Item 6 is a debate on the Finance Committee's report: inquiry into a legislative budget process. And I call the Chair of the committee to move the motion—Llyr Gruffydd.

Motion NDM7426 Llyr Gruffydd

To propose that the Senedd:

Notes the report of the Finance Committee into a legislative budget process, which was laid in the Table Office on 6 August 2020.

Motion moved.

Thank you very much, acting Deputy Presiding Officer. As Chair of the Finance Committee, I'm very pleased to be opening this debate today in relation, of course, to our inquiry into a legislative budget process. I would like to thank all of those who contributed to our inquiry and, of course, to the Minister, too, for her response to our report.

Now, the Wales Act 2014 gave the Senedd powers over stamp duty land tax and landfill tax, the power to vary the rates of income tax in Wales by up to 10 per cent, as well as providing the Welsh Government with wider borrowing powers and new powers to borrow for capital expenditure. At that time, the Senedd and the Welsh Government worked together to create a new budget process that considered the best way to alter the existing budget process to accommodate the new powers. Now, as six years have passed and as our Parliament has evolved in the meantime, we felt it was the right time to undertake an inquiry to establish whether the Senedd now needs to move to a legislative budget process.

Now, due to the global pandemic caused by COVID-19, work on this inquiry was halted and our evidence session with the Minister for Finance was cancelled. The Minister has subsequently provided us with written evidence, and we're very grateful to her for that information. As it will be for the next Senedd and the next Welsh Government to take work forward on a legislative budget process, we took the decision, as a committee, to push ahead and to publish our report rather than take oral evidence from the Minister. We have made 20 high-level conclusions, and we hope that these would form the basis for any future work on a legislative budget process. And given the time available to me today, I will focus my comments on the main issues.

Our first conclusion is that we believe, as a point of principle, that there should be annual legislation to pass the Welsh Government budget, and this would ensure that the Senedd is able to effectively influence the Executive.

Our evidence gathering for this inquiry commenced with a visit to Scotland, where we held formal sessions with representatives from the Scottish budget process review group, a group established to fundamentally review the Scottish budget process. It included representatives from the Scottish Parliament, the Scottish Government and eight external experts. The committee notes that any new budget process should have three main components: first of all, the approval of taxes; secondly, the approval of the supply of finance to the Welsh Government; and, thirdly, the approval of public spending, as set out in the Welsh Government's budget proposals.

Our conclusions 3 to 5 in our report recognise that legislation will need to be brought forward, setting out the rules for spending money, accountability requirements, accountability of officials and auditing arrangements. Now, as a committee, we firmly believe that a legislative budget process will better reflect the maturity of the Senedd and the principle of equitable balance of control between the legislature and the Executive. Any new process must ensure that the principles of simplicity, transparency and accountability are at the heart of its development.

One of our main considerations was whether there should be a budget Bill or a finance Bill. An annual budget Bill would authorise expenditure, while tax proposals would be agreed by tax resolutions. A more comprehensive finance Bill could encompass all tax-setting decisions, as, of course, is the case in Westminster.

Our conclusions 6 and 7 detail that we believe further consideration is needed to establish whether a budget Bill or a finance Bill is better suited for the authorisation of Welsh spending plans and taxation, and how tax resolutions fit into such a process.

Now, whilst we firmly believe our budget should be enshrined in legislation, we also recognise that a certain amount of flexibility in any process is required, due to the instability of public finances at a devolved level. For this current financial year, and the next, we are experiencing, of course, this instability. The UK system remains highly centralised, with late UK announcements and fiscal forecasts affecting the block grant, with the UK Treasury retaining considerable control over the way the Welsh Government is able to budget. We recognise that any new system will need a degree of flexibility to accommodate delays at a UK level, without causing undue pressure on the Senedd's Plenary or committee system. I'm pleased that the Minister agrees that any process needs to have the flexibility to cope with any uncertainty to the UK's timetable for fiscal events.

One of the main principles of the current budget process has been to ensure early funding notification for those relying on Welsh Government funding. We've continued to consider the importance of early funding certainty for the NHS, local government and other delivery partners, such as the third sector. As such, the committee recognises that a legislative budget process would need to consider when that certainty of funding can be given.

