Item 4 on the agenda this afternoon is a statement by the Minister for Finance and Trefnydd: update on the Welsh mutual investment model. I call on the Minister for Finance and Trefnydd—Rebecca Evans.

Thank you. Last year, the former finance Minister published a written statement about the development of the mutual investment model to help us realise our ambitious plans for public infrastructure.

Both the First Minister and I have described many times in this Chamber how our capital budgets have shrunk as a result of the UK Government’s relentless pursuit of austerity. Our capital budget has been cut by 10 per cent in real terms as a result of these austerity policies. In 2019-20, this means we will have £200 million less to spend than we did in 2010-11, but our plans and demand for capital investment in Wales have continued to grow.

Just a few months ago, the Chancellor of the Exchequer was proclaiming that austerity was over and that he was publishing a budget to unleash investment to drive future prosperity. He proceeded then to give this Assembly just £2.6 million extra capital to address every unmet investment need that we have in the coming year. It's against this backdrop that this Government has looked to make full use of all sources of capital funding available to us, and to develop new and innovative sources of funding, including the power to issue bonds and the Welsh mutual investment model.

Whilst I want to focus my time this afternoon on the mutual investment model and the latest developments, I also want to say a few words about access to funding from the European Investment Bank and our future relationship after Brexit. 

The Welsh Government has been extremely clear about its position on the EIB. We called for the UK to remain a subscribing partner in the bank—something we believe would have been achievable had the UK shown the political will to bring it about. After all, we all benefit from EIB finance: borrowers benefit from a lower cost of capital and member states in their role as investors benefit from a steady return on investment. As things stand, with or without a deal, on 29 March, the UK will crash out of the EIB. The UK Government has failed to put in place any safeguard, with the exception of an offer to put an additional £200 million of capital into the British Business Bank in 2019. I need only point out that over the last 10 years, the EIB has invested on average over £5 billion per annum in the UK to demonstrate how paltry a safeguard this is. Just last week, the House of Lords concluded with a degree of understatement that the lack of any meaningful proposals from the Conservative Government on a future relationship with the EIB or domestic alternatives was disappointing. As an absolute minimum, this Government wants the UK to make good on its commitment to bring about a meaningful relationship with the EIB. That relationship must include a clear mandate for the EIB to continue investing here, providing the funds and the expertise that public and private borrowers have been able to count on for over four decades.

Turning to the mutual investment model, I'd like to thank in particular the Economy, Infrastructure and Skills Committee and the Finance Committee for their respective consideration of the mutual investment model towards the end of last year. Members will know that we are committed to delivering three schemes using this form of innovative funding: completing the dualling of the A465, additional investment in the next phase of the twenty-first century schools and education programme, and the new Velindre Cancer Centre. Together, these schemes have a capital value of more than £1 billion, and would not be affordable from our current, denuded capital budgets. Had we not developed the model, projects such as these would have to wait in line until enough capital became available, and despite what we've heard from Westminster about the end of austerity, the budgetary arithmetic just does not bear this out.

From the outset, our intention has always been to ensure that the mutual investment model promotes the public interest in the widest possible definition of that term. To that end, the model will deliver positive, additional outcomes in relation to well-being, value for money and transparency, and in doing so will avoid many of the criticisms levied at historic forms of public-private partnership—in some cases, criticisms that the Welsh Government was among the first to raise. For example, you'll recall that successive Welsh Governments have criticised the now discredited form of PFI. Indeed, last week in this Chamber, you will have heard the First Minister say that he expects all contracting authorities in Wales to conduct reviews of their historic PFI contracts and to identify the scope to make savings.

In relation to well-being, private partners with whom we contract using the mutual investment model will be obliged to help the Government deliver the objectives of the Well-being of Future Generations (Wales) Act 2015. They will need to deliver stretching community benefits, with penalties for non-delivery. They will need to adopt the code of practice for ethical employment in supply chains. And they will need to build our infrastructure with long-term sustainability and environmental efficiency in mind. We will require all MIM schemes to be subject to the rigorous investment appraisal of the five-case model—an internationally accredited appraisal tool, co-owned by the Welsh Government. The G20 finance Ministers have adopted the model’s principles as the basis for a global standard for infrastructure investment appraisal.

