We now move on to the next item on the agenda, which is a debate on the second supplementary budget of 2017-18, and I call on the Cabinet Secretary for Finance to move the motion. Mark Drakeford.

Motion NDM6657 Julie James

To propose that the Assembly, in accordance with Standing Order 20.30, approves the Second Supplementary Budget for the financial year 2017-18 laid in the Table Office and emailed to Assembly Members on Tuesday, 6 February 2018.

Motion moved.

Thank you very much, Deputy Presiding Officer. The second supplementary budget is a standard part of the annual financial management process. It is a final opportunity for us to adapt the budgetary proposals for this financial year, which were approved by the Assembly last year. I would like to thank the Finance Committee for their scrutiny work on this second supplementary budget. I will be responding to the Chair in due time.

This budget is mainly an opportunity to make the necessary changes, as a result, to financial management during the year, reconciling the resources available with the Government’s priorities. The majority of the changes to plans are mainly administrative.

The second supplementary budget, therefore, Dirprwy Lywydd, details adjustments as a result of transfers within ministerial expenditure groups, transfers between MEGs, allocations from reserves, changes to the overall departmental expenditure limit, including consequentials and other adjustments resulting from HM Treasury decisions, and latest annually managed expenditure forecasts agreed with HM Treasury.

As for reserves allocations, the NHS remains a key priority for this Government, and this budget includes revenue allocations of over £146 million from our reserves to support the Welsh NHS. This includes the £50 million announced by the Cabinet Secretary for health in August, to support improvements in referral-to-treatment, diagnostic and therapy waiting times. A further £10 million was announced in January to help relieve winter pressures in the NHS. Additional funding has also been provided to help the same MEG respond to deficits in two local health boards and the estimated shortfall of income from the pharmaceutical price regulation scheme.

In other revenue allocations, Dirprwy Lywydd, this supplementary budget allocates £4.1 million revenue for the coastal communities fund, £4 million for public sector broadband aggregation collaboration and makes provision for the new Welsh Revenue Authority.

Turning now, Dirprwy Lywydd, to capital, an additional £41 million has been allocated to the Welsh health service to support its all-Wales capital programme, including the Grange university hospital development, neonatal developments in Cardiff and Vale, the Velindre transforming cancer services programme and ongoing works at Ysbyty Glan Clwyd.

Addressing housing needs in Wales is a major priority for this Government. This supplementary budget therefore provides an additional capital investment in housing of £49.8 million and continues to support our commitment to provide 20,000 affordable homes. A further £10 million of financial transaction capital has been allocated for the Help to Buy scheme.

We continue, also, to find new and innovative ways to support our objectives. For instance, this budget provides financial transaction capital of £32 million to support a total £40 million investment to set up a Wales stalled sites fund. This will provide a development loan to sites where financial viability is a barrier to progression and where the market fails to provide affordable financing.

Dirprwy Lywydd, as discussed with Plaid Cymru, this budget provides further capital investment of £30 million for projects dedicated to supporting and growing the use of the Welsh language in education. It will contribute to the growth of Welsh speakers, supporting this Government's Welsh language strategy.

Earlier this year, the Cabinet Secretary for Local Government and Public Services announced a £30 million investment for local authorities to maintain and prevent the deterioration of the local roads network. This will support a substantive refurbishment programme and improve future resilience of the local authority roads network.

Deputy Presiding Officer, as I said earlier, these supplementary budgets are mainly administrative, and this budget provides details in terms of various adaptations that are to be made to our budget during this financial year. These include any changes to the Welsh block grant, reviews of the annually managed spending forecast, and other transfers between and within ministerial portfolios. I'd like to, once again, thank the Finance Committee for their scrutiny work on this supplementary budget, and I ask Members to support it.

Thank you. Can I now call on the Chair of the Finance Committee, Simon Thomas?

Thank you, Deputy Presiding Officer, and I thank the Cabinet Secretary for outlining the priorities of the Government for this supplementary budget. The Finance Committee did meet to scrutinise the budget with the finance Secretary, and the committee was relatively content in considering this supplementary budget, and we haven't made any recommendations this time, but we have come to four conclusions.

