The next item is the debate on the second supplementary budget 2018-19, and I call on the Minister for finance to move the motion—Rebecca Evans. 

Motion NDM6964 Rebecca Evans

To propose that the National Assembly for Wales, in accordance with Standing Order 20.30, approves the Second Supplementary Budget for the financial year 2018-19 laid in the Table Office and emailed to Assembly Members on Tuesday, 5 February 2019.

Motion moved.

Thank you. This second supplementary budget is a standard part of the annual financial management process and provides a final opportunity to amend budgetary plans for the current financial year as previously approved by this Assembly. I would like to thank the Finance Committee for their scrutiny of this second supplementary budget. I will respond to the committee's recommendations in due course. This budget is primarily a vehicle to codify the changes required as a result of in-year financial management. It aligns available resources with Government priorities, and the majority of changes to plans are primarily administrative in nature. It details adjustments as a result of transfers within MEGs; transfers between MEGs; allocations from reserves; changes to the overall departmental expenditure limit, including consequentials and other adjustments resulting from HM Treasury decisions; revisions to forecasts of devolved taxes; and the latest annually managed expenditure forecasts agreed with HM Treasury. The majority of the allocations formalised by this supplementary budget have already been announced by portfolio Ministers, and Members will have had the opportunity to scrutinise them.

The NHS remains a key priority for this Government. This budget includes revenue allocations of over £138 million from Welsh Government reserves to support the Welsh NHS. This includes funding for the NHS 'Agenda for Change' pay award and for doctors' and dentists' pay. A further £4 million of revenue has been allocated as part of the local government funding package announced last November to help relieve winter pressures for social services. This is a top-up to the £10 million that was provided in the previous year's draft budget. Extra resources are also allocated to alleviate some of the budgetary pressures being faced by local authorities implementing the teachers' pay award, and £16.2 million is allocated this year from the reserves in this respect.

Four million pounds revenue has been allocated for the Public Sector Broadband Aggregation to improve digital connectivity, linking more people with more jobs, goods, and services, and supporting the sustainability of rural communities.

Additional capital funding for local authorities of £100 million over three years was announced in the recent draft budget. Fifty million pounds of that funding is allocated in this supplementary budget. This funding gives local authorities the flexibility to spend as they deem appropriate to deliver Welsh Government and local priorities. Local authorities will also receive additional capital funding of £20 million in this supplementary budget to support road refurbishment as part of the £60 million package announced in the draft budget. This will help repair the damage caused by a series of hard winters and the very hot summer of 2018. Eighty-seven million pounds of general capital funds are allocated to the economy and transport portfolio. This includes this year's commitment to the local transport fund and expenditure on the M4.

Over £115 million has been allocated to support expenditure that is eligible for financial transaction funding. This includes £30 million to support a total £40 million investment to establish the Wales self-build scheme. This will offer a route into home ownership for people who want to stay in their local area, and provide opportunities for local SME construction companies and trades.

With tourism as a key economic driver in communities across the whole of Wales, I've allocated a total of £50 million, £40 million of which is financial transactions to establish a Wales tourism investment fund. This will help the continued growth of the industry in Wales and support the change to the investment model from the issuing of grants to a funding mix of repayable and non-repayable business finance.

This budget is also the first to make in-year changes to our devolved tax forecasts. As was reported, alongside the final budget, expected revenue from land transaction tax and landfill disposals tax for this year is £286 million—an inrease of £10 million since the first supplementary budget.

Llywydd, supplementary budgets are mainly administrative in nature. This budget details the various other adjustments to be made to our budget in this financial year, including changes to the Welsh block, revisions to forecasts of annually managed expenditure and other transfers between, and within, ministerial portfolios. I would like to thank the Finance Committee again for their scrutiny of the supplementary budget, and I ask Members to support it. Diolch.

The Chair of the Finance Committee, Llyr Gruffydd.

Thank you very much, Llywydd. I am pleased to speak in this debate today on behalf of the Finance Committee. The committee met on 14 February to consider the Welsh Government’s second supplementary budget for 2018-19. In consideration of this supplementary budget, the committee was relatively content, however we have made several recommendations that we would like to see taken forward and implemented. First, the committee recognises that it is an ongoing and long-term process for the Welsh Government to achieve the ambitions of the well-being of future generations Act. However, the committee is disappointed that there appears to be little evidence as to how the Act is considered at the heart of all Welsh Government decisions. Therefore, we recommend that the Welsh Government provides a comprehensive objective-setting plan, outlining how it intends to deliver the requirements of the Act, particularly in terms of budgeting, and to do that by the end of this Assembly.