We've also developed a new project assurance tool that all MIM schemes will be subject to—commercial approval point checks. We have run two of these checks on the dualling of the A465. These checks have been supported by experts from the European Investment Bank and the UK Infrastructure and Projects Authority. I am convinced that rigorous investment appraisal, coupled with robust project assurance delivered by undoubted experts, will result not only in a better understanding of the risks involved in the delivery of major infrastructure projects, but also in a more credible appreciation of the value for money of such projects, and their affordability. To increase the value for money of our schemes, we have taken a conscious decision not to use the mutual investment model to finance soft services, such as cleaning and catering, which was one of the major criticisms of previous PFI contracts, and nor will it be used to finance capital equipment.

With regard to transparency, the Government intends to invest a small amount of risk capital in each scheme, ensuring that the public sector participates in any return on investment. This shareholding will be managed by a director appointed under the direction of Welsh Ministers onto the boards of those companies delivering our assets.

I agreed last month that, subject to the satisfactory completion of due diligence, the Welsh Government would invest 15 per cent of the total risk capital requirement for the A465 dualling scheme, pending a decision to proceed to construction. This investment will be on pari passu terms, with private equity investors. While all risk capital is, by definition, invested at a risk, we expect our investment to earn a return for the public sector that can be reinvested in other public projects.

The Minister for Economy and Transport has taken the decision to make the orders for this scheme. Notification letters were issued yesterday. He will provide further details on progress on this project in the coming weeks.

The Government has recognised the real pressures local authorities are facing, and we have been resolute in our commitment to do all that we can to protect them from the worst effects of the UK Government’s damaging policy of austerity. Alongside the three-year package of additional financial measures we announced ahead of the final budget, we have agreed that, for the next phase of the twenty-first century schools and education programme, we will increase the intervention rates for both capital and mutual investment model-funded projects.

Capital projects will benefit from a Welsh Government contribution of 65 per cent of the costs, and mutual investment model projects will benefit from a broadly comparable Welsh Government contribution of 81 per cent of the costs. Taking more of the load onto our shoulders, whilst challenging, will provide valuable additional support to our delivery partners in these times of austerity. It also offers a fantastic opportunity for us to deliver more in partnership. The Minister for Education will set out further details about the intervention rate in a written statement shortly. Thank you.

Can I thank the finance Minister for today's statement? I think it was only last week that I asked the First Minister for an update on the mutual investment model—I think you were sitting in the Chamber at the same time, Minister—so that's certainly efficiency. Leaving aside the usual preamble that features in many Ministers' statements about austerity, there are some very important issues that you've touched upon in your statement. I'd like to touch on a few of those myself.

Firstly, can I welcome your position on the European Investment Bank? The Welsh Conservatives have long been calling on the Welsh Government to make greater use of the bank, and we know that other countries, such as Spain, have long been utilising funding for road and rail schemes and other infrastructure projects. So, my party's role has been to call for more of that EIB investment for a long, long time. We haven't done the same, not just in Wales, but in the UK either. And I think you're right—we do need to push for continued membership, or partnership, or associate partnership, or whatever that might be, with the EIB. Let's not forget that the Republic of Ireland will remain in the European Union and Welsh and UK roads will still be needed to get there—at least I imagine that's how it will work—once we do exit the European Union. So, investment is required in UK roads, as part of a wider European, if not European Union, infrastructure.

Turning to the substantive aspect of your statement: we do, of course, support the use of the mutual investment model for programmes such as completing the dualling of the A465, which you mentioned; the twenty-first century schools programme—again, widely supported—which you mentioned; and also the new Velindre Cancer Centre. So, can you update us on the timescales for these projects, and indeed the timescales for getting the mutual investment models fully in place and finalised?

The monitoring of these projects is going to be all-important, given some of the cases of poor value for money—again, that you alluded to, and the First Minister did last week—of previous PFI projects, which happened over considerable lengths of time, under Governments of different hues, to be honest. I do recognise as well that, before, often, the Welsh Government had an input into those schemes, so monitoring is going to be all-important here, as the First Minister did tell us last week.