First, we have concluded that there is a lack of detail, even though the Cabinet Secretary did mention them. There is a lack of detail in the supplementary budget about prioritisation and how decisions are made by the Government in line with programmes such as 'Prosperity for All', the programme for government and, of course, the Well-being of Future Generations (Wales) Act 2015. This is a recurring theme in all our budget scrutiny, and we would urge the Government to provide as much evidence as possible of how allocations meet the objectives of these programmes. Additionally, we believe that it would be useful and more transparent if more explicit details were made available to explain how commitments are funded; for example, whether funding is coming from reserves or underspends in other areas.

Our third conclusion relates to financial transactions capital. During the scrutiny process, the Cabinet Secretary outlined the problems associated with this funding stream—and he's just mentioned one answer to those problems, of course—and he updated the committee on his discussions with the Chief Secretary to the Treasury. The Finance Committee considered financial transactions capital in our scrutiny of the original 2018-19 draft budget, and we recognised the limitations of this funding stream at that time, concluding that we were—and I quote:

'concerned by the issues associated with the repayable financial transactions capital, and how restrictions around the use of this funding may limit the Welsh Government to get best value for money in allocating these funds.'

During this scrutiny process, we again acknowledged the constraints of the funding streams, but we would urge the Cabinet Secretary to continue to explore all possible avenues of using the available funding.

Our last conclusion relates to supplementary budgets submitted by the directly funded bodies—the Assembly Commission, the Wales Audit Office, and the Public Services Ombudsman for Wales. For Members who haven't realised, you don't just have the Welsh Government's supplementary budget before you, but the supplementary budgets for these three bodies as well. As a committee, we took an in-principle view on the supplementary budgets of each of these bodies prior to the publication of the supplementary budget motion, and this approach of having a preview of the supplementary budget was helpful, in our view, and we would commend that approach for future use. Thank you very much.

Thank you. There are a number of speakers in this debate, and the debate is for 30 minutes only, therefore, I am going to ask Members to consider their contributions being at three minutes. I realise that some of you may have prepared for more than three. I will be lenient, but I won't be lenient to the point of—once we get past four and a half minutes I will ask you to come to a conclusion. So, we'll see how we go. Nick Ramsay.

I don't think you have to worry about me going on, Deputy Presiding Officer. I was going to make a joke, but I won't.

It will not surprise the Cabinet Secretary to learn that we will not be supporting today's supplementary budget. I think we've been over this ground before, so I know he'll understand that. Although I will admit there are some aspects that we welcome. We certainly welcome the changes brought about by the UK Government's 2017 autumn budget, under which Wales has benefited from an extra £1.2 billion in financing over the next four years, along with an extra £160 million for the Welsh NHS and local authorities over the next two years as a result of Barnett consequentials.

There are of course increases in fiscal and capital allocations, as the Cabinet Secretary has outlined. And we do fully appreciate the pressures that the Welsh Government has been under. I know often in this Chamber we banter back and forth about the failings of—well, in your case, the failings of the UK Government, and in ours the failings of the Welsh Government. Of course, all Governments, UK and Welsh Governments, have been under pressure due to the need to deal with the deficit over recent years, and to balance the books. It has not been an easy time, but we do know from the good economic news of the last few days that there is now a £3.8 million budget surplus—a modest surplus, but nonetheless the first surplus for some considerable time, getting on for 20 years. So, that is to be welcomed.

We support the Welsh Government in receiving more funding via the block grant, and we do welcome, as the Cabinet Secretary knows, the fiscal framework. The Cabinet Secretary knows that I have supported that from the start and I'm more than willing to say that I commend both the Welsh Government and the UK Government for the hard work that went on in developing that fiscal framework over a long time. I know a lot went on behind the scenes that wasn't always public, but I think that it was in the interests of Wales, and this place and the Welsh Government at their best. So, there is good news.