Turning to the possible M4 relief road, this supplementary budget commits £27.8 million to the project, and we recognise, of course, that a decision has yet to be made on whether or not to proceed with the relief road. However, the committee was surprised to hear, given the funding that’s already been committed to the project, that there has not been any discussion between the Finance Minister and the First Minister in terms of planning for a possible M4 relief road. Should a decision be made to proceed with the relief road, we recommend that the Minister and the First Minister should commence discussions on a long-term financing plan imminently.

The supplementary budget allocations include £9.5 million, with the objective of reshaping the workforce within the Welsh Government. We heard evidence that the Government is looking to bring in new skills and possibly create posts to support Brexit, but there were no figures available on savings or actual costs. We would expect a scheme of this value to result in some savings to the organisation. Therefore, we do recommend that the Welsh Government provides an update to the committee on the outcome of the voluntary exit scheme, showing how that funding was used and what savings will be achieved in the longer term.

Moving on to health and social care, we heard evidence that £20 million had been set aside over the previous winter to alleviate expected pressure on health boards. We recognise that winter pressures may vary from year to year, however, in the UK, we believe it’s possible to predict these sorts of pressures to a large degree. And the committee recommends that future financial planning for health boards accounts for predictable spend on winter pressures and that this is done as early as possible in the budgeting process. This would avoid the requirement for significant in-year funding, whilst also alleviating the committee’s concerns that the health main expenditure group could act as a reserve in its own right for providing additional health funding.

Turning to Brexit, the committee supports the Welsh Government in using full consequential funding relating to Brexit for preparations for leaving the EU. However, there is concern that uncertainty around the nature of the UK’s exit from the EU at a UK level places significant risk on the Welsh Government’s planning. We support the Welsh Government’s comments that it would look to the UK Government in the event of a ‘no deal’ scenario to secure any relevant funding and that it would expect to be kept informed of developments should this scenario transpire.

Finally, the committee welcomes the opportunity to consider the explanatory memorandum provided by the Assembly Commission prior to it being laid. The Commission is, for the first time, returning underspend from the remuneration board’s determination to the Welsh consolidated fund, and we welcome this.

The committee is also content with the explanatory memorandum provided by the public services ombudsman. However, we would hope that, in preparing future estimates and supplementary budgets, the ombudsman will reflect on the Finance Committee’s recommendations about how his budget should be presented and what information is provided in support of his requests in order to ensure transparency. With those comments, this has been an opportunity for me to convey the committee’s perspective, and I look forward to the Government’s positive response to our recommendations.

I'm pleased to contribute to today's debate on the supplementary budget before us. Can I thank the Minister for her willingness to meet and engage during the process of laying this budget? I've had many useful discussions with your predecessor, and I'm pleased that that spirit of co-operation has continued. I'm also pleased to be taking part in the Finance Committee's work on the supplementary budget and I will be referring to some of the committee's recommendations and conclusions during my remarks today, although many of those have been touched on by the Chair.

The committee's lead recommendation, recommendation 1, calls on the Welsh Government to provide a comprehensive objective-setting plan to align the budget with the Well-being of Future Generations (Wales) Act 2015. We come back to this again and again. It's one thing to have a piece of groundbreaking legislation like the future generations legislation, welcomed by all other parts of the UK and other parties, but it's another thing to ensure that that legislation takes into account all aspects of policy and budget setting, and that it's taken into account by all departments in the Welsh Government. Steffan Lewis used to constantly question, on the committee, whether this was happening in practice and what it meant for the Act, and, indeed, the whole act of legislating. Now, I appreciate that it's no mean feat to try to achieve this, but we do have to have greater clarity on how it can happen to make the legislation worth while in the future. In-year announcements of activities cannot be a

'replacement for a comprehensive narrative of the budget in the round'.

That's a quote from the report.

Turning to some of the individual changes, and some of the transfers from MEG to MEG, as was eloquently put by the Minister—not the talk of clubs and pubs across the country, I'm sure, but we all know the importance of the MEGs and the DELs—. Turning to some of those individual changes, and, first of all, the important one—the health and social care budget—any additional funding for the health budget is, of course, to be welcomed. My party has been calling for that extra funding for the health budget for a long time, and the £5 million that's been announced—part, I understand, of the £15 million promised last summer—is to be welcomed.

