Item 6 on the agenda this afternoon is a statement by the Chair of the Finance Committee on the report on the remuneration board's determination underspend, and I call on the Chair of the Finance Committee, Simon Thomas.

Thank you very much, Deputy Presiding Officer. For some months, the Finance Committee has been undertaking work in relation to the Assembly Commission’s use of the underspend resulting from the remuneration board’s determination. We've published a report, but the situation has changed during the last few weeks. So, we were hoping that a statement and questions would be a better way of dealing with this, rather than a formal debate on the report. We’ll see if the Members agree on that.

The Finance Committee has shown a keen interest, as I said, in the way in which the Commission approaches budgeting. In determining how to budget for the determination, the practice to date has been for the Commission to budget for the maximum possible spend for each Member or party, and then to use any underspend to fund its investment priorities. We have been concerned about this approach for some time, as we believe it entails that the Commission’s total spend is not sufficiently transparent. As a result, the committee decided to undertake a short inquiry into how the underspend is used and to consider how other Parliaments in the UK and around the world budget for expenditure related to Members’ pay and allowance.

During our inquiry, the remuneration board issued a consultation on the flexibility of the allowances within the determination. That consultation has now resulted in more flexibility for Members’ allowances. This, in turn, has impacted on the Commission’s budgeting decisions, which I will talk about later. 

One of the key areas that we were keen to explore with the Commission during our scrutiny was the way in which it budgets and forecasts its spending. We have previously recommended that the Commission provides an in-year update before the end of each calendar year on the likely determination underspend, along with any significant changes to planned projects to be funded using this underspend. We were pleased to see the Commission included more detail in its information for the 2018-19 budget regarding the funds it estimates will become available from capital and operational budgets, and from the remuneration board’s determination. As a committee, we welcome the steps taken by the Commission during the last budget round, as we believe it aids scrutiny.

One other area of concern for us has been the way in which the Commission has used the underspend to fund investment priorities. We were not comfortable with the principle of the Commission’s budget relying on an underspend to fund projects and priority areas of work, such as the maintenance of the Assembly estate. Although we appreciate this could lead to projects being brought forward, the intention to fund some projects through the underspend, over multiple years, remains a concern for us, as the Commission is then reliant on an unpredictable resource. We believe that core projects should be identified and funded separately.

After considering our report and the remuneration board’s decisions to allow more flexibility over Members’ allowances, the Commission has confirmed, and we welcome this, that it has reviewed its approach to funding projects, and that priority projects identified for completion during 2019-20 will be identified in the budget document, and will now be fully funded from the Commission’s core budget line. We believe this decision will aid scrutiny. Projects will be identified in the Commission’s budget planning, the Finance Committee will scrutinise them and will follow up on them in future years to ensure that the Commission is accountable for delivering projects. In this way, the Commission will be brought into line with the planning and budgeting processes of other directly funded bodies.

However, the Commission has stated that this is likely to result in a compensating increase in the Commission’s core budget, reflecting the expenditure that the underspend would have otherwise funded. This contradicts, on the face of it, a previous recommendation made by the Finance Committee, to which the Commission agreed, namely that its budget should not increase beyond any increase to the Welsh block grant in the remaining years of this Assembly. While we accept that the Commission will not use any underspend from the determination’s budget line, we are concerned that the budget may increase. At a time of austerity, when other public services in Wales are facing extensive and continuing real-term cuts, we highlight the comments made by the Assistant Auditor General for Wales that some of the Commission’s possible projects were probably nice-to-haves, rather than absolute essentials, and we would therefore urge the Commission to consider its priorities carefully to ensure that projects are genuinely required to meet the Commission's strategies and goals. Thank you. 

The Llywydd took the Chair.

Can I thank the Chair for his statement? You've covered most bases there, actually, Simon, and we considered this in-depth during our short inquiry on the Finance Committee, so I've only got a couple of questions, a couple of areas I'd like to highlight.

