We move on to item 6 on the agenda, which is a debate on the first supplementary budget of 2018-19, and I call on the Cabinet Secretary for Finance to move the motion—Mark Drakeford.

Motion NDM6748 Julie James

To propose that the National Assembly for Wales, in accordance with Standing Order 20.30, approves the First Supplementary Budget for the financial year 2018-19 laid in the Table Office and emailed to Assembly Members on Tuesday, 19 June 2018.

Motion moved.

Diolch yn fawr, Dirprwy Lywydd. I move the usual motion for the first supplementary budget before the National Assembly.

This is the first opportunity to amend budgetary plans for the current financial year, which were published and approved by the Assembly in January. The first supplementary budget is often quite narrow in scope, and this year is no exception. It is mainly administrative in nature. It regularises a number of allocations from our reserves and transfers between portfolios. It includes adjustments to the overall level of resources available to Wales, reflecting transfers and consequentials received from the UK Government, and it reflects changes in annually managed expenditure forecasts in line with our latest details provided to HM Treasury. It nevertheless represents an important part of the budget and scrutiny system of the National Assembly. I would like to take this opportunity to thank the Finance Committee for their consideration of this budget and the report it has provided with its seven conclusions published at the end of last week. I will formally respond to that report, of course, in the usual way.

A number of the changes set out in this first supplementary budget regularise the position in respect of allocations from the capital reserves announced alongside the final budget debate and as part of the Wales infrastructure investment plan midpoint review. These allocations utilise both general capital and financial transaction capital budgets. Over £70 million is allocated to the health and social services main expenditure group to support improvements to the NHS, such as neonatal services in Carmarthen and Swansea and to help replace the Welsh ambulance fleet. Thirty-five million pounds is allocated to the education portfolio to accelerate the twenty-first century schools programme and to pilot a new model of community learning hubs, particularly in Valleys communities.

Over £55 million is allocated to the economy and transport MEG to support the roll-out of integrated active travel, developments in the Cardiff capital region and Tech Valleys, next generation broadband and to enhance the Cadw visitor experience. A small number of allocations have been made from the revenue reserves in this supplementary budget, including £7.2 million through the immigration health surcharge, £5 million to support minority ethnic achievement and Gypsies, Roma and Travellers, £1.8 million to expand the pupil development grant, which will replace the school uniform grant, and £1 million to continue free weekend bus travel on the TrawsCymru network. Dirprwy Lywydd, as a result of the changes in this supplementary budget, the revenue reserves stand at £129 million, with capital reserves at £126 million for general capital and £127 million for financial transaction capital.

Over the next few months, I will be monitoring our financial situation very carefully, of course, and I intend to lay a second supplementary budget in accordance with the usual timetable. I continue to look with colleagues at the case for allocations from funds in-year, whilst continuing to retain a level of resource that is sufficient for the financially uncertain period in which we work. This will allow us to respond when necessary to further possible pressures on the budget and to carry funds forward through the Welsh reserve fund. Any further allocations from reserves this year will be reflected in the second supplementary budget. I would like to thank the Finance Committee once again for their work in scrutinising 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 thank you for the opportunity for me to contribute in this debate. As the Cabinet Secretary has just outlined, this supplementary budget is not a significant one, but as a committee we do value the opportunity every time to consider any changes in the budget and we do that formally through the supplementary budget process.

We've used this supplementary budget as an opportunity to identify where we would like to see more detail going forward—and we look forward to the budget in the autumn, of course—so, areas such as financial transaction capital, which the Cabinet Secretary has talked about already, health funding, the rail franchise agreement, decarbonisation and the impact of the future generations legislation on the budget. And, of course, we're looking forward to the first carbon budget—and student loan policies. These are areas that we will be looking to scrutinise further, and I will refer to just three of these briefly.

Financial transaction capital is an area that the committee considered in the budget scrutiny last autumn when we were concerned perhaps that the Government might not be able to make use of this funding stream. We are pleased to note that the majority of financial transaction capital has been utilised and, despite the Treasury restrictions, there is evidence of some innovative uses of the funding. We would be eager to see further detail on how this funding is allocated, and this should be included in the overall picture of Welsh Government debt in the forthcoming budget.

The committee is concerned to see that some health boards are still not meeting their requirements under the National Health Service Finance (Wales) Act 2014, although it is reassuring to note that the health portfolio is currently managing within the funding it has been allocated. That said, it is still early in the financial year, so we will continue take an interest in the funding of health boards. We have noted the work of the Public Accounts Committee in relation to the accounts of the health board, and we look forward to their report.

As a committee, we also have an interest in the rail franchise fiscal agreement. We are eager to understand how all of the fiscal arrangements between the Welsh Government and the UK Government interact, and we would like to see additional detail in the autumn on how the rail agreement influences the budget more widely. Thank you for the opportunity to contribute to this debate, and I look forward to hearing the comments of other Members.