Can you tell us a little bit more about the five-case model? It's clearly important that this monitoring is robust, and this sounds impressive on the face of it, but, of course, thinking back to when PFI projects were originally brought in, there were a lot of very, on the face of it, sensible cases made for PFI and the sort of efficiencies those would deliver, and that certainly didn't happen, did it? So, let's make sure that the mutual investment model doesn't suffer from some of the problems that were faced by PFI and that lessons have been learned. 

Also, you mentioned soft services and you mentioned not using money for capital equipment—I don't doubt that you're right in some or many cases, but I'm just wondering is it right to have that blanket opposition to using mutual investment money for all capital equipment, for instance. You might well be able to make the case for that, but I'm just concerned that we might end up with a situation where the MIM model is actually so inflexible that perhaps in the future—if we want to futureproof, this is important—certain schemes might not be viable that otherwise might. So, I'd be grateful for some clarity on that. 

Could you tell us a little bit more about your efforts to improve transparency? You say that the Government's shareholding in each scheme will be managed by a director appointed by Ministers. What process is going to be used to select those directors and how transparent will those processes be?

But thank you for your statement. I think there's wide support across this Chamber for the mutual investment model, and I welcome what you've had to say today. I'd be grateful if you could give us some answers to some of the questions raised. 

Thank you very much for raising those questions this afternoon, and thank you very much also for your support for our position on the European Investment Bank, because it is clearly a really important source of both funding and expertise for us here in Wales. It's provided us with a key role, really, in supporting long-term investment to improve social housing here in Wales, education, energy, infrastructure, transport and water infrastructure. It's included backing investment by Welsh Water, for example, right across the country, including Stebonheath Primary School in Llanelli, where the RainScape project is helping to reduce sewage overflow into the Bristol channel. It also helped to fund the second Severn crossing and the A55 dual carriageway from Chester to Holyhead, as well as new roads in south and west Glamorgan, Dyfed and Gwent, and the Member talked about the importance of investing in that infrastructure. 

Recent European Investment Bank lending has supported education investment in Wales, including backing the new Swansea University bay campus, and cutting heating costs at Bangor University, for example, and has also provided support for our social housing programme, providing new homes and also improving existing properties, working with 10 different housing associations right across Wales. And, of course, the EIB has also backed key investment at Ford in Bridgend as well. So, clearly, it's an important source of finance, but also an important source of expertise too. And those additional benefits of expertise have very much come to the fore through the work that we've been doing to develop the south-Wales metro project, for example, which has very, very strongly benefited from the commercial expertise, which has informed the procurement process, whilst other previous investments in Wales have also benefited from the best practice that the EIB has been able to identify for us as well. 

In terms of the specific projects, I can provide an update on the A465. As you know, the public local inquiry concluded at the end of May 2018. I mentioned in my statement that the Minister has agreed to make the orders. So, a decision to proceed with the next stage now of procurement will be taken in the coming weeks, and an update will be forthcoming from the economy and transport Minister in respect of that. 

With regard to the Velindre project, the current status is that Velindre University NHS Trust is developing a suite of outline business cases for the delivery of the new Velindre Cancer Centre on the Northern Meadows site in Whitchurch, and Welsh Government is supporting the trust to deliver this major project to ensure that appropriate monitoring for that is in place. Work is being prioritised to secure site access at the moment, and there are some detailed negotiations going on with a range of third parties to make sure that can happen, and in parallel, then, the enabling works business case is being developed, pending the conclusion of those negotiations. The latest plan reports a completion date at the end of 2023, with an opening due in the first half of 2024.

Again, we are at an early stage with the mutual investment model in terms of its approach to supporting our twenty-first century schools programme, and Kirsty Williams does intend to issue a further statement on this issue shortly.

You referred to transparency, and that's one of the benefits of the mutual investment model— transparency will be key—also access to information for Assembly Members, and I'm really keen that we do take all opportunities to provide good information to Assembly Members on this, and there will be specific reporting requirements to Welsh Government as a shareholder and also as a client as well. Those specific details will be set out in the project agreements that are agreed with our partners in terms of delivering on these projects. 