If I can turn briefly to the Finance Committee's report, I concur with the words of the Chair of the Finance Committee. We would like to see more transparency in the way supplementary budget allocations are arrived at. This is going to become increasingly important with the devolution of tax powers now imminent next month—a process not an event, to coin an old phrase from Assembly history. It's going to be very important with those new tax powers, and the devolution of income tax powers, that the process is as transparent as possible, and that the Finance Committee under the Chair, Simon Thomas, has a full part to play in that. I'm pleased that the committee report has urged the Cabinet Secretary to continue to explore all avenues to utilise the available funding within the UK Treasury rules.

Supplementary budgets are strange beasts by their very nature, and probably always will be, but I think that there are good suggestions in this report that could be taken on board for future supplementary budgets, and I know the Finance Committee looks forward to working with the Cabinet Secretary in future budgets to try and improve the structuring and the system of forming budgets.

Of concern in this budget before us is something that's been highlighted in the past, and on page 16 of this report. The deficits being run by the local health boards across Wales have been an issue of concern for some time now, and it looks like they're still going to be an issue of concern. We, the Welsh Conservatives, are concerned that the additional funding for the NHS, whilst welcome, if we're not careful, will go into plugging deficits and not necessarily raising the standard of healthcare as we'd like to see. This isn't just a party point from me. I know Mike Hedges himself has expressed concerns about the ability of the NHS to absorb money without it always being completely transparent where all of that money is going. So, I make that caveat, although we do welcome the extra spending on the NHS. So, it would be good if we could have an assurance from the Cabinet Secretary that this new money will be made the most of.

Anyway, I set out at the start that the Welsh Conservatives' position on this budget is that whilst we welcome the additional funding today, we will not be supporting the budget. We will be abstaining, because as far as we are concerned, whilst a supplementary budget, it does follow on from the previous, main budget that we did not support.

I can also confirm that my party will follow our consistent pattern in terms of this budget and will abstain on this vote as part of the agreement that we have.

There are things to be welcomed, of course—specifically, as the Cabinet Secretary mentioned, the £30 million in additional funding for Welsh-medium education as part of the agreement between Plaid Cymru and the Government. By its very nature, a supplementary budget, as the Cabinet Secretary said, tends to be technical and administrative. Despite that, I would echo the main thrust of the message that we heard from the Chair of the Finance Committee: the need, to tell you the truth, for us to understand better the story behind the figures. That is, figures are vital, of course, to any budget, but words, the narrative, are vital as well for us to understand the process of making decisions about transfers and allocations and so forth.

Specifically, of course, this arises in terms of how the principles and objectives of the well-being of future generations Act have been implemented. That’s something that the committee’s report did refer to specifically, and it came up, of course, in evidence from the Cabinet Secretary, and he was able to give some examples of where the principles had been implemented. But I do think that we need an approach that’s more systematic, something along the lines of where, perhaps in the explanatory memorandum or in a corresponding report—that there is an analysis of how the Government has implemented the principles in coming to its recommendations on the budget.

Just on a couple of specific points—. Simon Thomas referred to the financial transactions. I do understand that there are restrictions about how you can use those, but, when there are restrictions, you then have to be creative, and I do notice that, in Scotland, the Scottish Government has used financial transactions for loans to small businesses, for example, and to fund investment in terms of low-carbon industries. Now, they have announced an intention to create a national investment bank for Scotland, with capital of £2 billion—£2 billion—so, rather more in terms of scope than the development bank that we have, and financial transactions are what they’re going to use in order to reach that ambitious aim. So, I wonder whether there is scope for the Government to have a discussion with the leaders of the development bank to see whether we can emulate Scotland in that sense.

I referred to the additional funding for Welsh-medium education, and that’s to be welcomed. There is some money also for a development project with Mudiad Ysgolion Meithrin, which is also to be welcomed. Just a technical question—if the Cabinet Secretary can't answer it now, perhaps he could write to me—there is a transfer in the motion of £2.3 million from Welsh in education to the promotion of the Welsh language. There is already an existing budget, of course, through the agreement between us, but there’s £300 million for other projects related to promoting Welsh. We’re talking about additional funds in addition to the £2 million for promotion of the Welsh language that we negotiated as part of the agreement, I assume. I would be grateful if the Cabinet Secretary could confirm that to us.