This probably isn't the subject over dinner tables across Wales, but it is, certainly—[Interruption.] Well, maybe yours, Simon. [Laughter.] It's certainly important to the way that this place operates and, indeed, a lot of the issues that we look at on the Finance Committee—maybe some of the minutiae that other people and other committees don't look at, but they are, nonetheless, important to efficiency and making sure that our structures and procedures here are, not just fit for today, but fit for purpose for the future as well—the next Assembly and beyond. As you highlighted, key to our recommendations in the report is that there should be greater clarity over how underspends are utilised and used in future. Clarity and transparency are words that we often return to in this Chamber and in committees in this Assembly, which are equally as valid and important in the case of the spend of the Commission as they are in other areas. 

I think there's a part of the report that says that, relative to spend of the block grant, 1 per cent of the Commission budget probably looks a lot smaller. But, of course, in terms of the efficiency of the Commission and ensuring value for money, it's just as important that £100,000 or £200,000—whatever the buffer that's been identified might be—is spent as wisely as the millions and the billions that we talk of when it comes to talking about the wider Welsh Government budget.

That issue of clarity and transparency is key, so I suppose one of—it seems strange asking questions to my Chair in this context, but key to my questioning of you is: are you confident that this report will indeed result in that greater transparency and clarity, and not just now, but that it will be responsive to the future when this place becomes a Parliament in name and goes on to get further tax powers as well and further powers in the future? Will this report be just as relevant then in ensuring value for money?

There have been some major concerns that the Commission has been overtly reliant on underspends, as you said, to fund key core investment priorities. This can't be a sustainable way to proceed. I think the committee appreciated how that had developed over time and over a number of Assemblies. Perhaps in the past it wasn't such an important issue, perhaps it could be explained away, but, clearly, if you're going to be relying overtly on underspends to fund some of our key commitments or some of the Assembly's key commitments as an organisation, then that does leave the door open in future for a pretty major problem should there be issues or should those underspends not develop in the way that's foreseen. 

I only briefly looked at the forecasting aspect of the report, and I think that that's obviously an area that, across the board, we really need to get a lot better at. We've looked at the forthcoming tax powers on the Finance Committee as well, and the setting up of the Welsh Revenue Authority, and we've said that the Welsh Government needs to have a far better forecasting function when it comes to anticipating economic growth within Wales over the years to come. I think, in its own way, the Assembly itself and the Assembly Commission also needs to have a more robust forecasting mechanism. That doesn't mean always getting it right, as we found on the committee. Actually, forecasts are normally wrong. But it's the forecasts that actually give you that base level by which you can then evaluate progress in the future and you can say, 'Actually, the Commission did do everything that was necessary, it did take the steps necessary, and although we might not have got it quite right, we did do what we could for the people of Wales, to make sure that there was value for money in the money that we were spending and the Assembly was overseeing.' 

The Commission approach in terms of dealing with underspend—I'll close on this—should be more closely aligned to Treasury guidance. That does seem to be common sense, but, of course, common sense doesn't always operate naturally, unless someone gives it a push along. So, I do hope that the recommendations of the Finance Committee in this short, niche but interesting report will be taken on board and it will end up with a Commission procedure and Commission budgeting over the years to come that will be not just ft for today but fit for the future as well.

I thank Nick Ramsay for his comments. As he suggested, this may be the bubble debate to end all bubble debates, but I think it is actually quite important, because how we budget and spend our own money—because I talked in the statement about the Commission, the Commission is the Assembly, of course—so how we spend and budget our own money has to look and feel like how we expect other public bodies in Wales to behave. So, if we, the Assembly that passes the budget for the Government, and then for the directly funded bodies, including our own directly funded body, which is the Commission—. We should look and behave like the best practice in that example. 

I think I'd like to pick out the word that really struck me from what Nick Ramsay said, which is 'clarity'. We do have transparency, because things are able to be followed through, but was there clarity there in the past? And, of course, when you have up to £1 million that's in an underspend and is then utilised in a particular way, then I don't think that is clear, and that is what was concerning the Finance Committee at the time. 