In terms of capital equipment, I think it is the right decision not to use the mutual investment model for that, but clearly there are other options in terms of how we would fund that. It's just a question, really, of finding the most appropriate source of funding for the kind of things that we wish to procure.

I thank the Minister for the statement. Of course, I agree with the intention here, namely the need to look for innovative ways to boost investment in our infrastructure: infrastructure that shows the clear evidence of under-investment historically—and that under-investment, I remind you, has come from Labour and Conservative Governments over the years. Although I do agree that the age of austerity has deepened this problem.

So, yes, we need to look at the range of models that are available or that can be developed. I look forward to seeing the development of the principle of raising money through Government bonds. Could I also say that I’m pleased to hear a reference in the statement to our relationship with the EIB? It’s a great concern that there's a lack of attention or certainty, in terms of the Brexit debate, in terms of safeguarding the investment that’s available through the EIB at present, and I do agree that we should ensure that that relationship between the EIB should continue in the future. I have been to the headquarters of the EIB in Luxembourg, along with a number of other members of the Enterprise and Business Committee of the last Assembly, and realised the appetite there is and the ability there is within the EIB to look for projects that they can support for the benefit of long-term investment in strengthening our infrastructure, and I fear for what will happen if that is lost.

But, turning to the mutual investment model, our party has given a careful welcome to the statements by the Welsh Government on the model so far. One frustration that we have voiced is the lack of ambition, possibly, in terms of how much we can look to raise or invest using this model. But, of course, we need to be careful and note how important it is to get the right model. We are, naturally, going to be having comparisons with PFI, and the Minister has made those comparisons in order to try to ease our concerns. Some people are going to look at the definition of this model and the definition of PFI and they’re going to find them quite similar, but I think that what we’re looking for is assurance that risk does reside in the right place, because, clearly, to be plain, far too many PFI projects showed that there was very little risk that was undertaken by private investors while they were making great profits.

So, could I ask the Minister, following a series of commitments that this is different, what steps are going to be taken to evaluate the contracts as they proceed to ensure that that balance of risk has been struck appropriately and that there are not excessive profits? Because this is a mutual investment model and we always need to be evaluating this to ensure that that’s what we have, because while investors, quite fairly, need to see a return in the long term from an investment, we need certainty that there is value for money for the public purse.

And, secondly, possibly referring back to our frustration about a lack of ambition at present, could you give us an idea of the next steps for looking for further investments using this new model and give us some explanation about how prioritisation is going to happen? Because, before the last election, we in Plaid Cymru were talking about giving the power to prioritise in the area of infrastructure to an arm’s-length body, and I would have a great interest in knowing to what extent the Government is going to be looking for advice and leadership and a civic discussion on setting the priorities for using this new model in the most effective way.

Thank you very much for those questions. I would begin, really, by saying there is no lack of ambition in terms of our infrastructure ambitions for Wales. In terms of where we would see things going next, obviously we have our Wales infrastructure investment plan, our national development framework, which is currently under way, and the infrastructure commission, and I think, together, these three things will help us really pinpoint and focus where we need to be making the most strategically important investments across Wales in the coming years.

With regard to bonds, yes, certainly, Welsh Government can issue bonds, and we have gained those new powers to do so to help fund our infrastructure investment, and, certainly, at a time when our capital budgets are continuing to fall, these do provide us with the full suite of borrowing levers that we could use to realise those ambitious infrastructure investment plans across Wales, but the important thing to remember is that our ability to issue bonds doesn't increase our ability to borrow. So, specific details of bonds here that we might want to issue in future in Wales are yet to be determined because we would only use those bonds when all other cheaper forms of capital have been exhausted, and any funds raised by Welsh Government bonds would obviously be counted against our borrowing limit as well, which is one of the attractions of other forms of finance that we would certainly go to first.