The conclusions I've summarised here today and the others contained in our report all lead to the main conclusion that the Welsh Government budget should be a Bill, and a Bill that is passed by us, the Members of this Senedd. However, we recognise that there is further work needed to move to a legislative budget process, and that work should be undertaken by an independent group here in Wales. There are a number of questions that we believe this group should consider, including particularly, of course, whether an annual budget or finance Bill is better suited for the authorisation of Welsh spending plans and taxation, and, as well, how the Welsh Government's modelling and independent forecasting will be built into that process.

We believe that the shared, joint approach in Scotland has worked well and believe a similar approach is required in Wales to make recommendations on how to modify the budget process to reflect the current devolution settlement and how this could sit within the legislative budget process. I am pleased that the Minister has confirmed that the Welsh Government would be open to considering establishing a joint body of the Government and the Senedd, with invited independent experts, to review the budget process. With those words, I look forward to hearing other Members' and, of course, the Minister's contribution to this debate. Diolch.

The Finance Committee's inquiry into whether we should have a legislative budget process may not have been the talk of pubs and clubs across Wales, but it's an issue that we as a committee considered to be of considerable interest to the future smooth running of this place. I think particular credit should be given to Alun Davies, who's been banging the drum for this since long before the rest of us, myself included, had even heard of it, and has stuck by the need for a finance Bill, even when, at times, it seemed too difficult to achieve and has been far from a priority.

The last two years have seen the Welsh Government's powers increase dramatically, with the devolution of a range of taxes—stamp duty, landfill tax and, of course, the Welsh rate of income tax, as well as borrowing powers. The question that we as a committee wanted to answer was, 'Has the time come for this now to be couched within a legislative budget process?' But what do we mean by that? Well, put simply, it means giving the legislature a greater say in the budget-setting process. It can come in different forms and does across the world, but would almost certainly involve a budget Bill or a more comprehensive annual finance Bill that would require the consent of the Senedd to Welsh Government tax and spend proposals.

Now, of course, no Government likes being constrained too much and having limited financial room for manoeuvre when the unexpected happens. That's understandable. The new process would have to respect the Welsh Government's need to be able to act swiftly and decisively at the times when it needs to. Stable Government requires that. There does, however, then need to be a mechanism for these decisions to be scrutinised afterwards within a set time frame and in a predetermined, structured way that reassures the electorate and, indeed, us in this Chamber.

As chapter 4 explains, the term 'budget system law' describes a range of legal instruments around the world to codify rules for formulating, executing and reporting on an annual budget. The committee concluded that any Welsh version of this should have three different components: the approval of taxes, the approval of the finance supply to Welsh Government and the approval of public spending proposals.

The then finance Minister, Mark Drakeford, said that the day is coming for a finance Bill, but we should be pragmatic about it. Some say the Welsh Government does not yet have enough fiscal powers to justify a finance Bill, with all the work that it would require, and that the time is not right. I disagree with this. When people say the time is not right, too often they mean that the time will never be right. Well, I'll put my view out there, and I say I think the time is right for a legislative budget process, preferably a finance Bill, and I think the limited range of fiscal powers at the moment is an advantage, not a hindrance. Let's test the legislative process machinery, to coin a phrase, now, before greater tax powers are devolved. I think the case for a legislative approach and a finance Bill is growing inexorably, and this is increasingly becoming a question of democracy as much as a question of budgeting. We need legislation that sets out the rules for spending money, accountability requirements, accountability of officials and auditing arrangements.

Turning to the conclusions of our report—and there are a lot of them, so I'll be selective—our first conclusion was that the Senedd needs to exert greater influence over the Executive than it does at present to satisfy the need for greater accountability required by the new taxation powers. Our second conclusion is that we should follow the Scottish example and establish an independent group to take this process forward and look in detail at some key questions, such as: is a finance Bill needed? How does the Welsh Government's forecasting capacity fit into this? And how do we better engage with the public in the budget-setting process?

Can I also say that, as Chair of the Public Accounts Committee, I was pleased by the inclusion of conclusion 9, that sees Audit Wales as a stakeholder of particular significance? Audit Wales has a breadth of experience that it can bring to the budget-setting process, but it is important that its roles of approving public expenditure and monitoring accounts are kept separate. Audit Scotland told us that Scotland has a modified legislative process for the budget, which reflects the time-critical nature of forming a budget. So, arguments about speed should not be deployed against this idea.