Nick Ramsay asks me if I'm confident that this now enables us to go forward and prepare for our further responsibilities, and growing fully as a Parliament, and I would say to him 'yes'. I also would like to put on record thanks to the Commission for the way that they've responded to our report and have been in dialogue and negotiation with us. And of course, the fact that the other decisions, which are nothing to do with the Assembly itself, because we do not decide our allowances and our pay—that's done separately by the remuneration board—but nevertheless the decisions taken there have also added to the need to address this.

So, I think there is more clarity there now. I think that the Commission will present a budget that will be very clear about its priorities, about its future spending plans and about its investment plans. It's clear that any underspend within the remuneration board will be returned to the block grant, but, of course, that, in turn, has an implication for how the overall budget will look, which we won't be able to judge until we see it in the autumn. But, of course, the Finance Committee as a whole would expect the Commission to act like other public bodies in Wales in terms of the general funding and the finances that flow from the Welsh block grant.

Can I first of all welcome the statement made by the Chair of the Finance Committee, and also the comments made by Nick Ramsay? It's a strange position that I could've actually made either of those statements—either the statement or the comments and questions from Nick Ramsay—without any problem at all, so I think there's a level of unanimity amongst those of us who are serving on the Finance Committee.

Can I just reiterate something I've said several times before? I think it's still worth saying: the National Assembly for Wales Commission cannot be immune to the austerity facing the rest of the public sector. Difficult though it may be, and difficult decisions may have to be made, it cannot be seen to be growing while large parts of the public sector—some parts that people think are very, very important—are losing money.

The budgeting process, with the Commission setting all Members' support at the maximum possible, with staff pay set at the top of each grade, will always produce savings. In the first year of each Assembly, it will produce substantial savings, because almost everybody who starts working here will start at the bottom of a grade of five points.

I also share the committee Chair's concerns about funding projects from underspends, not least because when projects are being funded by underspends they're not getting light shone on them by the Finance Committee of this Assembly, and then by the Assembly itself, over whether those projects are good or bad. I don't want to make any comments on projects that have been carried out in the past, but, really, it is important that we do have it being dealt with so that each and every one of us here is individually and collectively responsible. We might not like it, but we should all be taking any credit or blame.

I've only got one question, and it's something we agreed earlier in the discussions, but seems to have been rolled back by the Commission now. Does the committee Chair still believe that the Commission's budget should not increase by a larger percentage than the Welsh block grant, albeit the Welsh block grant as amended by taking in tax raising by the Welsh Assembly? So, that is, effectively, what the block grant would've been, which may mean that they have a reducing amount of money every year, because as we get more tax devolution that will come off, but that is, effectively, the amount of money that is available to the National Assembly for Wales to distribute to the Welsh Government and the other two bodies that we directly fund. Do you still believe—? I'll start the remark like this: do you still believe, like I do, that there has to be a very good reason for the Commission to have an increase that is better than that which is coming to the rest of the Welsh public sector?

I thank Mike Hedges for his comments, which have the value of being consistent. He's consistently said this, and they've been consistently clear and transparent as well, so I thank him for that. I don't disagree with him, and he reflects the points that I was making earlier that in our own spending and our own budget setting we have to act like the rest of the public sector in Wales. We're not entitled to treat ourselves differently—I very much think that that has been taken on board.

He asked a specific question around an earlier recommendation by the Finance Committee that the Commission's spending should be in line with the Welsh block grant for the rest of this Assembly term. That remains the recommendation, of course, of the Finance Committee, but I think it is important to put on record that there have been changes in the way money is now allocated. The remuneration board changes mean that the money that was set aside for Members is now more flexible in Members' hands. Members will be aware that they can vire, I think, up to 25 per cent of that money for their purposes now, and I think what we will need to do when we scrutinise the draft—well, it won't be the draft budget. When we scrutinise the actual budget of the Commission in the autumn, we will be, I hope, as a Finance Committee, looking to take into account—I think it's appropriate that we take into account the fact that there will not be such a large underspend that will be flexible to be used. So, I think it's appropriate to take that out, if you like, of how we look at the budget, because that wouldn't be fair, because that's a decision by another body in other circumstances. So, we take that one out and then we look at the overall budget, and I would agree then with Mike Hedges that, having taken out the remuneration part, because that's no longer part of this equation, we would be surely looking to see that the recommendation of the general block grant rise is there, and if it isn't because of a specific reason, then we'll be looking for the investment decision behind that reason, the project that's concerned, where it might be in terms of—it might, for example, be in a spend-to-save-type approach. All these things, I think, we have to be open to, but our basic principle there is that, having taken out this change now with the remuneration board, the recommendation of the Finance Committee does still stand. 