With regard to your comments on the European Investment Bank, I very much welcome them. I think we set out very clearly together in 'Securing Wales' Future' that our interests here in Wales would certainly be best served by remaining a subscribing partner of the EIB because of the direct benefits it brings to our economy, not only in investment, but also in that expertise that I've previously referred to. And, of course, just last week, the House of Lords adopted a report where it noted that UK infrastructure investment had been the beneficiary of more than €118 billion of lending from the EIB, but it also, unfortunately, noted the marked decline in funding from the EIB since the referendum and the triggering of article 50 and lamented the fact that, despite losing our access to the EIB after Brexit, the Conservative Government has said very little about any future relationship with the EIB or any possible domestic alternatives.

The Member referred to the differences between the mutual investment model and PFI, and there are some really key differences that I referred to in my statement. The first will be that we will be requiring very stretching community benefits to be delivered from our mutual investment model projects. I think this is an important and key differentiation. For example, we'll be looking at jobs created, training and apprenticeship opportunities, including for graduate work placements, pupil placements. We'll be looking for school engagement, community initiatives, supply chain initiatives, work with social enterprises, and, also, obviously, support for our small and medium-sized enterprises as well. So, there are some really key differences between PFI and the mutual investment model.

Another one of those key differences, really, will be the requirements that we're making regarding sustainability and the environment. So, for example, to provide environmental sustainability, key design principles for Velindre Cancer Centre will include the use of natural resources and energy efficiency in all possible areas. The A465—while improving the safety, connectivity and congestion of the local area, it will also improve the resilience of other Welsh roads by becoming an alternative route during periods of congestion, maintenance or major incidents and the local area will also see improvements in footways, cycleways, increasing permeability and aiming to improve physical fitness and active travel. And notable environmental enhancements will also be delivered by the scheme in regard to reduced flood risk and reduced pollution risks to watercourses. And those new environments—the new learning environments built through the twenty-first century schools programme must achieve an EPC rating of A and BREAM excellence. So, we can use these levers in the discussions that we have with possible partners in future.

I find myself a very skeptical voice on this issue regarding the mutual investment model. Although, I have to say, having taken the opportunity to speak to the Minister's officials on two occasions, I'm somewhat reassured about both the reporting mechanisms and the detail of the commercial approval point checks that will be taking place and also project agreements and reporting mechanisms that will be associated with those. So, there is reassurance, but I think it has been a rather well-kept secret by the Welsh Government as to how these things will happen until recently. The accessibility and information on the mutual investment model could have been much better, although now I've found that on the beta.gov.wales page there is a mutual investment model explanation. There are six paragraphs of relatively straightforward public information together with technical documentation. However, if I was a parent whose child's school was going to be built using mutual investment model funding, I wouldn't be reassured by language that the Minister used in her statement. For example:

'This investment will be on pari passu terms, with private equity investors.'

And

'we have agreed that, for the next phase of the twenty-first century schools and education programme, we will increase the intervention rates for both capital and mutual investment model-funded projects.'

I don't think that's very public facing and I don't think it gives much assurance to those parents of children who will be in twenty-first century band B schools. Therefore, what plans does the Government have to make accessible the information regarding the mutual investment model while projects are being prepared, and particularly while they are being delivered and afterwards? There must be plans to make accessible that information to those people who have concerns but have no interest in technical information.

Thank you for those comments. I was pleased that you had the opportunity to meet with and talk to officials about the mutual investment model. I would certainly offer technical briefings to any Members who are keen to find out more about how the model works and to have any detailed technical questions answered that they might have. I have to say though that the mutual investment model I don't think has been a secret—there's been a Government commitment to it going back as far as 2011, when it was in our manifesto to look at innovative ways to fund public infrastructure. The model has evolved over time, so we have been borrowing from Scotland and from England where appropriate, learning from the European Investment Bank, adapting to accounting rules where necessary, and the MIM is very much a project of that learning and the challenging and the adaptation that has been taking place, which I think is a good thing.

There's been clear ministerial oversight of this project since the start. I know that Cabinet had discussed innovative finance three times during the previous administration and periodic updates were also considered by the Cabinet sub-committee for infrastructure. In the current term, Cabinet has already twice considered the mutual investment model and my predecessor made statements on the mutual investment model on two occasions already in this term—so, in February 2017 and in June last year—as well as stressing the important role that MIM has to play in numerous publications, such as the update to the Wales infrastructure investment plan and the draft budget. So, it's by no means a secret, but I do appreciate and understand your concern that the mutual investment model should be easily understood and accessible to people with an interest, particularly, I think, with regard to twenty-first century schools, which is a tremendously exciting project that will transform the learning environments of children across Wales. 