But, you do have to ask, as the committee has: is this the most efficient way of doing things? I think, as Mike Hedges has said in the Finance Committee, winter does have the habit of coming most years—every year—and the Welsh Government knows there are going to be pressures each year, and local health boards know there are going to be pressures each year. They might not know exactly what those pressures will be, but we know that they will come each year, yet there's always this kind of surprise in the committee by the Government that suddenly winter's upon us and there have been all of these kinds of problems out there, which, of course, could and should be predicted, at least in a general way. So, can we look at the way this is done in future so that we know where we are earlier in the year and that sustainability of funding is ensured? That ties in with previous recommendations from the Finance Committee regarding the need for longer term rolling budgets within, admittedly, the political cycle.

The funding of health boards continues to be a sore point. They do seem capable of absorbing ever larger amounts of money that are poured into them. They are, of course, required to break even by law over a three-year period, but that hardly ever happens, certainly not with all of them. We need a far earlier assessment of the impact of winter pressures, instead of providing this funding in-year, or at least not relying all the time on this funding in-year, so that LHBs are given every opportunity to plan ahead and, indeed, the Welsh Government can better liaise with them on that planning. 

Turning to transport and, yes, we did, Llyr, have some interesting discussions on financial preparations for a solution to the M4 congestion around Newport—amazing what a fresh pair of eyes on the committee can do, isn't it? We were surprised that limited discussions had taken place between the finance Minister and the First Minister. There will obviously be implications for expenditure from such a large project if it goes ahead, and the Welsh Government's borrowing capacity. There are questions about the amount of money that may have been spent since the decision was originally going to be made in December, and I think we need clarity around that. We know that a large amount of money has already been spent on preparations for the M4 if it does go ahead. What has actually been spent since December when we were expecting, or most of us were expecting the original decision to be made? That needs to be known.

Without going into the ins and outs of it, we need to have clarity as soon as possible on whether that road is going ahead. If it's not going to be going ahead, then we know what preparations are in place for an alternative solution, whether that be an alternative route or public transport funding, or a mixture of the two; it's for the Welsh Government to look at that and decide what's best, but the public do expect that.

It is, of course, not possible to discuss budgeting at the moment without touching on Brexit, and I fully understand the Welsh Government's position that it needs greater clarity on where we are going to be in a relatively short time now, but recommendation 8, Llywydd, calls on the Welsh Government to provide a full narrative on activities relating to the UK's exit from the EU. Yes, we are looking at the UK Government to come forward with plans, but we also need the Welsh Government to be prepared to get off the mark very quickly when we do have clarity to make sure that we can make the most of the new political situation within the UK and in Wales after March, or whenever Brexit happens. 

The supplementary budget is a relatively technical issue, so I won’t speak for long, but it’s worth noting that this will be the final supplementary budget, I think, as part of the two-year compact that my party had agreed with the Labour Government, and we have delivered a lot, of course, as part of that agreement and we celebrate that, particularly during this recent period. I’d like to refer to two things that could create foundations for the future and could, in due course, be foundations that we could build on when we are in Government.

I’m referring, mainly, to the Arfor scheme, which has been announced in recent weeks, that sets out an initial framework for tackling long-term problems that we’ve faced in the west, the south-west and the north-west, in the Welsh-speaking west, then, and the economy there that not only is important in terms of economic development policies, but the basic viability of those communities, with that affecting our ambition in terms of ensuring a viable future in terms of the Welsh language in those core areas in terms of its prosperity.

That programme is an experimental one and an innovative one, because we have to do things anew—we can’t carry on to doing the same things with the economic policy that has failed those communities. That’s to be seen in the lack of attainment or achievement in terms of economic performance in those areas. So, it’s good to see recognition of that by the Government. The starting point is to recognise where you’re going wrong. The first step is to do something different, and although it’s a relatively small investment—we’re only talking about £2 million, initially, at least we’ve been able to create the foundation for thinking anew, and I hope, in due course, it will be possible—it's only through forming a Plaid Cymru Government that we’ll be able to turn this initial programme into a transformative programme for these areas.

In the same direction, on a national level, there is the programme relating to the foundational economy that recognises also that there has been a fundamental deficiency in terms of the direction of the economic policy of the Government. That is, a lack of emphasis on small and medium-sized companies rooted in the local economy in Wales—grounded firms in the terms of that approach. But also, trying to use those levers available to us in the economies that Hefin David mentioned—some of the areas of the Heads of the Valleys, which haven’t had a sufficient focus in terms of sustainable job creation in the long term, that are established, with high value and high salaries in those areas. The same pattern is to be seen across Wales, and at least there is some recognition—and we saw that in the comments made by of the Minister with responsibility, Lee Waters, over the weekend—that there has been a vacuum in the Labour Government’s economic policy for many years. Well, hallelujah. When a sinner repents, the first step is to admit failings, deficiencies and that there is a need to do something different.