I’m pleased to contribute as well to this debate, and was pleased to take part in the Finance Committee's scrutiny of the supplementary budget. I concur with the comments that the Chair of the Finance Committee has made.

Thank you for your reference to the work of the Public Accounts Committee. The work in terms of the local health boards and the financing of those is still in progress, so I won’t say too much at this stage, other than say that, clearly, there are ongoing concerns again this year about the deficits of the health boards. This isn’t a new problem; this is a problem that has been running in one way or another in at least the majority of the boards for some time. It is something that, over time, the Welsh Government does need to get to grips with, particularly in light of the fact that, as Mike Hedges will no doubt mention very shortly, health spending is growing and is pretty much at half—maybe a little bit more now—of the Welsh Government budget. So, the deficits of those health boards is becoming an ever-increasing problem each year and an increasing drain on the Welsh Government’s budget.

As the Finance Committee report identifies, there have been significant changes in both resource and capital allocations in this supplementary budget, with increases of £15 million and £134 million since the 2018-19 budget. But, that said, it’s true to say that, though substantial, they are not issues that are of enormous significance for us to worry about too much during this budget-setting time. The Welsh Conservatives welcome the fact that further consequentials from the UK Government in the region of £2,761,000 in respect of research and development from the 2016 UK budget have come our way. Then there are the changes of the 2017 UK budget and, as we know, Wales will benefit from an extra £1.2 billion funding 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. We’ve not yet had a commitment from the Welsh Government as to whether—or, indeed, an indication—they intend for that money to be going to the health service. That would be welcomed at some point, Cabinet Secretary.

Whilst we do need to make efficiency savings within the health service and try and get the local health boards out of deficit, it’s still also important to recognise that additional money of a certain proportion, at least, has come from the UK Government to the Welsh Government for spending in that area. I don't think the Cabinet Secretary mentioned the fiscal framework during this supplementary budget. We often mention it in this Chamber. It’s been welcomed by all parties, and it’s good to know that Wales will receive funding of 120 per cent relative to the English spend per head of population as a result of that hard-fought-for fiscal framework, and that is an achievement that should be recognised.

If I can turn to some of the detail—a little bit of the detail of the budget—the finance Chair has mentioned much of it. You did mention education and you touched on money to replace the school uniform grant, and also changes in the Gypsy/Traveller, Roma and ethnic minority portion of the EIG. That was a subject of some discussion. I know that the Children, Young People and Education Committee have had concerns about cuts, certainly in the case of the Gypsy/Traveller, Roma and ethnic minority portion of the EIG. How is that recognised within this budget? Are errors that have been made in the past in terms of money being cut off without new money being brought down the line? Has that been rectified in this budget, and is that now dealt with?

In terms of economy and transport, the £10 million allocation from capital reserves for active travel routes are to be welcomed. But it does highlight how we are still waiting, I think it's five years now down the line, from the introduction of the Active Travel (Wales) Act 2013. I remember working on it in the last Assembly on the Enterprise and Business Committee, as it was. Very good legislation in principle, but here we are still waiting for those outcomes some way down the line. So, can we be confident that with this additional capital spending, Cabinet Secretary, we will finally see a light at the end of the tunnel when it comes to some of these objectives from the active travel Act being realised?

As the Chair of the Finance Committee has said, we are monitoring closely the changes that were made, very much using this, I suppose, as a case study for future budget scrutiny. There are changes to that scrutiny coming down the line, which we need to look at with the devolution of tax powers next year. Welsh Conservatives, it will not surprise you to know, will be abstaining on this supplementary budget, as we didn’t support the original budget, and this is amendments to that. But by and large, I’m pleased to have worked with the Finance Committee on providing extra scrutiny for this budget.

I just wanted to make three very brief points in this debate. Firstly, the first supplementary budget shows very small change from the original budget. If it showed substantial changes, we’d probably have a problem on our hands, and it would be very strange indeed if there was large blocks of money moving around. So, I think that’s what we’ve got to expect from the first supplementary budget.

But whilst the changes are not substantial, I think it’s really good practice that the finance Secretary comes before the Finance Committee for scrutiny and we have a debate on it in this Chamber. I think that really is important that we carry on doing that rather than allowing, as the rules do, a letter from the Cabinet Secretary and a letter back from the Finance Committee. I’ve never been a great believer in sending letters between two parties is the best way of having a conversation, and things can get lost in translation. So, I’m really pleased that the Cabinet Secretary has continued the openness and transparency and willingness to engage, as his predecessor did, with the Finance Committee.