One negative thing that I’m concerned about in your budget is two transfers: from the science fund or the expenditure line for science to property in general, and £1.7 million being transferred from innovation to information for business in general. That’s at a time when the Government in the next budget is going to cut the funding available for innovation by 78 per cent. I’m concerned to see more funding being transferred from the science and innovation funds when, in truth, we should—with Brexit on the horizon, and so on, shouldn't we be investing more in our science base and our innovation base?

By this stage in the financial cycle, I feel that the Cabinet Secretary is a bit like the man who follows the Lord Mayor's show with a shovel to tidy up the streets after the main event. So, although we voted against the main budget, like Nick Ramsay I can say on behalf of my party that we will not be voting against this supplementary budget. Although it does make some substantive changes, a lot of it is just tidying up.

We certainly support the additional £30 million for Welsh-medium education to provide a capital funding stream for the Cabinet Secretary for Education in future years, which is an essential part of realising the Government's objective of having a million Welsh speakers by 2050. I certainly support everything that the Chairman of the Finance Committee said also, and, indeed, Adam Price, in relation to understanding the methodology by which changes in priorities have taken place, even though they are at the edges of the budgets concerned, in relation to the broadly stated objectives of the Government in documents like 'Prosperity for All'.

I'd like to commend the Cabinet Secretary also for the evidence that he gave to the committee in this respect and his obvious willingness to work with the committee in that respect. Certainly, the main thing that came out of the consideration of the budget in committee for me was the evidence that we received in relation to the overspends in the national health service and the local health boards. This is clearly an endemic problem, and I had sympathy with the Cabinet Secretary at the time with the difficulties that it causes him when we have these unplanned deficits, which, therefore, constrain the Government in other areas as well. Given the importance of health to the public at large, and the scale of health spending as a proportion of the Welsh Government's budget, any significant overspend by local health boards is bound, therefore, to have repercussive effects on other parts of the budget.

Sadly, things do seem to be getting worse rather than better, because, in paragraphs 25 and 26 of the committee's report, as we say:

'The aggregate position for all Local Health Boards for the three-year period to 2016-17 was a net overspend of £253 million', and, for the period to December 2017, the defict was £135 million, with

'an estimate for the full year...of over £170 million', which compares with an actual deficit for the previous year of only £147.8 million. So, this is clearly something that needs to be dealt with on a longer term basis than merely in a supplementary budget, so I hope that there will be some recognition of this in the next full budget next year—clearly, it can't be dealt with in this supplementary budget.

So, with that, I'm at my three-minute limit, Deputy Presiding Officer, and I will show an example that others may not have done to keep to the suggestion that you made. So, we will, therefore, be abstaining on this vote.

Thank you. I'm not issuing gold stars today, so sorry about that. Mike Hedges.

Thank you, Deputy Presiding Officer. I speak in support of the second supplementary budget and the Finance Committee's report. I agree entirely with the Finance Committee's recommendations, and would welcome more detail around how significant new allocations within the supplementary budget have been prioritised. I would, however, go further and ask: what are the projected outcomes of this expenditure? Because we talk a lot about the money going in, but we don't often talk very much about what we're actually going to achieve by it.

We are agreeing to see additional money for health—£146 million revenue, £41 million capital. I think we've reached the stage where additional money for health in the annual supplementary budget is just something we've come to expect. The deficits were just gone through by Neil Hamilton, so I will not go through them. I'll just go to Betsi Cadwaladr, £75.9 million predicted deficit, and Hywel Dda, £88.3 million predicted deficit. I ask this question: are they underfunded? is that where the problem is? Are they badly managed? Or is the health board structure fundamentally wrong? Or is it a combination of all three? Unless the Cabinet Secretary can give me another reason, I can see nothing outside those three to be a reason why they're having those problems, and they're fairly substantial problems. 

