Item 5 on the agenda is a debate on the Finance Committee report, an inquiry into the Welsh Government's capital funding sources, and I call on the Chair of the committee to move the motion—Llyr Gruffydd. 

Motion NDM7226 Llyr Gruffydd

To propose that the National Assembly for Wales:

Notes the report of the Finance Committee on the inquiry into the Welsh Government’s capital funding sources, which was laid in the Table Office on 4 November 2019.

Motion moved.

Thank you very much, Deputy Presiding Officer. I'm very pleased to be speaking in this debate today on the Finance Committee’s inquiry into the Welsh Government’s capital funding sources. As Chair of the committee, I would like to take this opportunity to thank all those who contributed to this inquiry and to the Minister for Finance and Trefnydd also for her response to our report. The committee welcomes the fact that the Minister, in her response, has accepted all of the recommendations in the report.

Under the Wales Act 2017 and accompanying fiscal framework, Welsh Government currently has an annual capital borrowing limit of £150 million. In June last year, the Minister announced a capital investment package of £85 million, then on 4 November, she announced a further funding of £130 million for key capital investments, and that included £53 million to support businesses in the face of Brexit and to provide extra investment for future developments, such as housing and active travel. Accompanying this announcement was the publication of an updated version of the Wales Infrastructure Investment Plan.

Now, the annual report by Welsh Ministers about the implementation and operation of Part 2—finance—of the Wales Act 2014 was published in December last year. It makes reference to the Welsh Government’s capital borrowing and it states—and I quote—that,

'The take-up of planned borrowing will be carefully considered during each budget period and will only be used when all available conventional, cheaper sources of capital financing have been exhausted.'

The Finance Committee undertook this inquiry to establish how the Welsh Government is using the funding streams available to it, the effectiveness of Welsh Government’s funding strategy and the benefits and risks of specific funding models, in particular the mutual investment model, or the MIM, as we know it through the English acronym.

The nature of the Welsh Government’s capital budget has changed in recent years as the UK Government has placed greater restrictions on the use of capital through the introduction of financial transactions capital. In 2019-20, 14.2 per cent of the Welsh Government’s capital budget was in the form of financial transactions capital. It is only for loan and equity investments in the private sector that this form of capital can be used and it must be repaid to HM Treasury.

In her evidence to the inquiry, the Minister noted that the Welsh Government has to pay back 80 per cent of the total financial transactions capital allocated by HM Treasury. This provides Welsh Government with the opportunity to provide interest-free loans or very low interest loans to the private sector to invest in relevant infrastructure, for example, housing projects.

The committee felt that the evidence received from stakeholders demonstrated the need for the Welsh Government to consider how financial transactions capital could be better used to support housing providers and also how local government capital borrowing powers could be used more effectively. This is particularly important given the evidence that capital infrastructure is deteriorating, and the committee recommended that the Welsh Government works closer with local government to deliver a more integrated approach to delivering infrastructure investment at a national and local level.

During the course of the inquiry, one of the key themes that emerged was the need for Welsh Government to plan for the longer term and to match funding sources to projects in order to provide a clearer picture of how much capital borrowing will be required in the future.

The committee welcomes the revised WIIP, given that it provides further details on the proposed infrastructure investments by the Welsh Government. However, during the inquiry, stakeholders highlighted the lack of clarity on how the Welsh Government currently prioritises projects at present. One witness suggested that any long-term investment plan should be published in full. The Minister did inform the committee that the Welsh Government has set up a National Infrastructure Commission for Wales to have that longer term view, looking five to 30 years ahead. According to the Minister, this group will be making recommendations on economic and environmental infrastructure needs in the longer term across Wales. In her response to our report, the Minister added that the Welsh Government would be responding to the new commission’s recommendations following the publication of its first report in 2021 and will be looking at how this can influence the Welsh Government’s approach to borrowing.

The committee heard evidence that risk varies across a project’s lifecycle and that the highest risk is in the construction phase. The risk should be assessed at each stage of the project and consideration should be given to matching funding sources to project risk at each stage. The committee believes that this would provide a more effective way of allocating funding than the Welsh Government’s current preferred method, namely to use the cheapest source of borrowing first that would also enable the Government to maximise available capital while minimising financing costs.

