later on. He had a study where they struggled as a team to find relevant data. No. 1, the data that Wales has is survey-based data, and it's always nice to have real data rather than survey-based and estimated data. Data can go to a more granular level, which is not possible now. A simple example: I was required to evaluate an event, the impact of an event, but I did not have granular data for Bangor itself. I was told, 'Well, it's not representative. It's not a representative sample, so how can we check what there is?'

The Bill itself doesn't provide much in terms of data, and there are two forms of data that can be collected. One is from the supply side, so you have a register for the supply side of the suppliers, so having data on the supplier in terms of the size, in terms of the beds, rooms, when it's open, the number of days that it is open, and the date that the business started, so to see as well if the businesses are sustainable from an economic point of view and are staying in the economic sector or not. And on the other side with the levy, there might be possibilities, or there are possibilities, to have data on the demand side, so how many people are coming to each place. That's very important when we want to mitigate the negative externalities of tourism—understanding the number of people that are visiting the destination.

Thank you.

Anything to add?

Anything to add? And your final comment, I think, before we wrap up this session.

Yes. I think there's clearly going to be some onus on businesses in terms of this tax, in terms of registration, in terms of having to pay the tax, however that process works. There is going to be a burden on business to some extent. I think it's really important that that is kept as minimal as possible, but any data that comes out of that process should be used to the advantage of the sector in Wales. That data should be made available to everybody who can make use of it.

Diolch yn fawr iawn. Thank you so much for this session—very helpful in putting context around your research, and thanks for the work that you've already done. It is valuable work. There will be a transcript available for you to check for accuracy on what you've said this afternoon.

I now would like to just go to a short break while we reset the room for our next session.

Thank you very much.

Thank you.

Thank you.

Thank you.

Welcome back now to session 3 of this inquiry.

The Visitor Accommodation (Register and Levy) Etc. (Wales) Bill, evidence session 3. So, we're joined by our next witness. I'd just like him to introduce himself for the record, please.

Good afternoon. My name is Calvin Jones. I'm a professor of economics at Cardiff Business School and currently seconded part-time to Welsh Government knowledge and analytical services, looking at input-output tables and the quality of economic stats.

Thank you for making the time to come and give evidence this morning, and thank you very much for your written evidence and your report as well—very informative. I'd just like to look at a little bit of your methodology in coming up with your conclusions to start off with. You've noted in your report the use of input-output tables to support your modelling of the visitor levy's economic impact for Wales, or in Wales. How are these tables used, and, importantly, how do they affect modelling economic impact? And maybe, for more of a layperson looking at these, how do you use them, basically?

So, input-output tables are as close as we can get to a holistic picture of the Welsh economy. They subdivide the economy into a number of sectors—in my university model, 66 sectors—and then detail the transactions between those sectors and then between non-Welsh entities, so, for example, when they import and export, and the final users within Wales of the products—households, Government and for capital expenditure, for example. So, what the input-output tables are is the only realistic way that we can paint an integrated picture of the Welsh economy that tells us how firms, households and public sector interact with each other, and it allows us, then, to track these economic transactions in ways that give rise to, for example, multipliers—employment multipliers, output multipliers—which tell us about the indirect impact of changes in economic activity, such as the levy that we'll be discussing today.

One should distinguish between the model and the account. So, the input-output table is itself an account, which, basically, is a snapshot of the economy, detailing things like productivity, and, in some cases, labour use, profits and so on, and then the use of modelling is making changes to that picture and seeing what the consequences are. And the restrictions and caveats that we look at relate to the use for modelling, not the use for accounting, for painting that original picture.

You've noted—. I've noted that you've used data from 2019, which is, I think, in some instances, the most current data that you've got, unless you've then received any further, extra data that's more up to date, especially bearing in mind what happened in 2020 and 2021 with—. How did you account for that and how has the model, really, taken that into account, that the data is six years old now and—?

Good question. So, because input-output tables reconcile data from a huge variety of sources—surveys from ONS, from Welsh Government, from commercial sources and from other places—you really need the data for the same base year or to be able to reflate those data to be consistent with each other. When I built this table in 2022—and this is true of the Welsh Government tables I've built subsequently, official tables, which should be out next month—that process was definitely possible for 2019, in terms of painting this picture for that base year; it would have potentially been possible for 2020, because some data were available for 2020, but, frankly, pointless because there wasn't a tourism economy of a kind we knew in 2020. So, 2019 was chosen both for reasons of statistical availability and because, as the last pre-pandemic year, it's the one that best represents a, in inverted commas, 'normal' Welsh economy. At that time, and, really, even now, we do not have data to build a 2022 base-year table—some of these data take a long time to emerge. So, we’ve only just, for example, got gross value added data from two years ago and so on. So, the reasons for building on 2019 are good—it really wasn’t practically possible to have anything later than that. In terms of the impact on the modelling, what we did for the visitor levy was to take data that were up to date in mid 2023 in terms of visitor spending and so on and the nature of the tourism economy, deflate that to 2019, run it through the model and then reflate it back up to ‘current’ pounds as of 2023. So, the inflation and deflation aspect is not relevant, or has been accounted for.