I agree with the Finance Committee when it acknowledges the constraints of financial transactions funding, and I agree that we urge the Cabinet Secretary to continue to explore all avenues to utilise the available funding, and I think the Cabinet Secretary is committed to doing that. 

Can I quote a Westminster document? In 2012-13, the UK Government introduced an additional type of capital funding in order to boost investment, the so-called financial transactions capital. Financial transactions capital transactions do not strictly add to capital expenditure per se, as they are not regarded by Her Majesty's Treasury as spending transactions. The distinguishing feature of financial transactions capital is that the funds can only be deployed by the public sector as a loan to, or equity investment in, a private sector entity. 'Private sector' is defined by Office for National Statistics classification guidance and is determined by where control lies, rather than by ownership or whether or not the entity is publicly financed.

Transactions capital cannot be used for building new schools, cannot be used for building new hospitals and, under the current ONS classification, cannot be given to housing associations for building houses. This is a self-imposed Treasury rule that allows expenditure, but not to add it to the total capital expenditure of the Government. It makes no sense whatsoever that it's treated as a loan, but it does constrain the ability of the Welsh Government and us as an Assembly to spend money on the things that we want to do. 

Finally, on student loans, the committee noted the increase in non-cash revenue relating to the student resource accounting and budgeting charge in relation to student loans rose by £300 million in this supplementary budget. Can I give a prediction? Another £300 million next year. While this additional non-cash allocation is provided by Her Majesty's Treasury to cover student loan debt and is not money that we could actually spend on anything else, I would hope everyone would share my concern that the percentage of the student loan book that is anticipated not to be paid back, and hence written off, is increasing annually. This is a problem that will not go away. Tuition fees were a huge mistake, but increasing them to £9,000 was a disaster. 

Thank you. Jane Hutt. 

In your second supplementary budget, Cabinet Secretary, you were able to release some funding as a result of your careful preparation for the Chancellor's 2017 November budget and other fiscal factors, and I'm particularly interested in positive outcomes for education and housing in relation to Welsh Government priorities. Can you clarify what you were able to achieve via capital and/or revenue to support these priorities? 

Can I take the opportunity, Dirprwy Lywydd, to comment on the challenging context of the second supplementary budget, which I fully support and, indeed, fully support the Finance Committee's report as well? I note that the Institute for Fiscal Studies has acknowledged the overall UK deficit budget has been eliminated. Due you agree that this is by no means an achievement, as George Osborne has declared, when the impact of balancing the budget has fallen most severely on women and low-income groups? And do you agree with economist Ann Pettifor that this so-called achievement has decimated our public services, and under George Osborne's watch total managed expenditure was cut by £14 billion in real terms, and public sector investment went from £60 billion in 2010 to £35 billion in 2016? This is the context in which you have had to work, and do you agree that the UK Government needs to acknowledge the real needs of our public services and health, education and housing and change track after nine years of austerity?     

Thank you very much. I now call the Cabinet Secretary for Finance to reply to the debate—Mark Drakeford. 

Thank you, Deputy Presiding Officer. May I thank Simon Thomas for his contribution? I look forward to considering the conclusions in the Finance Committee report. I'm sure that there are things there that we can learn from, and I look forward to responding to that report.

I heard the comments of the committee Chair on financial transaction capital and capital more generally. We are trying to work creatively to use the funds provided to us through that avenue. I can tell Adam Price that we are working with Ministers in Scotland. I met with Derek Mackay before Christmas just to share ideas. They are facing the same problems as us in trying to use the funds approved through that method, as Mike Hedges explained when he was setting out the regulations applicable to that capital. 

I'm very happy, of course, to write to Adam Price on the specific points that he raised.FootnoteLink I believe I'm right in saying that the changes within the education MEG are designed to support the agreement that we've reached with Plaid Cymru, and that's why you see money moving around. It's as a result of our agreement to make sure that we can deliver it, rather than anything else.