I think that's really good practice, but at some stage in the future, we will have a different finance Secretary and the Standing Orders allow the exchange to be conveyed solely by letter. I hope this practice, which the previous Cabinet Secretary brought in and the current Cabinet Secretary now follows, of producing a supplementary budget and appearing before the Finance Committee, is carried out by all future finance Secretaries, and then we have a Plenary debate on it, even if the Plenary debate consists mainly of people, or only of people, who are on the Finance Committee in the first place. But I think it’s important that we get a Plenary debate on it and that we do engage in that level of scrutiny.

Secondly, transaction capital, which appears to be a Treasury method of keeping borrowing off the Government debt, does create huge difficulties. I welcome the fact that the Treasury has agreed to the Welsh Government’s request to carry forward £90 million unspent financial transaction funding provided in the UK autumn budget, in addition to Welsh reserve arrangements. This means that no funds have been returned to the Westminster Treasury. If we are giving signs of success for any Cabinet Secretary for finance, not sending any money back to the Westminster Treasury must be one of those things that you give as a ‘plus’ if you’re marking them, because sending money back to Westminster is the last thing we want to do.

I quote the finance Secretary, who said to the Finance Committee,

‘The restrictions on the use of financial transaction capital do make it an unwieldy instrument.’

Following the ONS classification of housing associations and the subsequent need for legislation to get housing associations designated as not public sector organisations, it meant that, for a short time, transaction capital could not be used to support housing associations building homes.

I welcome the first tranche of money that is being used to provide support for credit unions in Wales. I think there are very many of us, across parties, who are very supportive of credit unions, who provide for many people an opportunity to borrow at a level that they couldn't anywhere else, where they cannot get money out of the high street banks, but there's no shortage of doorstep lenders prepared to lend them money at obscene interest rates. So, it's a small amount of money, which would be very useful to individual credit unions in the transition they're having to make in the rules that are newly being applied to them, and in terms of capital-to-loans ratios. It's probably the difference in some cases between them being able to carry on trading or not, but it really is important that we do support these credit unions, because for too many people it's a choice between a credit union or a doorstep lender.

The other problem with transaction capital is that it is not understood by the public that the money cannot be spent on schools and hospitals. You've got this money, why aren't you spending it on our key priorities—roads, schools and hospitals?

Finally, an issue that does not directly affect the Welsh Government budget but affects total Government borrowing is the student loan fund. Student loans form part of the annually managed expenditure, which has increased by £22.5 million—£19.1 million revenue and £3.4 million capital. The Cabinet Secretary clarified that HM Treasury supplies the funding for the student loan book in Wales and that work is being undertaken at a UK level regarding the classification of student loans. We are less exposed in Wales, because we have a different student support system, which is more generous in terms of the grants we give, rather than the loans that have to be repaid. But, to me, the student loans book is like a giant Ponzi-type scheme—it keeps on increasing. You're lending money to people who will almost certainly never pay all of it back, and most will default. The basic tax rate for former students with loans is 8 per cent higher than the rest of the population. If we added 8 per cent to income tax for everybody else, there'd be uproar, but adding it for people who are graduates seems to be allowed. When will the Westminster Government realise the student loan scheme does not work and is not financially able to continue without building up bigger and bigger debt? It doesn't work. We need to have a new system of funding students.

Can I welcome the first supplementary budget in this financial year? The Finance Committee, as has already been said by the Chair and by Mike Hedges, found little to comment on—small change, as Mike Hedges said—on its first quarter. But I hope that you also found the conclusions useful.

I was pleased to welcome the NHS announcement in the Wales infrastructure investment plan mid-term review, which will have a beneficial impact on health and social care, and like Mike Hedges, as patron for the credit unions in Wales, I particularly welcome the financial transactions facilities that you're making available to assist credit unions with important new regulatory responsibilities—vital to support ethical lending across Wales.

Can I also take the opportunity today to acknowledge the achievements of the past decade in terms of the development of a fiscal framework for Wales, taking on board our new powers? In fact, Nick Ramsay mentioned this in his contribution. The first Welsh taxes for hundreds of years, a permanent positive adjustment to the Barnett formula, capital and revenue borrowing provisions and preparations for the introduction of the Welsh rate of income tax—whilst you're making a statement, I think we've got the opportunity to acknowledge this important point today.

It's disappointing, I have to say, Nick Ramsay, that the Welsh Conservatives will be abstaining, because I think, really, from what you said, you support this supplementary budget today. I think it's worth saying, Cabinet Secretary, that support for this supplementary budget—[Interruption.] Okay.

I've been mentioned twice, so I've got a right to reply.

Very nicely too.

Yes, and there are many things in this—. I think I mistakenly said 'substantial changes' earlier—I meant important changes, rather than substantial changes. But, yes, we always abstain on the supplementary budget, because it does represent a change to the previous budget that we did not support, so we don't want to cause confusion where it's not necessary.