What you have to decide is whether 2019 is a good representation in terms of what we now think the current structure of the economy is. So, businesses, they don’t change their behaviours very quickly—they sometimes get big shocks, like, for example, the iPhone, or now AI, I guess, which might change the way in which businesses interact with each other; the internet is a big obvious one in terms of the way supply chains change and so on. But, the period from 2019 to today, if you think about COVID and the recovery from COVID, probably doesn’t lead to any first-order errors in us describing the shape of the Welsh economy today by using 2019 data; I think that’s a modeller's problem.

Even with COVID in the middle?

Well, I mean, do we think that the current visitor economy is different to 2019, and, if so, how? That’s a genuine question—I don’t know. But, of course, we don't really have—. There is no data on how companies are trading in ways that might be different. There’s a separate issue about how far some of the data underlying these numbers is not fit for purpose in Wales. So, for example, we don’t have stratified surveys on the main business survey in Wales. So, there’s a lot we don’t know. If we were to think about whether these data were representative of, in inverted commas, 'today', then I can’t think of any substantive changes in the way in which, particularly the core sectors we’re talking about—hospitality, catering and transport—would be really markedly different. Obviously, there would be differences—differences in the change of relative prices for things; the energy price changes obviously will impact the way some businesses behave. But there is no way, without an investment of probably millions of pounds, to what we call 'nowcast' to actually build a current picture of the Welsh economy. So, in the absence of that, this is a bit like democracy—it’s the worst way to do it, apart from all the other ways to do it, which are probably worse. So, having a 2019 model or account is the best picture we can get of how the Welsh economy currently works without a level of investment and, in fact, new surveys that is unrealistic.

Thank you for that. You've talked a little bit there about data and that you struggle a little bit with data being up to date and the collection there. But you also mentioned that, in your input-output tables methodology, you can't estimate the changes in the accommodation supply side, and you say that that's an issue for you. Could you expand on that and any other constraints you encountered within the methodology? I think you've covered a lot of the other aspects of that, but maybe that supply side element.

Okay, so, one of the key caveats and limitations of input-output is that it's what we call an open economy model, so, it doesn't deal with at all the fact that, for example, you might not be able to get enough workers to respond to increases in demand in a particular sector. So, if, using input-output, you said, 'We've got a new semi-conductor factory. It's £100 million per annum of output and there'll be another 2,000 jobs', you can make no judgment within the model about whether the labour is available to take those jobs. The model, effectively, assumes the supply side is infinite. It also assumes that the supply side doesn't change in its structure. So, if, for example, we thought that, following the imposition of a tax, people might change their behaviour and, for example, let's say, spend less time in Wales or spend money in a different pattern in Wales, those sorts of changes in the nature of demand and then how they ripple through the supply side is difficult to represent.

So, what we have, basically, in input-output, you have a picture of the Welsh economy that tells you about how sectors interact with each other, tells you about value added, tells you about employment supported by the tourists and so on. And what shocks do when we increase, or, in this case, decrease, the size of that economy, are that it inflates and deflates the bubble equally in all ways. So, if, for example. you have a shock to the economy that leads to a 10 per cent increase in employment, you also see a 10 per cent increase in gross value added, a 10 per cent increase in output, a 10 per cent increase in carbon emissions. So, that linearity is an issue if you have a small economy that is facing supply-side constraints, which, of course, in Wales we will be, in some respects.

[Inaudible.]—a sense that it follows the same—. It doesn’t take into account variations or proportionality between those aspects.

So, for example, there are no economies of scale in here. So, if you get bigger, usually, you get more effective and efficient, because you can do things in bigger companies that you can’t do in small companies, in terms of dividing your capital across bigger output and so on. So, none of that is represented in this model. Now, I would say that, for the level that we’re talking about for the visitor levy, which is small, single digit percentage changes, that’s less of a worry. So, we are talking about a couple of percentage points of change in the overall size of the economy. I would worry less about that linearity giving us some concerns, because it’s such a marginal change.

Thank you very much, and one last question from me before I come to Mike Hedges. One of your assumptions in the analysis is that the visitor levy is applied equally across all Welsh local authorities. Could you outline the rationale for why you’ve done that, and explain why the analysis doesn’t take into account partial take-up—so, say, half taking it up—and why that hasn’t been possible, or, is it possible, and you decided not to?