The inquiry also included a substantial amount of evidence comparing and contrasting private finance initiatives first introduced by the UK Government in 1992, and the mutual investment model, the MIM I mentioned earlier, which was recently developed by the Welsh Government to provide more than £1 billion to finance public infrastructure in Wales. The MIM is based on the non-profit distributing model of the Scottish Government and the Welsh Government worked closely with the Office for National Statistics and the European Investment Bank to develop the new model with the aim of ensuring that no debt liability is recorded on the Government’s balance sheet. This should mean that it will not be included in the Welsh Government’s capital borrowing limits and should provide Welsh Government with an independent borrowing stream.

The comparative analysis suggested that MIM represents an improvement on aspects such as community benefits and oversight of project contracts, but it is difficult to ascertain a significant difference between the two models. In particular, it is unclear how MIM minimises financing costs or how it offers greater value for money than previous PFI models.

One of the suggested benefits of MIM highlighted in the inquiry was the opportunity for the public sector to take up to 20 per cent of the total equity in a project and therefore a share in any returns. Taking equity in a project would also allow the public sector to have a representative on the project board as a shareholder and this would give the public sector the opportunity to influence project decisions. However, the committee felt concerned that the existing governance arrangements might not be sufficiently robust to effectively mitigate potential conflicts of interest that may arise as a result of Welsh Government being both a shareholder and a client.

We heard evidence that while the development of the MIM model attempted to address some of the issues around the complexity and inflexibility of PFI contracts, MIM contracts remain complex and reasonably rigid according to witnesses. The committee recommended that the Welsh Government reviews the level of expertise in place for managing these contracts periodically to maintain this expertise and ensure effective delivery throughout the lifecycle of any MIM projects.

Evidence also suggested that careful consideration should be given to the selection of projects to be delivered through MIM. Projects with complex requirements, high-tech assets or innovative projects are not deemed appropriate to deliver through MIM. Projects that are considered to be stable over time such as the building of roads, schools and hospitals are more appropriate for MIM funding. The committee was satisfied that appropriate projects had been chosen to be delivered through MIM and recommended that the Welsh Government continues to use MIM to fund projects that require continuity over the lifetime of the contract and where the private sector can deliver the greatest value for money.

Several other finance models were highlighted as part of the committee’s inquiry and Members believe that Welsh Government should continue to explore alternative methods of financing in order to be more innovative with the funding available and to unlock further private investment for capital projects in Wales.

Finally, the Welsh Government also told us that it was seeking prudential borrowing powers to support its capital infrastructure programme and the majority of committee members agreed that the Welsh Government should continue to petition for these powers.

I have run through the report very quickly. I'm looking forward to hearing the comments of Members and, of course, the response of the Minister. Thank you. 

While alchemists wanted to turn base metal into gold, politicians want to get private money cheaply into public projects, thus avoiding falling foul of the public sector borrowing requirement and being capped by the Treasury. The latest attempt in Wales is the mutual investment model that levers in private capital to support public sector projects. When launching the mutual investment model the now 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.'

All the above will come with a cost. The private sector will factor in the cost of all these nice things we've added when they put in the price. What you're doing is you're paying for it, and I think that sometimes, we seem to think that the private sector's going to give us something for nothing. They don't. They're interested in making a profit—that's not a criticism of them, but that is what they're interested in doing. You can ask them to do anything whatsoever and they will. What they will do, though, is make you pay for it.

The current Finance Minister said in Plenary in February 2019:

'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....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.'

So, if there's a penalty for non-delivery, what are they going to do? They're going to factor in the penalty, because it's inevitable. They're not charities; they're doing this to make money. Every time you put anything like that in, you're going to pay a price for it.

'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'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.'

Well, if the dualling of the A465 shows the success of this financial model I am not sure what failure would look like. Whatever you think of the A465—and I'm sure my colleague, Alun Davies, may well mention it later on—financially, it has not been particularly successful.

'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.'

The return on investment is getting some of your own money back. If it makes £1 million profit, if you've got 20 per cent of it, you get £200,000 of the profit, and the other £800,000 goes to the people involved. You're buying your own profit.