Well, you've put that on the record now, Nick Ramsay. What I was going on to say is that this is a remarkable achievement that we will have, I'm sure, support for the supplementary budget today, and indeed, as you did say, Nick Ramsay, for the fiscal framework that has been achieved, and I would say in spite of eight years of austerity imposed on us in the Welsh Labour Government by the UK Government. But I think this is the achievement of this—. In terms of getting the budget through supplementary, full budget and the fiscal framework, this is a result of political will, the political will of the Welsh Labour Government, but I would also acknowledge political collaboration, which is very pertinent, I would say, in terms of the Finance Committee—the political collaboration we've achieved to advance these fiscal powers in Wales.

I won't be supporting this budget here today. I didn't support the final budget, so I won't be doing it, as I said, today. What we have here, really, is some money just being shifted around, no great real change. The phrase 'fiddling whilst Rome burns' really does come to mind. Wales is the only devolved nation that pays bedroom tax. Now, the Cabinet Secretary before said that that wasn't a matter for him. Well, it's a matter for Scottish politicians, it's a matter for politicians in the north of Ireland, where they've got rid of the bedroom tax, which is a pernicious tax affecting the least well off.

If you look at Cardiff locally, Cardiff council, they say that there's a £91 million shortfall in budget over the next three years, and I'll quote what the council has said,

'there will be services which we simply will be unable to offer to residents in the future.'

It's a really, really serious thing. And what is being done? Not a great deal. If you look at the shortfall again, £91 billion, well, at least that's less than the budgets—less than the bonus that the chief executive of Persimmon awarded himself, or was awarded in January: £110 million. I want to point out that Persimmon is one of the companies, the corporate entities, ravaging our countryside in this area and making one hell of a profit.

It's a bad budget from a bad Government that has run out of ideas, and the sooner that this administration is gone, the better.

I call on the Cabinet Secretary for Finance to reply to the debate—Mark Drakeford.

Diolch yn fawr, Dirprwy Lywydd. I thank all those Members who had relevant contributions to make to this debate. As Mike Hedges said, while the first supplementary budget is relatively limited in nature, it is an important part of the budget process, allowing changes to be reported to and scrutinised by the Assembly. His warnings of the evils of epistolary practices will no doubt be reported to finance Ministers in the future, should they ever deviate from that path.

Mike also pointed to the way we've treated financial transaction capital in the supplementary budget. We've been able to carry forward the £90 million allocated very late in the last financial year, and while the restrictions on the use to which financial transaction capital can be put are real, our ability to do some innovative things, for example, in the funding of credit unions, is an example of the sort of imaginative uses that I am committed to trying to make of every penny that comes to the Welsh Government.

Mike repeated the warnings he gave in the Finance Committee in relation to the student loan book. We are, as he said, less exposed to some of those dangers than across our border. The Cabinet Secretary for Education and her officials are taking a close interest in the findings of the review of student finance that is being conducted in England, to see, when it's published, if it has any implications for Wales.

Nick Ramsay raised the issue of health spending. Health spending is a priority for this Government, and it is my job to make sure that there are always sufficient funds available to provide services and to pay bills in all parts of Wales. The NHS allocations announced by the Prime Minister recently are, of course, not for this supplementary budget or even for this financial year. Once we have some certainty over the actual sum of money that will become available to Wales as a result of those announcements, then I'll be pleased to report to the Assembly on how we intend to use them.

The supplementary budget does indeed provide additional funding for the school uniform grant, which is now to be an expanded grant scheme, doing more than the previous one. I was keen to make sure that the education Secretary had the funding she needed to put that new scheme into place, as I have been to make sure that we are able to go on making provision for the minority ethnic achievement grant.

The active travel routes allocations are there to accelerate the programme, and I don't think it is a fair characterisation to say that nothing has happened in active travel, but an extra £10 million allocated in this supplementary budget, £20 million next year, £30 million the year after that is a significant investment in making sure that we can do more than we have before in relation to that very important policy area.

I followed very much what the Chair of the Finance Committee said. I thank him again for the report. The conclusions that the report comes to set out a clear agenda for the Finance Committee in the work that it intends to do in the budget work that will be in front of us in the rest of this year, and it's very helpful to me to have seen the approach that the Finance Committee intends to take.

Dirprwy Lywydd, can I end by echoing the point that Jane Hutt made, that the budget for this year was set against the longest period of sustained austerity in living memory? It has a very real impact on our budget. Despite that, the first supplementary budget aims to place the foundations for the current year, and to prepare the ground for difficult budgetary decisions that may yet lie ahead.

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

Voting deferred until voting time.