Given the quality and scope of the data, it’s impossible. We don’t really know where—. Visitors to Wales, or residents in Wales who are holidaying in Wales, we don’t know where they’re going. We’re not having lengths of stay in different unitary authorities or regional areas; we don’t know, really, what they’re doing, to a great extent, in those places. So, we don’t even have a baseline in terms of visitor behaviours and spending in Wales at lower than Wales level, if I can put it like that. So, to be able to model changes and that differential impact across Wales if you had a differential visitor levy would be statistically impossible. And the other issue, of course, which is another area of complexity, is, without primary research, which we did think of—. Sorry, I should be careful here: the Welsh Government considered doing primary research in support of this, but then that wasn’t undertaken, due, I think, to time constraints, but you’d have to ask civil servants; I’m only a very part-time civil servant. Without substantial primary research, you do not know whether people who face the visitor levy in, say, Gwynedd, would be more or less likely to go to Pembrokeshire, if it didn’t have a visitor levy, or Southport. There’s no way of having those behavioural responses.

Now, it would have been technically very challenging to model that within an input-output framework, which is a kind of Wales-level, fairly monolithic framework in terms of the spatiality of it. But, even if we did have 22 input-output tables for every local authority in Wales, or four input-output tables, one for each city region, we don’t have the visitor data on either the current baseline spending and destination, or on their likely response to substitutability. You know, is Gwynedd like Pembrokeshire in terms of how a visitor to Wales thinks about it? Would they substitute and drive a bit further from Manchester to Pembrokeshire, or would they just go to Cumbria? We just don’t know those things, so it’s extremely complex to operationalise.

Just a follow-up, before I come over to Mike, then: what would be the impact on the model if you had 100 per cent take-up, so that, basically, you made it mandatory across Wales, rather than optional?

Right, so this model assumes it’s mandatory across Wales. This is the worst-case scenario, if you like. This assumes it’s everywhere and it applies to all visitors to Wales, excluding, obviously, the exclusions in the levy, and, if that is the case, then these are the outcomes. So, it’s very much in that spirit: worst-case scenario.

Thank you. I’ll bring Mike Hedges in that point.

I'll mention two things that I know. I know hotel prices in Tenby are substantially higher than those in Llandudno. I also know that a budget hotel in Caernarfon, which I stayed in around about the time you're talking about, can be under £50 per room per night and over £110 per room per night. Why would this levy, which is substantially less than the variation there, have an effect?

Again, I'll have to be very careful here. I suspect that it probably wouldn't have an effect. However, my role was to take the separately estimated what we call 'elasticities' for tourist demand—. So, as an economist—. A good economist will tell you that if prices go up, people buy less of things, okay? That's just what we say. Now, my job was to take those separately estimated elasticities, estimate what would happen—. So, what the model effectively says is that, if prices go up by 1 per cent, we expect tourism demand to go down by 0.72 per cent or thereabouts. So, there's a relationship between those two things. Now, that's true in theory.

You are right to point out that in an industry where prices are very volatile and differential across space—so, differential across both space and season—at the margin there might not be any discernible effect in visitor demand once you put a modest levy on. I completely accept that. There's an additional tweak to this in that it may well be that—. In my case, we've got 100 per cent mandated levy across Wales. The places that our major markets would go to instead of Wales—I'm talking about the midlands and the north-west; those two are major markets, and some from the south-east as well—. Wales's substitute destinations—let's say Cumbria and Cornwall, the two obvious ones—are far further away and the travel costs are higher than the marginal difference that the levy would make. So, I suspect that, in the real world, it will be difficult to see how this levy might make a difference, if we assume that people are rational and they would not pay another tenner per person to get to Cornwall in order to avoid a tenner per person of a visitor levy.

So, in the real world, I think there's an argument that the visitor levy impact will be negligible. There's a counter argument, in which you might say, given where we are in terms of social media and the way people behave and are persuaded of different things, that people might think, 'Because Wales has a visitor levy, I'm so disgusted by this behaviour, I'm definitely not going', and there's a more than proportionate response, based on narratives rather than the reality of people's pounds in their pockets. Now, as an economist, I'm not competent to decide which of those two things is more or less likely, so I took a very straightforward, 'The Welsh Government has separately asked somebody to estimate elasticity. I'm going to assume that there's a rational response and that people will respond based on those estimates of elasticity and that they would therefore either travel to Wales less frequently, travel for one night less in the 50 that they come to Wales, or in some other way reduce their demand, on average.' I am not saying that that is what I expect to happen.

Thank you for that. I mean, if price were the driver, Blackpool would be the most successful resort in Britain.