So, we welcome the fact that at least a seed has been sown here, and, ultimately, of course, in order to ensure that we have prosperity, we have to turn these pilot schemes and these small investments, compared with the budget in its entirety, to be the root or the hub of the economic policy, rather than something at the margins. I'm sure that we will need to see a political change in due course, in order to ensure that, but, at least we’ve been able to make some kind of contribution to create a foundation that will be useful for us in two and a half years when we will be taking the reins of Government.

I have a number of comments to make on the second supplementary budget. It's always a disadvantage to follow Llyr Gryffudd and Nick Ramsay, who serve on the same committee as I do, because an awful lot of the things I was going to say, they've already said, and I don't think people want to hear them a second time.

I'd like to reply to something Adam Price said about small and medium-sized enterprises—something I've been making a fuss about for a very long time. One of the weaknesses we have in small and medium-sized enterprises in Wales is that when they become medium sized, far too many of them sell out to much larger companies. And we've seen in the last 12 months Alun Griffiths (Contractors) Ltd being taken over by a much larger company and in Carmarthenshire, we saw Princes Gate being taken over by a much larger company. So, we grow to medium sized, then somebody else takes over and that's a problem with our economy that really does need addressing.

The other thing is—we talk about these hundreds of millions of pounds as if they're trivial sums. They're not trivial sums; they're of great importance to the Welsh economy. If we look at the increase in additional financing from the UK Government—a consequential of £155.3 million and the extra £138.6 million for health and social services, which I'm going to go through in some detail, because I want to raise something at the end of it: £47.3 million in NHS pay; £24 million in doctors and dentists' pay; Welsh risk pool—£30 million; additional funding to develop and implement sustainable plans for orthopaedics and ophthalmology at Betsi Cadwaladr university health board—£24 million; winter pressures funding for social services—£4 million; and transitional costs associated with the Bridgend boundary change—£3 million. So, can, perhaps, people give some thought to the fact that merging things is not cost-neutral and there are certain expenses to it? People seem to talk as if mergers will save lots of money. If that were the case, this would be cost-neutral, because it's only moving from one health board to another. It hasn't been cost-neutral; there are further costs in change.

The point I want to make, though, is that only £4 million of the health and social services budget has gone to social services, or just over £1 for everyone living in Wales. To be added to that, £15.6 million for teachers' development support, including £8.1 million to fund additional costs of the teachers' pay award from nursery to year 11; £7.5 million to help local authorities meet educational cost pressures; £50 million for the first installment of a £100 million three-year capital package; £20 million for the first installment of a three-year £60 million public highways refurbishment package; and £26 million for the local transport fund. So, add all those up now; local government has again come out of the second supplementary budget badly. Local government comes out of most budgets badly. We talk about the foundation economy; everybody talks about the foundation and how important it is. There is nothing more important in a foundation society than local government services supported by local government expenditure. I think that we really do need to get back to thinking that if we want to improve our economy, getting better educated people will help us, improving the number of people with skills will help us, and undertaking a huge number of things that local authorities do, including improving the transport links, will help us. 

On the M4, I share the committee's concern about the level of funding being committed to a project where so much uncertainty exists, and I support the recommendation that the Welsh Government provide additional details on the planning for the M4. Would the additional funding have been needed had a decision been made at the time it was originally intended in December? And how much additional money may need to be committed before a decision is taken? It appears to me that not taking a timely decision is an expensive option, and costs appear to be incurred if the final decision is to not proceed. My position has not changed. I'm a convincible sceptic—although, for the record, no attempt has been made to convince me that the M4 is a good idea.

On the student loan fund, I'm going to be told this is non-Welsh Government cash, it's non-fiscal reserves; it doesn't really matter, because it doesn't affect the Welsh Government's ability to spend. What I will say is this: this is coming out of the Westminster total expenditure, so every time money comes out of this, then we end up with less money being available for our Barnettised proportion of the amount coming out. I mean, we see every year that this increases. I make a fuss about it every year; the First Minister will remember from when he was finance Minister. Although it's non-cash, it does have that effect. And I say it happens every year; the student loan programme is not working. People need to come to grips with that. At some stage, it's going to have to be written off, or written down or whatever way the accountants want to do it, but somebody's going to have to do something about it. It's becoming increasingly costly to the Westminster Treasury, and it's almost like having another Trident.