'This shareholding will be managed by a director appointed under the direction of Welsh Ministers onto the boards of those companies delivering our assets.'

Should we really be reassured if dualling the A465 shows the success of this financial model? My concern is, when you strip away all the warm words, what is being done is paying for private capital over a long period of time. Those providing the capital will be looking for a rate of return higher than the cost of borrowing for local authorities, and will also be looking to minimise their risk.

Whilst the worst excesses of PFI—such as not financing soft services and capital equipment charges, such as £20 to change a light bulb—will not occur, it's still a long-term commitment that will have an effect on revenue budgets for decades. For schools it would be cheaper for the Welsh Government to fund local authority borrowing to pay via the aggregate of external finance for the building of the schools, and let them borrow from the Public Works Loan Board.

Until we know the final cost of the projects we don't know much it's going to cost, but finally, Deputy Presiding Officer, really, you've got to be very careful, because it's long-term costs for short-term gain.

Can I thank the members of the Finance Committee for allowing me to intrude on this debate on behalf of the Welsh Conservatives? I have read with great interest the report that you have produced, and I can see that it's a very thorough piece of work, so I want to commend you all and, indeed, the clerks who have supported you through the process.

Having read the report, very clearly, there are some key recommendations in there that the Welsh Government has responded very positively to, and I'm pleased to see that. It is clear, I think, that the Welsh Government needs to plan its infrastructure investment in a more long-term way in the future in order that we can get some more consistency and a coherent approach to economic development, rather than what I think the report has identified as a sort of piecemeal approach in the past in terms of the way that capital has sometimes been invested.

And, of course, we're nearing the end of the 10-year Wales infrastructure investment plan, and I know that Ministers are working on the next 10-year plan, and I think that this report usefully makes some very decent recommendations as to how that plan might be developed in the future. Of course, we know that the Government has identified a number of different priorities, we've got the climate change emergency as well, which has been declared, and we also know that there is a certain level of uncertainty, I'll acknowledge that, in terms of the way that the UK Government's shared prosperity fund might work.

Now, one of the things that was a key project from the Wales infrastructure investment plan, of course, was the M4 relief road. It was dropped because of the climate change emergency, we are told, but we don't see any proposals at the moment coming forward for green infrastructure in terms of—

Thank you for giving way. He said it was dropped due to the climate change emergency, but does he recall that the nine or 10-page decision notice didn't mention climate change once?

I do, but I was referring to the rationale of the First Minister, in terms of the First Minister's rationale for rejecting the proposal. We all know, of course, that the independent inspector recommended that the route be progressed. But the point I'm making is that you have to match your infrastructure investment plans with the stated priorities and aims of the Government, and I don't think we've necessarily seen those things joined up in the past, and we have an opportunity, I think, to do so if some of the recommendations in this report are to be implemented. 

I also note, and have reflected on the fact, that this statement has been made by the Welsh Government that you always seek to exhaust all of the cheaper sources of finance before you go on to, perhaps, the more expensive sources of finance. Now, that sounds a very reasonable approach, unless and until you start building risk into the process. And, of course, this is some of the talk that came through in the oral evidence sessions, in particular from KPMG and others, with reference to PFI and the mutual investment model, because when you can share that risk with the private sector, it very often makes sense, even though it might be a more expensive way to borrow. So I think that the Government should reflect on the evidence that came in from the committee about the sort of policy that it appears to have adopted in terms of its reluctance to engage with financing from private sources, because I think, very often—. Yes, we've seen some bad examples of PFI, but there are some good ones out there as well and we shouldn't ignore the fact that there have been some successful PFI operations, and I think that the mutual investment model has the opportunity, potentially, to demonstrate a different approach that does deliver better value for money in a way that those PFI initiatives of the past may not always have done.

Can you name a PFI scheme that, over its lifetime, has been value for money?