Yes, Mike, I completely agree. I don't want to say anything out of place, really, but my view on—. Well, I did this job in conjunction with Treasury colleagues, and we need this to be, I won't say 'a worst-case scenario', but a reasonably pessimistic view of what might happen. There's no point doing something that says, 'Oh, it's probably going to be all right.' It's good to think, 'If this happened, if it is the case that Blackpool is just as good as Llandudno and people go there instead, then what might happen in terms of visitor demand?' And that was a decision that we batted between ourselves for quite a while, but I think it's right to see what the scope, the scale of the impact might be if people really genuinely were put off coming to Wales by the fact that they had to pay £1-something a night per person.

Well, there's—

Mike, before you carry on on that, just on that sort of way of thinking, you've said that you're looking at a more pessimistic model, just to make sure that anything above and beyond and better than that will be a benefit. Did you do any modelling at 50 per cent take-up, as opposed to 100 per cent take-up, of local authorities actually implementing it? I know you can't differentiate geographically, but, if you just did a straight cut of 50 per cent, how does the model stand up at that point?

So, what you would have to do, because we don't have the data—. And we've got something called STEAM, the Scarborough tourism economic activity monitor, which you might have heard about before, which is a very old-fashioned way—apologies to the people who run it—of measuring visitors by local authority, which I wouldn't necessarily use for this. But if you were assuming that the visitor levy applied to 50 per cent of trips to Wales, for example, then you can cut in half both my economic impact in terms of the losses to tourism and the gains to the public sector. So, that pure linearity is handy because it gives to you—. If you think that 50 per cent of tourists are going to pay this, it's 50 per cent of the impacts that are in the report, which is half as big in terms of both sides of the coin. In reality, of course, if—[Inaudible.]—for example, those 50 per cent of authorities include Cardiff, Pembrokeshire, Gwynedd and Ceredigion, then you're looking at the bulk of visitors to Wales, and that's data that we don't have.

Thank you.

I was going to say it's all to do with the elasticity of demand in certain areas as well. But you've got this model; does it work? Because we know what's happened in Italy, we know what's happened in Spain, we know what's happened in France. If you run your model—what you're predicting here—against France, Italy and Spain, you get the results you've got here.

So, there's a delightful economics statistical aphorism that says that all models are wrong, but some are useful. This is not reality. This is not a prediction. It's an estimate, given the best data we have at hand and the most appropriate modelling framework. Two things I'll say. The first thing is that your comparison with Italy and Spain is interesting because, of course, we're a region in the UK, and our tourism is overwhelmingly domestic—UK domestic, not international. International visitors are a very small proportion of our market here in Wales. We know nothing about how they spend money. The Office for National Statistics has not asked any detail about how visitors spend money when they come to the UK since 1997, about 10 years before the iPhone was invented, so we have very sketchy information on international visitors. Other places, like France, Spain and Italy, have much better information on their international visitors, which are a higher proportion of their tourists. So, that's a really difficult comparison to make. They're very different tourist markets. I'm convinced that this is the best we could do with the data we had at the time.

And the second point I wanted to make is that these numbers are undoubtedly wrong. I think they're wrong in terms of they're probably a little bit too big in terms of the issues we talked about—the fact the levy is a very small percentage of a very volatile price. So, I'd argue that this is probably quite a pessimistic view in terms of the impact on visitor volumes coming to Wales. But what this model does give us is an idea of the relative scale compared to the overall tourism economy. So, we are talking about several hundred jobs. And I'm not going to diminish the impact—. If you work in a bed and breakfast that shuts because of the levy, let's say, and then you're out of a job, I'm not diminishing that at all, but we're talking about several hundred jobs compared to an industry that is up to 100,000 jobs in Wales, and that probably turns churns 10,000, 15,000 jobs a year at least. So, the visitor levy is a very, very small percentage of the overall size of the stock of jobs. That's the sort of intelligence you get out of this modelling that you wouldn't have otherwise, because otherwise you're in a narrative where people make numbers up and say, 'This is going to cost 10,000 jobs, or 15,000 jobs, or three jobs', and there's no way of bounding that. With this sort of model, you get a sense of what ballpark you're talking about, which I think is a useful step forward.

That didn't answer the last question, so I'll ask another one. Did they do the same modelling in Italy, Spain, France and Portugal, and did they get the same results that you are showing here?

No, partially because visitor levies in other places tend to be based on municipalities, for example—so, your Barcelona, Provence—and if they did undertake any formal economic impact assessment of the likely impact on demand, I couldn't find it when I did the literature reviews. I'm not saying that they definitely haven't, I'm saying that I have not seen anything that was usefully comparable to the Welsh case.

And as Peredur would say, we're very similar to Catalonia.

Yes, except for the fact that many, many more of their visitors are international. Obviously, I don't know, but is a German visitor to Spain more likely to be put off by a visitor levy and go to Italy instead than an English visitor is by a levy in Wales, and decide to go to Cornwall instead? That's the kind of problem we've got in terms of the comparisons. So, I'm not saying it's not a good question. It is a good question. I'm not sure we could draw much inference from it.