When launching the mutual investment model, the First Minister, when he was finance Minister, said:

'The mutual investment model includes important obligatory long-term provisions to secure community benefits, to create apprenticeships and training places for Welsh workers and for sustainable development, in which the private sector partner supports delivery of the well-being of future generations Act. It incorporates our commitment to an ethical employment code and allows us to maximise the benefits of our sustainable procurement practices. The model also enables the government to exert influence over the chosen private partner to ensure that the public interest is protected. Where we invest in schemes, this influence will be exercised by a public interest director, and this is an important advance on what has been secured in other public-private partnership models in other parts of the United Kingdom. This ensures robust transparency in terms of access to board-level information, alongside a range of reserved matters to protect public funds and the public interest.'

I don't think anybody can find any problems with any of that. It is, however, a means of bringing private finance into public services that keeps it off the public sector borrowing requirement, so that keeps the Treasury happy, and is not PFI, which keeps the rest of us happy. But I have concerns about the future revenue cost of capital under this model. I always have concerns about the future revenue cost of any money that's borrowed, my own included. We know it is more expensive than using Welsh Government capital or using the Public Works Loan Board.

I have three questions: do you accept that bonds are only there to keep the Public Works Loan Board rates low, and that you would not expect the Welsh Government to use them, but they hang over the Public Works Loan Board as if you increase your rates, as they did to local government, then local government starts saying, 'Well, we can issue bonds', and they keep putting the rates back down? You talked about a return of 15 per cent on what our investment is, but isn't that just having our own money back, in that if we've invested it, the money comes back, and it's only our money going in, so aren't we just getting our own money back? And, really, the key question is: what is mean rate of return being achieved by those providing private finance through this model? We know that money being borrowed can be borrowed relatively cheaply, but we also know that we're capped on what we can borrow. If we could prudentially borrow, all of these innovative ways of doing things would be unnecessary. We'd use, as local authorities can, the innovative model—instead of an innovative model, we'd use our ability to prudentially borrow, and all this would be done by prudentially borrowing, it's the Public Works Loan Board, which would be cheaper. If the Minister's going to tell me that wouldn't be cheaper, I'd like to see the figures. So, really, just to come back to those three questions, the main one is: what is the rate of return being achieved by those lending?

Thank you very much for raising those issues. I completely agree with the point that you made about prudentially borrowing and the fact that local authorities are able to do so. We had a bit of discussion about this in my recent appearance before the Finance Committee, and I would certainly agree with the points that you and others in Finance Committee have been making on this issue. 

With regards to the bonds, whilst the Welsh Government does have the power to issue those bonds, we have no current plans to do so, because we are able to borrow via the national loans fund, which in general does involve lower interest rates than a Welsh Government bond would attract. The power to issue bonds, though, is important, because it does mean that there is another way in which Welsh Government can borrow in the event that the UK Government did decide to increase our cost of borrowing. 

In terms of the question on the mean rate of return for projects, well, currently we're going out to look for the partners to deliver these projects alongside us, so, much of the detail will be part of the dialogue that we will be having in the near future with interested parties. I will say on the issue of the importance of appointing the director to the boards, we're currently working through the detail of how this appointment might work to ensure that the appointee would have the right skills and the experience to undertake that role, because it is all part of the important way in which we will seek to hold the partners to account in terms of delivery.

A number of people have raised the issue of risk, and we will operate reporting mechanisms that support the Welsh Government public sector to undertake due diligence when concluding contract awards. Our arrangements will help provide early warning of any strategically important suppliers who might be experiencing financial difficulties, and we're also using available intelligence to develop as comprehensive a picture as possible of strategically important suppliers across the Welsh public sector so that we and public sector clients can have a clear understanding of potential exposure of over-reliance on too few suppliers. 

And our procurement policy approaches are intended to develop a diverse, competitive supply base, and ensuring fair business practices that flow throughout those supply chains. 

Thank you very much, Minister.