I can point to examples in Conwy where new schools were built that were absolutely and have been value for money. I can also point to the investment that has gone into Colwyn Bay in my own constituency from Conwy County Borough Council in the investment in its new headquarters, which has been a partnership with the private sector, which seems to be demonstrating value for money. But I can also point to some very bad examples as well of PFI initiatives where, clearly, the taxpayer appears to be getting a raw deal. You mentioned the Heads of the Valleys road, and we all know that the control over capital expenditure has been problematic with some of the Welsh Government's projects, and I think it is imperative that we all, in this National Assembly, hold the Welsh Government to account where things have gone wrong. But I want to commend the report to the National Assembly, and I'm very pleased to see that the Government has responded positively to the recommendations in it. 

I won't speak for too long. Most of the important points have already been covered by the committee Chair, but this was an important inquiry, I think, because we are talking here about a means of unlocking Wales’s potential. We're talking about one of the key ways of bringing us out of the rut that we've been in as a nation.

Investment in Welsh infrastructure is crucially important for the future: infrastructure in order to deliver better public services, including education; infrastructure to connect Wales in order to generate and share prosperity across the county; digital infrastructure to ensure that Wales can play its full part in the twenty-first century and beyond; and, of course, in face of the climate emergency, the green infrastructure to make us fit to respond to that climate emergency. We need capital funding, of course, in order to be able to deliver that, and it’s good to see it when capital funding is available for allocation within annual budgets, but that isn't enough as we look at how we undo the impacts of many years of a lack of investment in infrastructure in Wales.

We need large sums, and, in order to unlock that money, then we do need to be creative in doing so. And what we as a committee did, as we've already heard, is to look across a range of models and to identify real scope for investment in our future in ways that we haven't been utilising in the past. And, as the Chair said, we are very open minded as a committee about the scope to consider new, alternative models of funding investment—models that we haven't yet been able to properly refine.

So, as the recommendations state, we need to plan carefully for the long term, how we prioritise investment. We need to have a clear picture of the challenges and barriers that we are seeking to overcome, and how the plans that are developed respond to those challenges. We need to select appropriate financing models for the appropriate situations, as we've heard mentioned already—collaboration with local government, for example, in terms of choosing the appropriate models, and also ensuring that the model selected does reflect the risk, as has been mentioned by other committee members, and the various types and levels of risks attached to different projects.

I think that was one of the major problems with PFI schemes in the past. There was, without doubt, some rewarding of private investors where the risk taken, if truth be told, was very low indeed. Mike Hedges has made reference to some of those contracts that rewarded the soft elements of those contracts very generously. We can't do that, and as we move towards alternative models—MIM, for example—then we must be much more sophisticated in terms of how those contracts and agreements are drawn up, and that does mean investment in skills that will bring the best value for the public purse in drawing up contracts in effective and efficient ways.

But I will finish with this point: one thing that we do have to be willing to do is to borrow and to invest over and above what’s been done in the past. The percentage of the Welsh budget used to make borrowing repayments is far too low—let’s speak plainly. We do have to be in a position where we can unlock capital, ensure reasonably what percentage of our budget we are happy and comfortable in using to repay those borrowings, in order to move towards an infrastructure system that we can be confident in, that will provide us with an opportunity to deliver the potential that we haven't done in the past. This Government should be banging on the Downing Street door on a daily basis, insisting on these powers, so that we can invest in this way. But at least now, and with the Government having agreed to these recommendations, I do think that there is ambition developing jointly in order to unlock our potential.

We have too rather seductive, ostensibly competing, phrases from the First Minister: we should use the cheapest funding first—sounds very sensible—and then the committee says that we should match funding sources to projects, which also seems very sensible. But, usually, in the private sector, when people talk about matching funding to projects, they match high-risk, high-return funding to projects where the risk is high, and, similarly, with low-return low funding. But, actually, in the evidence our committee took, what was proposed to us was the reverse. Gerry Holtham was saying that it was very important that if there was a high-risk project, you borrowed for it, effectively, through gilts because you'd pay very little for covering a high risk. If you were to go to alternative sources—potentially the private sector, whether MIM or otherwise—you should do it where the private sector would have relatively low rates compared to other projects it might fund.

In that scenario, the Government accepts our recommendation, but I'm not really sure that this issue has been resolved, because, at the moment, there's no real requirement for it to be, because there's no sign that we're pushing up against these borrowing limits of £150 million a year or £1 billion in total, despite them being relatively low as a proportion of Welsh Government revenue at 1 per cent and a little less than 7 per cent.