Okay. I would just end on this: Cornwall is a lot more expensive than Wales. It’s certainly a lot more expensive than the parts of north Wales I go to, and it's a lot, lot more expensive than Blackpool, and we are not seeing that movement of people to Blackpool and its environs from Cornwall, are we?

I think we're violently agreeing here.

Thank you for that, Mike. Just touching on that question, you were talking about the job losses, potentially, within the model, and the optimistic and pessimistic, and your optimistic model is, in your own words, possibly pessimistic-optimistic. So, even the optimistic model is—. Yes, I'm getting myself tied up in knots with pessimism and optimism here. But I think the point that you are making, and I'm just checking that I got that correctly, is that if you're looking at employment losses of between 250 FTE and 730 FTE, that would be out of an overall pool of jobs of 100,000 FTE. Is that correct?

Yes, that is broadly correct, yes.

Not taking away from people who might lose out, with the same caveats as you had—I've been sympathetic to that—but just on a data point of view, then it is a comparatively small number compared to the job market in total. Is that correct?

Yes. It is so small, if you wanted to measure this impact in retrospect, after we did it, you would actually have to go out and do individual surveys with tourists who come to us to ask if they’ve been put off or not. You couldn't find it in the data, because obviously there are sampling variations that come alongside. At the moment, ONS is in lots and lots of trouble because the quality of its data in various ways is very poor. It would be impossible to pick this up in the aggregate Wales data after we've done it. You would have to do a specific study, looking at whether you could find out what the impacts were. So, yes, it's lost in the noise.

And you've noted that approximately 345 FTEs, which would be around 70 per cent of the total FTE losses potentially, would occur within accommodation and food services, based on your neutral scenario.

Yes.

How were you able to model that specific aspect of the industry, because of the limitations you've talked about earlier on different parts of the model?

The model has 66 sectors in it, one of which is accommodation, and we can only talk about the impacts on one of those 66 sectors. So, agriculture would be one, forestry is another one; they go through the standard industrial classifications. We can't say anything about—. I did try this, to subdivide that into different sorts of accommodation providers, but frankly the data, particularly because these are largely—not all, but largely—microbusinesses, which have a lower level of reporting requirements than companies do, and because of the volatility of the sector, it's really difficult to dig down any further than 'accommodation'. We did it in an older model. I did it with a lot of survey data 20 years ago now, almost. We've not undertaken that survey since. So, it's possible, but, for the purposes of this study, would have required a lot more primary research, because the data on the sector are not very good, on the supply side of the sector.

Thank you for that. So, this is a fairly specific question, but the net annual economic impact of the spending on visitor levy revenue by local authorities and the losses in the visitor economy show an increase of £3.4 million and £1.9 million in the Welsh economic output and gross value added respectively, but a reduction in 140 FTEs for the neutral scenario. Could it be argued that such benefits from public spending are being offset by the negative impact on the private sector?

Yes, I think it could. This gets very complicated, because tourism is a very labour-intense sector, as we know, which means that it's consequently a low value-adding sector. Typically, if you've got very high labour intensity, lots of jobs, not much in the way of capital equipment, particularly when those jobs tend to be—not all, but tend to be—lower qualification, lower wage, they're not very high gross value added.

So, what you tend to find is, when you take money out of the private tourism economy in the form of a tax or levy and give it to the public sector, you lose lots of jobs in the tourism economy and down the supply chains, as they ripple through with multiplier effects. When you give that money to the public sector to spend, it creates fewer jobs because the public sector is higher value added than the tourism sector; it's slightly less labour intense.

And what I did as well—. We don't know how local authorities will be spending this levy money. I did in the model assume 50 per cent was on current spending and 50 per cent was on capital spending. So, they might improve some stuff that they've got and put more boots on the ground in terms of visitor management. They might also build a new car park or new facilities. So, I took a 50:50 approach to that. Now, capital spending is not at all labour intense. So, you spend money on capital works—okay, there are jobs involved in the construction part of that—but there's a lot of capital—[Inaudible.]—and so on that gets money allocated to it. So, you tend to find higher GVA positives in the public sector but, in net terms, you lose jobs, because you've got a very highly labour-intense tourism sector that has had money taken out of it.

So, there's absolutely a trade-off between private sector jobs in the tourism industry largely, 70 per cent, and increased GVA that occurs as the public sector spends the consequent visitor levy, although I would come back to the fact that this is actually very much at the margins compared to the size of both the public sector and tourism economy overall.

Okay, thank you. Sam.