On some of the other points that Adam raised, I think we will find—but I will check the detail—that those changes are as a result of us being able to bring forward some European funding. So, it's not a reduction in spend, it's just using other money while we're able to for those purposes so that we can release money then to do other things as well. 

Information further to Plenary

Just before he moves on to other matters and we still have financial transaction capital in our minds, the Finance Committee hopes to do a little bit of extra work around this about the funding mechanism behind this. Is he able to share with us any more information he has from the Treasury around the expectation of paying this back, and at what rate or percentage he's expected to pay it back? There's obviously some risk involved in some of the projects that he's mentioned so far and I think some of the projects mentioned in Scotland as well also have risk built into them. 

Yes, they do, Dirprwy Lywydd, exactly that. I did set out in my letter to Mike Hedges, which I've placed in the library, the rules that surround financial transaction capital, including the fact that 80 per cent of it has to be paid back, not the full amount. That is a bit of a recognition by the UK Government that there is a risk involved and that not all FT capital will be repaid. There are varying interest rates that you can use depending on the risk involved in the use of the money and so on. I hope that any Member who is interested in some of the more arcane detail of financial transaction capital will take a chance to look at the letter that Mike Hedges caused me to write. [Interruption.] I was pleased to write it.

In reply to Nick Ramsay, he is right to say that we are beginning to see the first fruits of the fiscal framework, and I'm happy to acknowledge that that was joint work that we did together there. Neil Hamilton referred to the second supplementary budget as sweeping up after the horse has passed by, but people who do that serve a useful social purpose so I take his remark to be an endorsement of the work we do in bringing this budget in front of the Assembly.

A number of Members have referred to the NHS. I'll never make an apology on behalf of a Labour-led Government for investing in the health service and making sure that, in those parts of Wales where the struggle is greatest to live within the available means, the consequence of the struggle is not felt in the lives of patients who rely on that service. That's why we've worked so hard to find the extra money that is necessary for it and why my colleague Vaughan Gething works so hard to try to make sure that we get the very best value for the investment that we make. 

Jane Hutt asked for some further details in relation to housing and education investments, and Mike Hedges referred to some of the same matters. In housing in particular, it's my top priority in relation to capital to support the determination of this Assembly Government to provide 20,000 affordable houses during the lifetime of this Assembly. Housing is such a fundamental building block in the lives of our fellow citizens, and we're determined to find the money to invest in that. Nearly £50 million moves in this supplementary budget to support that. In education, as you have heard, there are a range of different investments in the supplementary budget, but £30 million to invest in capital, in Welsh-medium education, will allow the Cabinet Secretary for Education to draw forward investments into this financial year and then to create a stream of investment in Welsh-medium education in the future. She has ambitious plans to make sure that we are able to create the next generation of Welsh speakers, to which we are committed around this Assembly Chamber, and that investment is there to do exactly that.

Let me end, Dirprwy Lywydd, by just echoing what Jane Hutt said in her final contribution: the spectre that hangs over the whole of this supplementary budget, as it does over everything we do, is the age of austerity. Why we should be expected to stand up and cheer after eight years of austerity because the Tories are finally able to say that they have reached some point of surplus in the budget—. They've done it because of the way that they have slashed and burned their way through public services. Had this Assembly had available to it the growth in budgets that every other Government since 1945 has provided—in other words that the investment in public services simply reflected the growth in the economy as a whole—we would have £4.5 billion more to invest in our vital public services than was available to us in our budget that we set before Christmas. That is such a telling figure: £4.5 billion that we do not have for our health service, for our social services, to invest in our education services and everything else that we need to do. Jane Hutt was absolutely right to point to the fact that, underneath all the detail we've discussed this afternoon, that basic fact remains. There is so much more we could do had we had a fair sense of investment in the services on which we all rely.

Thank you. The proposal is to agree the motion. Does any Member object? [Objection.] Therefore, we defer voting under this item until voting time.

Voting deferred until voting time.