So, when we talk about MIM and compare it to PFI, I think what's important is that we don't use MIM in the way that PFI was used, at least at some points in the past, essentially to disguise borrowing and push Government borrowing off balance sheets in order to get around Treasury rules to have capital things, which you wouldn't otherwise have, when the cost of that is much worse because, effectively, you're paying the private sector to borrow for you at significantly higher rates and then paying them back with a profit margin. That doesn't make any sense.

We should go to the private sector when they have an expertise or they're better at doing something than the public sector would be directly, or, in some cases, we may want to have a partnership consortium approach, where the public and private sectors bring different skills and abilities. If the public sector's there and owns part of a project, the private sector will be much more reassured of the public sector's commitment to it, particularly in things like planning and regulation, where having the understanding and support of the public sector can be very important to the private sector.

I think, in some circumstances, it would be good for the Government to have a seat on the board, possibly a shareholding in a project—it may get more information flow and that's a positive. Sometimes, when you're combining skills and talents that's definitely the way you'd want to go, but it's no silver bullet when you're just contracting with the private sector because you want something and you're paying the private sector for it.

If you're a shareholder in it, you'll mitigate those conflicts a bit, but you don't resolve the issue that the public sector is paying for something it wants and the private sector is providing it in order to make a profit—you just mitigate that at the margin and there'll still be conflicts we have to be very careful in managing. What I think is very important is to have someone who's responsible within the public sector, whether a Minister or a named official, for a long, complex project, who has ownership of it and understands that contract management throughout the project's length.

Now, when we did this report, we talked about prudential borrowing and supporting that, but I was concerned that prudential borrowing meant limitless borrowing, at least potentially. The finance Minister said in evidence for this report that

'it should be for us to set that limit, but we would do so in discussion with the National Assembly.'

I'm concerned that that's an extraordinarily radical demand that we, in Wales, should be able to borrow as much as we want and it's nothing to do with the UK Government. Any US state has to have a balanced budget. In the European Union, we see—whether it's Italy, Germany or Spain, they have to agree their borrowing with the European Commission and can have enforcement action or fines if they borrow more than EU law allows. Similarly, here, I don't think it's realistic for the Welsh Government to be able to borrow whatever it wants whilst sharing a polity and a currency in the UK. Even when the Scottish Government—[Interruption.]—I'd like to continue, as I have very little time—was trying to go for independence, it, then, had to resolve the issue of how you agree borrowing while sharing a currency. Either it's the currency board, and you've no lender of last resort, or you need to deal with the remainder of the UK.

So, in this case, I was encouraged by the Minister's evidence this morning, where the priority of the Welsh Government seems to be to negotiate a higher limit on the borrowing and the debt with the UK Government. Given how low the limits are now, that's something I would support, and I would hope to see support across the Chamber, and that's a realistic objective, whereas having limitless borrowing with absolutely no control is not a realistic objective. Thank you.

Like others, I'd like to thank the committee secretariat and the committee Chair for the work that they did in supporting the committee in this investigation. I'd also like to thank the Minister for accepting all of the committee's recommendations. I think it's a very welcome thing to see Government accepting recommendations like this.

I think it's right and proper that the use of borrowing powers that were conferred on the Welsh Government by the 2014 and the 2017 Acts is subject to some scrutiny. The investigation I believe has demonstrated that whilst the overall strategic approach that is being taken by the Welsh Government is a good and effective approach to maximising the public value of capital funding sources available to it, there is at the same time a need to be more agile and perhaps more intelligent in the medium and long-term planning for the management of this funding.

I was pleased to see that most witnesses felt that the Welsh infrastructure investment plan was a good innovation. Many people suggested that there were improvements that could be made to it, but it was in itself seen as an established part of the overall funding framework operated by the Welsh Government, and I think that's an important consideration for us to look at in debating and discussing how the Welsh Government is managing capital funding opportunities.