Thanks, Chair, and thanks for the comments so far. I'm just interested to understand whether—. It may not have been within your remit of work, but how much consideration has been given to the cumulative impact of other types of recent legislation and policy impacting the visitor sector at the moment? Springing to mind is the 182-day movement for self-catering accommodation, the national insurance change very recently at a UK level, which would disproportionately impact these types of businesses because of the higher number of lower paid wages, more people going into the threshold to pay national insurance, the impact on visitors through second home premium escalation in many parts of Wales, and other regulatory requirements that visitor economy-type businesses are having to deal with.

I just wonder if you've done any work on the cumulative impact of all those things, and therefore, in my mind, the higher than usual failure rate of these types of businesses compared to the broader economy, because of all these changes taking place, and with the visitor levy just tipping them over the edge. I wonder how much work you may have considered on that.

That's a very good question and one that I cannot answer with my current hat on as author of this report because it was a stand-alone report on the visitor levy; it doesn't include any of those additional elements. Taking my civil service author hat off and putting my academic hat on, I think you've identified an interesting perspective in terms of thinking about how these different interventions have holistically changed the nature of the visitor economy in Wales, and in particular parts of Wales. I certainly have anecdotal evidence and evidence that I've seen from papers written by colleagues in early stages that suggests there has been a significant tightening of the supply side of tourism, and this has so far been in what I'll call the Airbnb sector, if you like. So, it's fairly evident from what I've picked up informally over the last year or two that the prospect of the 182-day rule, and the loading on second homes, has had a cooling effect on the number of people operating their properties as commercial tourism establishments.

It is not possible—and I suspect it never will be possible—to formally estimate or assess how far there is a tipping point to additional policies coming in, particularly because the levy is aimed at a different subset of the tourism supply side; it's aimed at commercial properties more than it is aimed at Airbnb-type things. It's really hard to know how far those two sectors overlap—those affected by the levy and those who are more informally renting out their properties—and then how far those two things coming together for the Venn diagram bit in the middle would actually lead them to leave. Anecdotally, I think there certainly has been a significant uptick in people exiting the market in terms of informal provision of accommodation. I don't think you can say anything formal about how far this levy will be another straw on that camel's back, if you like.

Can I just have a quick follow-up? I appreciate those comments again, because trying to accurately estimate some of that must be difficult. But I wonder if you think there might be value in that piece of work being commissioned by the Welsh Government, because of, as I say, the number of legislative changes or policy changes that are impacting this particular sector at the moment. Do you think there'd be value in that piece of work being commissioned, to understand the cumulative impact on those businesses and on the economy as a result of these?

As an academic, I'd always say more research is a good thing. I think the question that I would be asking myself, if I were in your shoes, is if that research was commissioned—. Because it would be quite complicated, and it would take quite a long time, because there are several different dimensions; you'd be looking to assess the impact of—. And they interrelate in some ways and not in others. So, it'd be quite an interesting project, actually—you might want to give me a ring about that—to scope, and to think about how you would try and disentangle these different elements, and disentangle the ways in which people might answer that, based on narratives they might want to sell. Because, obviously, when I talk to businesses, they have something they want me to believe, whether it's true in their bottom line or not, so that's very interesting. But it comes down to whether you think that that research would influence any changes to either legislation or the way policy was implemented.

I'm having separate conversations. Like I say, I'm a civil servant for different reasons, and I'm saying to the Welsh Government, 'Look, if you're going to be spending money on improving stats, do it in areas where you have legislative duty, for example, so even when there's a new Government, you still have a use for that stat that you've boosted'—because it feeds in to the future generations Act or the environment Act or something that goes beyond Government. So, it's about can you genuinely see a case for a substantive piece of what would be quite long-term work being politically useful such that either this or future Governments might take it up and use it to have a more nuanced approach to these sorts of policies. If that is a 'yes', then I think, absolutely, it's valuable.

I could ask more, but I appreciate time is short. I might come back if there's time at the end.

I'm just interested in some of the things that you were saying earlier about the differences between Spain or Catalonia, where you talked about somebody from, say, Germany going there or going somewhere else, compared to the marketplace or the industry here in Wales, and people, whether or not they decide to go somewhere else in England rather than somewhere in Wales. The overseas visitors you've mentioned in the modelling were decreased by 2.5 per cent compared to 1.3 per cent and 1 per cent for UK residents. So, what's the rationale behind that?

That's purely an artefact of the fact that they stay twice as long as UK residents. The average dwell time of a UK visitor is something like 3.5 nights. The average overseas visitor, as far as we know, because the data aren't very good, stays about a week. How much of that is in commercial accommodation? We, again, don't know, because the data aren't good enough to tell us; we can't get those subdivisions from ONS. But let's assume—as I did assume—that they're largely staying in commercial accommodation, paying the levy, therefore, at twice the rate of a UK domestic visitor, because they stay twice as long. And unfortunately, again, we don't have data on the overall cost of their trip. So, when you take that higher levy loading and apply it to international visitors, the demand goes down further. So, it's purely a dwell time outcome, rather than anything about the behaviours.