Thank you for the statement, Simon. Part of me thinks that I wish this had been a debate because it would have given me the opportunity as the relevant Commissioner standing here today to pick up some of the points that Mike Hedges and, in fact, Nick Ramsay have made, but the question I wanted to ask you relates actually to what you were saying at the end there, Simon. The situation is going to be this: as you know, we can't use the underspend for our investment fund anymore; if we want the building to be looked after and so forth, we need an investment fund. If we add an investment fund to the bottom line, as things look now, particularly including the remuneration determination, over which we have no control, as you said, the chances are very strong that our bottom line will go over the amount by which the block grant has gone up, and the reasons for that will be partly because of the remuneration board determination, and we don't know what that's going to look like, and partly because some of that is going to have to go back, so the spend will look less than the bottom line in the original budget. So, I wanted your reassurance on this, in as much as we've committed to staying within the block grant increase, that the Finance Committee won't be coming back to us in whatever period it is and saying that we've exceeded it, when it's through no fault of our own. So, that's the reassurance I was seeking.

Thanks, Suzy Davies. And, of course, I'm always open to debate; I enjoy debates as much as anyone here, but I thought we'd try a different approach on this occasion. I'll take feedback and see whether it is the best way, but it has allowed her to make her points, to be fair. I really can't, I think, do more than reiterate what I said to Mike Hedges, which is, to be quite clear, that I think it's perfectly reasonable for the Commission, in approaching this budgetary process, to take out now the consideration around the remuneration board, because that is completely separate. It can't be used for, as she put it, the baseline, if you like, and if there is any underspend there, it will be returned to the block grant.

I think that when we come to consider your budget—. I don't want to completely tie the hands of the Finance Committee when we look at your budget in due course, but I think it would be reasonable, and I hope that you, in your budget presentation, will show to us very clearly how that remuneration money has now been dealt with—how it's been taken out, if you like, from the overall allocation—so that that doesn't confuse anyone looking at the baseline into thinking that there has been an increase above the block grant simply because you are no longer able to use what is up to about £800,000, possibly £1 million. So, I think we will take that into consideration when we consider that.

We will then look at the rest of your baseline, I would suggest, and say, 'Has there been an increase there above the block grant level?' And, if there has, 'What's the reason for that?' I think that's where the final comments I made in the statement and earlier comments I made—. It would have to be (a) a very good case, and you'd have to not only persuade the Finance Committee but ultimately, of course, the whole Assembly, and (b) it would have to be in line with the assistant auditor general's comments about the prioritisation of the programmes—the ones that are nice to have, the ones that are absolutely essential. 

We understand that we're getting some more responsibilities and powers around income tax. There are some things that need to happen within the wider, if you like, empowering of the Parliament here. That does have some finance implications, but also I'm aware that the chief executive has been looking at overall staff numbers, redeployment and using the staff numbers to the best of her ability. I think we'll take a look at it in the round; I think it's only fair to do that. But, to reiterate, let's take out the remuneration board part now because that's no longer part of the deliberations, and look instead at the rest of the budget and how that has been increased or not. Maybe you'll come with a decreasing budget. Who knows? I think that's highly unlikely, but the Finance Committee would certainly welcome it.

But more seriously, we will need, I think—it's reasonable as a committee—to set aside the remuneration board determination now; that's a completely separate issue, more in the hands of Members themselves as well. So, Members will also be more directly accountable for the spending of their own. It may lead to more, perhaps, direct accountability of Members and people asking questions about what Members have spent their allowances on, but that's not for me and not for you, that's for the wider accountability of Members here to the Welsh public.