But overwhelmingly for me, Deputy Presiding Officer—the key finding of the committee was that the Welsh Government does need to be more far-sighted in its management of the capital investment programme. Professor Holtham has already been quoted this afternoon, and I felt that he did put this well—that planning needs to be in the longer term, understanding risk in a more profound way. And I think that's a really important finding for this committee. Other Members this afternoon have discussed the same point in different ways, and it has been too easy for too long for Welsh Government and for Ministers simply to say, 'We'll use the cheapest source now and we'll do this over this term and over that term', rather than looking at how you manage capital expenditure over a much longer term, and then match the risk involved to the capital available. I'm glad to see that the Minister didn't take too ideological an approach to some of these matters, and that she took a ruthlessly pragmatic approach to how we deal with these issues. And I think that's a very good approach to take.

I will say that, whilst I find the new MIM scheme being proposed by Government certainly an improvement on earlier models, it is still a PFI model; I think we're only fooling ourselves if we believe it's anything different. It is PFI. I don't see how it can be argued that it isn't, but I do agree with the Government that it is right and proper that we match this sort of funding to particular projects. It will be the best form of funding for some of our capital programme but not for all of our capital programme, and I certainly agree with what's been said about the soft services where we do not wish to see the privatisation of large parts of the public sphere.

Can I just finish on one point that hasn't been addressed by speakers in this debate so far, and that is how the Welsh Government manages its assets? I have to say that I'm not convinced—and, in fact, I never have been convinced in the 13 years I've been here—that the Welsh Government has a firm grip on the management of the assets in its ownership and control. I'm constantly surprised to discover that the Welsh Government owns a shop in Ebbw Vale or is a landlord of a block of flats in Ebbw Vale, or wherever, and owns property all over the place. I've never been convinced by any Minister, either in Government or out of Government, that the Government understands what it owns, the value of what it owns and how it best manages its assets across the whole face of Government. And I do believe that this is something that the Government needs to address with more seriousness. In the past, Ministers have simply seen asset management as a means of selling off offices in various parts of the country; we've seen that happen at different times over the last few years. But I hope that in the future the Welsh Government will see its assets as a valuable part, not just of the public estate in Wales, but in the public sphere, and as a more intelligent and far-sighted approach to the management of its assets, whether that is involved in realising or liquidising those assets, or using those assets in a more profound way to deliver on its policy outlook. But I think, overall, this is a report that seeks to be very positive and I think the committee itself is very positive in its approach. I'm very pleased that the Government has sought to accept all the recommendations of the committee.

Thank you. Can I now call the Minister for Finance and Trefnydd, Rebecca Evans? 

Thank you. I'm pleased to respond to today's debate and I'm very grateful to the Finance Committee for their consideration of this important issue and for their report, and I'm also really pleased, as we've heard, to be able to accept all of the recommendations made by the committee.

I think it's worth beginning by reflecting on the financial context that has shaped our investment plans with regard to capital over the decade. In 2010-11 we were facing significant cuts to our capital budgets as a result of the UK Government's policy of austerity, and while continuing to call on the UK Government to reverse its planned cuts, we did explore every avenue and took every opportunity to maximise our capital spending power to maintain vital capital investment to stimulate and grow the economy and to protect jobs.

In 2012 we published the Wales infrastructure investment plan, which set out our plans to use existing capital resources, secure additional sources of funding, and also use new, innovative forms of finance to increase the level of capital available to us and to make the best use of all of our resources to deliver our infrastructure investment priorities. I'm really proud of what we've achieved so far. So, since we've published the WIIP, we have allocated more than £15 billion, generated a further £2 billion as a result of our innovative finance initiatives, and also, of course, secured those new borrowing powers.

Despite recent steps by the UK Government to increase capital spending, our capital budget on a like-for-like basis in 2021 is still £100 million lower than it was at the start of the decade in real terms, and, of course, the policy landscape is also changing and we can't lose sight of the challenges that we'll need to address and those challenges that will shape our approach to infrastructure investment over the longer term.

So, we face opportunities as well as challenges in terms of the ageing and changing population, the advances in technology impacting on the future of our economy, where we live and how we travel, and we also obviously urgently need to tackle the climate change agenda and the decline in biodiversity, and that does require a new approach.

In the draft budget, I've set out a broad range of measures to respond to the climate emergency, and it's against this backdrop that we're committed to continuing to do all that we can to boost the resources available and maximise our capital levers to support a more equal, more prosperous and greener Wales.