Right. Thank you for that. You talked about GVA and some of those losses to the Welsh economy, and in your estimate it was £61.8 million if all Welsh businesses absorb the levy. What are the reasons for the fall in GVA being significantly more compared to the scenario where businesses pass on the levy to customers? How does that work, basically?

The way that it works is if the levy is passed on, what effectively happens is holidays in Wales get more expensive, and that additional cost is paid in part by non-Welsh residents who are coming to Wales. That burden is taken by people who are coming to Wales, and they are English residents, largely, so they pay that and they're not accounted for on Welsh GVA because it's English money, effectively. In the other case, where businesses absorb the cost of the levy, the non-Welsh residents coming to Wales don't pay any extra, and instead, what happens—and, again, this is an assumption in the model—. I've assumed in the model that Welsh tourism businesses cannot reduce the costs of their inputs, so they can't buy cheaper sausages because they have to absorb the cost of the levy, if they're buying breakfast. So, they can't reduce the fixed costs for their businesses or their intermediate purchases, as we call them, so, instead, what they have to do is take a hit on profits and pay their workers less in order to absorb the levy, and profits plus wages equals GVA. So, all the levy costs are being loaded on the GVA of Welsh tourism businesses in the absorption case, as opposed to being passed on, in large part, to visitors in the pass-on case.

So, that's why there's a difference in those outcomes. Right. Thank you. I think, Sam, you've got some final questions to ask.

Thanks, Chair. Just to follow up on that particular point, I guess a more realistic outcome would be a combination of businesses absorbing the levy whilst others are passing it on, but I expect, to model the economic impact of that would be a challenge. Do you want to explain that a bit further, perhaps?

I was very aware that we already have three scenarios in the model with pessimistic, neutral and optimistic, and absorption versus 100 per cent pass-on. If we add yet another scenario in the middle, the multiplication of all these scenarios makes the report very difficult to read. So, it's technically feasible for me to have done it. Again, the evidence, if you look at other parts of the world, is that most of these taxes and levies are separately reported and charged to visitors on top of the costs. I think the absorption likelihood is very low anyway, because it's quite a small number. So, it was a question of readability and time compared to the use of having a 50 per cent pass-through. So, that was just a value judgment, really, to make the report manageable. It was already getting fairly long with just 100 per cent versus 0 per cent absorption. So, it's feasible to do. The number, of course, will be somewhere between the two outcomes: £61.8 million GVA loss in the 100 per cent absorption, and then I can't remember what the loss is on the 0 per cent absorption, but if they absorb 50 per cent, effectively, the GVA loss would be halfway between those two numbers.

Thank you for that. I'm just going—. Sorry.

Sam, Mike wants to come in on that point.

On a general point regarding the things you've said about that, how many countries have stopped their tourism tax, and how many countries have done what you've done with real, live figures to see the effect it's having?

I'm not aware of any.

Thank you.

Okay. Sam.

Thanks, Chair. I'm just going to move on to touch on the impact of the visitor levy on greenhouse gas emissions. You say in the report that the input-output table for Wales benefited from an environmental module that allows an appreciation of the greenhouse gas emissions implications of Wales’s economic activity. Could you briefly explain for the layperson how the module works?

Yes, sure. So, in the same way as when you increase the output of the sector, you create more jobs. When you increase the output of the sector, you create more greenhouse gases. The numbers, in terms of the greenhouse gases, compared to the output—. The economic output of industries is available from Ricardo, who do it for the UK national air inventory emission people. So, you can, with a bit of faffing around, if I can use a technical term, integrate those greenhouse gas numbers into my model. So, if my hotels industry increases by 10 per cent, and I know the existing level of greenhouse gases associated with tourism supplying the hotel industry, then that will increase by 10 per cent. I also have an additional module that effectively estimates the distances travelled to Wales by different visitor types, based on their mode of arrival, distance from their home country or home region, and then, effectively, as a whole-trip estimate of greenhouse gases per trip for the different visitor types—totally different visitor types. So, what I did is I applied that average greenhouse gas intensity to the changes in the size of the visitor economy in Wales. So, because the visitor economy was down by 2 per cent or whatever, greenhouse gases associated with tourism goes down by 2 per cent as well. So, it’s, again, a pure linear relationship between fewer visitors, fewer passenger miles on planes, fewer passenger miles on trains, in cars and so on, and a follow through into greenhouse gas emissions.

Thanks for that.

But I should say that that assumes that they don’t go anywhere else, of course. If they drive to Cornwall instead, then, on a global basis, there are more greenhouse gas emissions, they’re just not 'Welsh'.