Just finally, your question does give me an opportunity to say, as well, and remind Members, that we do have Commissioners and they are ultimately responsible for preparing the budget. The Finance Committee does the job of scrutinising the budget, but in advance of that, there is surely a way of people discussing with Commissioners around their, either concerns or priorities, that they'd like to see in the budget.

May I question the assumption that the baseline should automatically be changed to reflect the subsequent decisions of the remuneration board? Because I would question whether that is the way in which other public sector bodies operate. Very often, they'll prepare their budget on one set of assumptions and then things will change and they'll have to absorb those costs and make savings elsewhere.

Just to take an example, in the new pension arrangements across the UK for previously opted-out pension schemes, such as in the NHS, it's a very big issue. Suddenly, they had to pay an extra 2 per cent national insurance, but that didn't mean they got a 2 per cent uplift in their budget to compensate for that. So, to the extent that the external frame has changed, and the remuneration board has decided that, of our budget, a somewhat greater proportion should go to Members with more flexibility to spend on their staff, I would question whether we should, or, indeed, whether the previous finance report—I was a member of the committee at that point—implied that there should be some adjustment for that. Couldn't we instead look at where savings might be made elsewhere, to the extent that Members have greater flexibility over their allowances and staffing allowances, could they take on perhaps some of the things where the Commission had been providing services before?

I question again, just as another example, that the amount we're all having paid into our pensions by the Assembly Commission is going up by about 3 per cent per year. Again, that's something we had to consider and how to adjust it. Why are we putting our money into investments where we know they're going to fall in value over time? Shouldn't we actually be taking decisions that mean there has to be less money put in because the investment return might be higher?

And I think the most important thing, and I just wonder if you agree, chairing the Finance Committee, is that the rest of the public sector has had significant austerity when our budget's being growing quite significantly. I thought, as the Finance Committee, that we took a view that henceforth we should be like the rest of the public sector.

I thank Mark Reckless. I'm not going to be tempted to a debate on austerity, wearing a more political hat, and I'll just deal specifically with his questions.

I think there's a slight confusion here, if I may be clear around it. The overall budget that the Finance Committee considered, presented by the Commission, included that sum of money for the remuneration board, in effect. As there is now less—well, put it this way—as there is now more flexibility within those resources for individual Members to spend what would have been an underspend held, if you like, in common by the Commission, that is now broken up into 60 different underspends that we can then use and spend ourselves.

So, in his general charge, which the Finance Committee agrees with, and did agree with—that the Commission should behave like the rest of the public sector in Wales—we now need to add 60 Assembly Members who also need to behave like the rest of the public sector in Wales. And I hope that no Assembly Member thinks that simply because they have more flexibility over their spending, it means they have to spend up to the limit, because they will be asked to justify that, and will be rightly asked to do so. 

But I do think—and this is what's changed since he was a member of the committee, and since we've published the report, received a further response from the Commission and a response in light of the remuneration board—I do see it fair that we take out that remuneration board when we judge whether the Commission has increased in line with the Welsh block or not, because the Commission cannot now either use that money or control that money. It is in, as I say, 60 different pairs of hands. The Commission has no decision making around the overall sum—that is for the remuneration board to decide. And so I think it is reasonable that we take that bit out and then challenge the rest of the budget precisely in the way he suggests, precisely in the way that the Finance Committee asked for, and I don't see the Finance Committee being less rigorous on that aspect than it has been in the past.

In that regard, I go back to what I said in the statement: we would expect the Commission to act like the rest of the public sector, to take on board austerity, to know that we're all answerable, not only for those individual spending decisions, but for the overall spending decisions of the Assembly. There are potential big projects on the horizon and the Commission will need to consider how that best fits its approach, as a public body, like that. So, I don't think we've resiled from that, but I think we've been reasonable in the changes that have emerged since the report was first published.

I thank the Chair.