Developing the successive to the WIIP over the coming years provides us with an opportunity to set out the strategic priorities to drive investment decision-making, whilst retaining the flexibility to meet the scale and pace of change that infrastructure investment will require.

A constant tension that we face is between the need to provide that long-term certainty and also the time-limited financial settlements that we receive from the UK Government. But despite the constraints we face, we are providing that longer term certainty where we can, and that, of course, includes our twenty-first century schools and colleges programme, which we started in 2012 and which will see anticipated investment of £2.3 billion across Wales, supporting an estimated 200 projects to rebuild and refurbish schools and colleges.

Capital investments and infrastructure investments in particular by their very nature have comparatively long lead-in times, which does require a great deal of long-term planning. The life span of the assets delivered through infrastructure investment also means that a long-term view of the services they deliver is also crucial, and we have to design those in such a way that maximises their impact over decades. Understanding the need to provide that longer term basis for infrastructure planning, we're exploring opportunities to understand more clearly what our capital requirements could be in future, utilising a range of scenario modelling for our block grant funding to identify the most appropriate opportunities to utilise borrowing and deploy private finance.

We recognise that should there be a need for borrowing beyond the £1 billion currently available, then the matching of funding sources to project risk across a project's life-cycle is a really important factor to consider, and I think the point has been made in the debate that, currently, the cost of finance that we access via the national loans fund currently isn't dependent on project risk. The cost is the same regardless of the project. But as and when more financial levers do become available to us and we have additional sources of funding, there will be opportunities there to maximise the potential mix of funding that we would seek to deploy.

We recognise that, as a rule, our approach has been to use the cheapest sources of funding first, and that does allow us to make significant investment in Wales that could otherwise not be afforded in the current fiscal climate, and we will review this approach as part of the developments on the successor to the current WIIP.

I welcome the committee's recognition of the work that the Welsh Government already undertakes in utilising the financial transactions capital funding, including the £520 million Help to Buy scheme and the range of business funds that are delivered through the Development Bank of Wales.

I've set out in this Chamber before the challenges that we face in effectively deploying this type of funding, but we do remain committed to using every pound available to invest in infrastructure and boost economic growth in the long term. We're working with the UK Government and the other devolved administrations to share best practice and examples of how financial transactions are being utilised. We're also working with our registered social landlord partners to explore the development of schemes providing RSLs with a mix of grant funding and financial transactions capital finance loans, and that will help them reduce the need to access private finance at a higher cost. I think that's a really innovative way of looking at the potential use of financial transactions capital and does very much respond, I think, to one of the areas of interest that the committee had during its inquiry.

Also, on the point of utilising our own assets in a better way, I recognise the importance of that, which is why we've set up the Welsh Government land division. So, in the first instance, we'll be looking at the land that Welsh Government owns and exploring how we can deploy that and use it in a better way in future, in a way that helps us respond to our interests right across Government. So, our particular interest in the first instance is how we can use Welsh Government land with a view to increasing the supply of social housing across Wales. But this is just the start, and I do think there are greater opportunities ahead of us through the land division and the work that that's doing, but also the way in which we can then demonstrate leadership for other parts of the public sector to utilise their assets in a way that looks at the value beyond just the monetary value and looks to see what else they can deliver.

I note and welcome the committee's recommendations concerning our work on the mutual investment model. The Welsh Government shares the committee's recognition of the importance of increasing transparency, and we've developed the MIM with this principle very much in mind. We've ensured that reporting requirements are embedded within the model's design and will be incorporated as contractual commitments into our agreements. The public sector will also be entitled to nominate a director onto the board of the project companies that are delivering those MIM schemes, ensuring that the public interest has influence there.

All MIM schemes will be required to use the five-case model for the development of the requisite business cases, and this means affordability and value for money must be assessed before proceeding with a project. Furthermore, all schemes are subject to a rigorous tier of additional scrutiny using our commercial approval point reviews.