Finally, I think we do need a discussion at some stage on transaction capital, which gets mentioned in every budget—normally fleetingly—and I think we do need to discuss where it's going, how it's being spent, and how it's going to be paid back.

The Minister for Finance to reply to the debate. Rebecca Evans.

Thank you very much, Llywydd, and thank you to everybody who has contributed to the debate this afternoon. I'll do my best to respond directly to some of the points that have been raised in the Chamber today, and I will be responding formally to the committee's recommendations in due course.

There was a great deal of interest in committee scrutiny regarding the well-being of future generations Act, which the Welsh Government is very much committed to ensuring is at the heart of our budget decisions, and there are a number of key allocations within the budget that progress our commitments in 'Taking Wales Forward' and 'Prosperity for All', which, of course, are very closely aligned to those future generations goals, and those will include: additional funding for the local transport fund, for example, and minority ethnic and Gypsy/Roma/Traveller learners, together with funding for free school meals.

I met with the future generations commissioner just last week to discuss our approach to setting budgets, and I'll be meeting with her again, alongside a senior team of officials, to have a round-table discussion on lessons learned from the last planning session for the budget, to explore how we can go about ensuring that we continue to ensure that the well-being of future generations Act is brought to life through our budgetary process. Certainly, I'll be having discussions with each of my Cabinet colleagues as we go about setting the budget in the next year, in terms of how the financial allocations to those departments will be bringing to life the well-being of future generations Act.

I did acknowledge, in my response to the Finance Committee, that embedding the well-being of future generations Act is an evolutionary process, and that the cultural change required won't happen overnight. But we are absolutely committed to ensuring that those five ways of working are very much the foundation that guides all of our activities. We've certainly, since 2016-17, improved the way that we reflect the way that the Act is involved in our spending decisions in every draft budget narrative, and I would certainly seek to ensure that that process continues, and the improvement continues as we move forward.

Several references were made to the spend on the M4, which is referred to in the second supplementary budget—£27.8 million has been made available for the completion of the statutory process and to support essential activities and investigations in the consideration of the project, such as environmental surveys, for example. It will also cover potential activities that will provide value for money contingent preparations should the scheme proceed. So, examples of that type of expenditure, which I was able to give committee during scrutiny, are ecological survey data, which must be continuous for a number of years prior to construction, for example, and utility diversions that involve materials with long lead-in times and pose high levels of risk to the construction programme, and the halting of those contingent preparations with utilities would incur significant costs and programme implications should the scheme proceed, as the resultant time required would delay those works and other subsequent project works that rely on it. Expenditure also covers matters like the planning inspectorate and legal costs to complete the statutory process required on Network Rail interface agreements, reimbursement of NRW costs and necessary support for affected businesses to develop measures to mitigate impacts should the scheme proceed. 

I can confirm that I have had the necessary discussions that you would expect me to have with officials in terms of understanding the project, exploring issues of affordability and value for money, for example, and issues relating to profile so that I am completely au fait with the options should the decision be made for the project to go ahead. 

In terms of the voluntary exit scheme that was discussed during committee, I was able to give only limited detail of that in committee because this is a process that is currently under way, but I will certainly be sure to update committee in due course. 

On winter pressures, this is a discussion that I will certainly have with my colleague the health Minister in our upcoming bilateral, but I would say that, given the nature, timing and duration of winter pressures, they can vary year by year and by health board area, so there does need to remain that element, I think, of flexibility in terms of allocating additional funding to respond to those pressures. But, again, this is a recommendation from the committee that I will be responding to in due course. 

I really do welcome the committee's support for the Welsh Government's position with regard to a potential 'no deal' Brexit and the expectation that we would have on the UK Government for additional funding to come to Wales. I'm disappointed by the lack of clarity that there is from the UK Government in terms of its position. Of course we have the spring statement next week and the Chancellor has said previously that that could become a full fiscal event, but then I had discussions at the finance quadrilateral recently with the Chief Secretary to the Treasury who said that the spring statement would be a purely administrative event. So, there are different messages coming out from the UK Government, but I do welcome the committee's support for our position. 

Finally, Adam Price did say that this is the final budgetary event in our two-year agreement with Plaid Cymru, and I just put on record my thanks for the constructive way in which Plaid Cymru have engaged with us in terms of our shared priorities that we have identified through the budget-setting process, and again thank Members for their contributions. 

The proposal is to agree the motion. Does any Member object? [Objection.] I will defer voting under this item until voting time. 

Voting deferred until voting time.