Yes, I get that. I just want to be really clear on that, then, because you've given a direct correlation between the two. But I thought the report shows that the percentage savings in greenhouse gas emissions are far larger than the percentage of economic losses. So, could you just help me understand that a bit further?

Yes. So, there’s a linear relationship between each sector and the greenhouse gas emissions, but when it comes to the non-Welsh parts of the tourism trip—sorry, the travel parts of the tourism trip, the coming to Wales in a car, or maybe flying in, that means that—I’ll try and say this correctly now—when you create gross value added from tourism, it is a more carbon-intense way of creating GVA than the Welsh average creation of GVA. So, in terms of how many tonnes of carbon are emitted when you add £1 million to the tourism economy, it’s a much higher number than it is, say, for a public sector organisation, or for communications, or for most manufacturing sectors, even.

So, because tourists travel a long way, when you want to get money out of them, it causes a lot of greenhouse gas emissions. There are worse sectors, so agriculture is worse, steel is worse; I think, as I recall, oil processing is worse. But, generally, tourists are very carbon-intense in their creation of economic value, relational to other Welsh sectors. So, when you decrease the size of the tourism economy, and instead put the money in the public sector, because the public sector is more, I’ll say 'climate-friendly'—it’s not quite the right word—because there's less carbon intensity in public sector activities, when you take money out of tourism and give it to the public sector, overall you reduce the carbon burden.

Thanks. I might take the liberty of a few more minutes, Chair.

Yes, okay.

Do you put a cost, a future cost, to dealing with greenhouse gas emissions? Is that something, as part of your work, that you would usually carry out?

I don’t, but the Treasury does.

Okay.

So, HM Treasury—I think the current social cost of carbon is something like £250 a tonne. I’d have to look at the tables, but it's of that order—£250-ish of value for a tonne of carbon saved. But that changes over time, and it becomes higher as you go further into the future, because, obviously, greenhouse gas emissions are more problematic into the future. But, at the moment, I think it’s about £250 a tonne.

Okay, that’s helpful to understand as well. Thank you very much. I think that’s it from my side, Chair.

Thank you very much. Just finally before we wrap up, what would you like to be the main takeaway from your report? What's your overall view on this levy? And you've been in and out of these numbers in a lot of detail—what's your gut telling you, I suppose, as an economist?

In terms of the results, my gut is telling me that because the levy is a very small proportion of the overall trip costs that a family would be burdened with coming to Wales, the changes in behaviour are likely to be very, very modest. So, I think the visitor levy—. I actually think it's quite a good tax, because I think, actually, it won't change behaviour much. I think we'll find out, really, that people's behaviour is quite inelastic, and I don't actually, because I'm not—. Who's going to not come to Pembrokeshire because you've got to pay £1 or something a night per person? My kind of gut feeling is it won't make much difference, and the money that goes through local authorities, at that kind of spatial scale for places like Pembrokeshire, might actually be really useful. So, I think this is, you know—so, again, speaking as an independent actor—not a bad tax. And certainly, if you look at the impact of the second homes levy, that second homes council tax, that, I think, is a much more different kind of thing in terms of how that will affect the shape of the visitor economy. So, that's the first point I'd make. I wouldn't get too exercised about these impacts, although I completely take it that, if I was actually working in a place that closed down, because the boss had had enough of this, then, I'd be very upset about it. I don't want to diminish that.

The second point I'd make, and I think this is actually the much more important one, is: we know very little about how the tourism economy in Wales works. We know very little about productivity in tourism; we know very little about transactions that are happening on the supply side of tourism, in terms of between businesses; we know very little about what drives visitors to come to Wales; we know almost nothing about how much they’re spending when they’re here; we don’t really know what they’re spending their money on, so there isn’t even any data any more on the commodities they buy in Wales, how much is spent on accommodation, how much is spent on travel, how much is spent on recreation—we don’t even know that. And that’s a very uncomfortable place to start when you’re writing this sort of report, but it should be a very uncomfortable place for Senedd Members to be when they’re trying to make policy or audit policy on tourism. That is a conversation that I’ve been having with Welsh Government colleagues and Office for National Statistics colleagues, about what we do and don’t know about the Welsh economy, and how far we’ve got the responsibility to manage the Welsh economy and tourism economy as part of that. We don’t really have the tools.

So, as a by-product of this legislation, there will be the register, so will that go some way to give you a little bit more—? Well, it will give you more data.

I think that's very welcome, yes.

And that's very welcome. Okay, thank you. Thank you very much. Unless any other Members have any further questions, then, thank you very much for your time this afternoon.

Thanks for having me.

It’s been very informative, and thank you for all the work that you have put into this. It certainly gives us food for thought in our deliberations on this Bill.

Brilliant.

So, thank you so much.

Best of luck with it. Thank you very much, Chair.

We’ll now go into private. Diolch yn fawr iawn.