We're also ensuring that efficient contract management is in place to oversee these schemes, and we intend to establish a MIM contract management function prior to the first MIM scheme starting construction in 2020. At that point, I should clarify that the MIM scheme is being used to finance sections 5 and 6 of the A465 and it hasn't been used for previous sections of that road. We would expect or anticipate a successful participant for sections 5 and 6 to be announced in quarter 2 of 2020. This scheme has been prioritised because it promises economic benefits to some of the most deprived parts of Wales.

I can see that I'm running out of time, but I do note the committee's recommendation to continue to use the MIM where appropriate.

Looking to the future, the Chancellor has announced the UK budget will be on 11 March, and we expect the UK Government will publish its national infrastructure strategy, including the finance review, at that time. In the Chamber last week, I committed to reflecting any significant changes in our plans for next year in an early supplementary budget, and I will obviously consider the implications of the strategy in developing our infrastructure investment plan. So, I'm very happy to support the motion this afternoon, and put on record again my thanks to the committee and all Members who've contributed in the debate.

Thank you. Can I call on Llyr Gruffydd to reply to the debate?

Diolch, Dirprwy Lywydd. Can I thank everyone for their contributions to this debate? I think Mike probably captured a sentiment that's run like a silver lining through this inquiry, in that the private sector won't give us anything for nothing. But we are going into that with our eyes open, aren't we? And we are aware of that much.

I think this tension between PFI and MIM is—I'm not too keen on acronyms, but there we are—is MIM that different to PFI? I think it's questionable. I referred in my opening remarks, I think, to some benefits, but then again there are a number of elements that are still very similar. And I think the point made by Mark Reckless, that MIM might be used to disguise Welsh borrowing—and of course it costs more to utilise that borrowing through the private sector—is something that I think we are very much awake to.

The long-term pipeline points that, again, run through the report and the debate is a point that Darren highlighted again, and it does give a greater clarity when you have that clear pipeline of infrastructure projects ahead, and that does help to bring greater options in terms of investment to the table. It is that balance between the cheapest borrowing and where the risks are a factor that comes into it, because when you can share risk, even if it is slightly more expensive, then it might make more sense to utilise it that way.

Rhun reminded us, of course, that this is an ongoing process where we need to be constantly revising and developing models, and we need to be awake to those opportunities and we need to be flexible enough to utilise some of those opportunities. But of course, we need to be responsible as well in doing so, and that brings me to the prudential borrowing element that was touched upon. We'd all have a view as to what constraints should or shouldn't be placed on Welsh Government borrowing, but the bottom line is, of course, that no Government should borrow more than it's able to afford.

Now, I'm grateful to Alun Davies—[Interruption.] Go on, then, Mike.

Setting the amount we borrow doesn't deal with how much you can afford. It's how much you're paying back is the important bit, isn't it?

It is indeed, and we're all aware that borrowing has a cost to it, and that's exactly what we need to be mindful of. But of course, if it's good enough for local government then I can't see why it isn't good enough for Welsh Government, as long as it's done in the proper way.

Alun Davies reminded us, or questioned the way that Welsh Government has been managing its assets, and I remember, I think, Professor Holtham telling us in committee, and maybe I'm paraphrasing here, that if it's worth more to someone else, and it's not so important to the Welsh Government as an asset, then why not release the value of that to invest elsewhere. Certainly, it's something that I think we need to get better at doing.

And the Minister, of course, is right to say that the Welsh Government has been operating in a very difficult climate, with cuts to the capital budget through austerity meaning that the Government has had to be nimble and creative. But of course the Institute for Fiscal Studies reminded us, or suggested to us in committee this morning, that the increased budget we've seen this year and next year might just be a lull in the storm, so we may need to be just as nimble and creative in future years as well.

I'm very grateful to the Welsh Government for accepting all the committee's recommendations, but of course we don't stand still, do we? There is, I think, a degree of consensus around our report, and that reflects a keenness by Members to be creative but to continuously evolve these models that are open to us. And in that sort of constructive spirit we look forward to continuing to be a critical friend of Welsh Government when it comes to scrutinising capital funding sources. Diolch.

Thank you very much. The proposal is to note the committee's report. Does any Member object? No, therefore the motion is agreed in accordance with Standing Order 12.36.

Motion agreed in accordance with Standing Order 12.36.