Conclusion 4 talks about maturity, and this is an important aspect of this debate. There needs to be an equitable balance between the legislature and the Executive, and this will strengthen the roles of both Welsh Government and the Senedd, rather than weaken them.

So, in conclusion, Cadeirydd, we think that the approach taken in Scotland is worth following, where experts and stakeholders come together to agree a way forward that meets the needs of all whilst maintaining simplicity, transparency and accountability. At the end of the day, this is about devolution growing up. We now sit in a Parliament in name as well as role, and it's time for the process here to start reflecting that better. For me, it is no longer a question of whether we have a legislative budget process, but when. Let's get on with it.

I thank Nick Ramsay for his speech and the Chair for his introduction. I'm very pleased that we had this report as a Finance Committee, and I found it very valuable taking the evidence and considering and interrogating the witnesses that we had. Like Nick Ramsay, I'd actually like to thank Alun Davies as well for pushing this idea. It's not that often I agree with Alun on matters, but I think at least in principle and in theory I found his points compelling and persuasive around a legislative budget process.

One challenge I faced is that, although I've sat on budget or audit committees in a police authority and a council, and done some budget work in a private context, many of my assumptions about a budget and what it is, or what a legislative budget process would be, have been influenced by my past membership of the House of Commons and assuming that how they do things there is somehow normal. I think this process, and looking at countries—Scotland, but also international examples—has helped me understand better, from a bottom-up, principle basis, what is a budget Bill, what is a finance Bill, what are the different ways of doing this, and, in particular, how unusual Westminster is in its approach.

So, overall, I find the arguments for passing a law for tax persuasive. I don't know how much that's because I'm used to the finance Bill process in the Commons, and having that basis where actually you have an annual finance Bill for taxes and a proper degree of scrutiny. That legislative annual process strikes me as working well, but then, on the spending side, the Westminster comparison is much less encouraging, and a Parliament that came into being to control spending gave up that power in the 1930s, and there are no votes or scrutiny, really, at all in that Westminster process. There are three estimates days, which used to be about what departmental estimates were and scrutinising and approving them, but, from about the 1930s onwards, they became for select committees—well, they stopped happening and then were select committee report things instead. So, I don't think we've anything, really, to learn from the Westminster process on spending, and I think clearly on that side the process that we have is (a) better, and (b) has improved during my time in the Assembly and now Senedd. I think there is a greater degree of detail that we get from Ministers, and I do appreciate that.

And I think there's a balance to be struck, because I think a Government and Ministers are going to be wanting to show what they're doing well and telling people about extra money they're getting and selling a good news story, and, to the extent that they're advocates for that in the budget process, I find that a little challenging, because also I think we rely on Ministers to set out and explain through their public comments—those to committees, but also the documentation they give—what's actually happening to the budget in an objective sense to allow people to make comparisons and to interrogate it. And I think there's a degree of tension between that sort of advocacy of a particular approach and helping people understand what's going on with what is often a very complex set of policy interactions. 

The Government reply said that the current process

'provides for the Senedd to propose amendments following the laying of the Draft Budget that is equivalent to the legislative process for the Scottish Budget' and I'd appreciate, if the Chair comes back at the end, his comments on that. Does he agree with that statement? Because I'd understood when we were doing this we were looking for a legislative process, and that's what we saw the Scottish one as, but it seems to me almost that the Government's telling us we've got that already, which I don't think was the understanding of the committee. Similarly, the Chair mentioned a budget Bill or a finance Bill—conceptually, couldn't it be both, whether separate or combined? We don't need just one or the other, do we?

I was then listening to Nick Ramsay and what he was saying and, while I think there are strong theoretical arguments for a legislature, a parliament, to have a legislative process for a budget, I'm myself not convinced that the degree of tax-raising powers that we have are yet sufficient to justify it, and in principle I'm against having those tax-raising powers without the referendum that was the promise, let alone more. So, for that reason, I hold back from joining the charge to push this strongly, albeit it's a report I agreed because I think some of the arguments in principle are well made. 

I also think it's very good that we're going to have this joint body, and with experts as well to help consider this process further. It is very complex, and I think the degree of engagement between Government and the Finance Committee, particularly given other pressures that have been faced, is good and I'd like to thank everyone involved and I hope it's useful to other Members to have this report and this debate. Thank you. 

Thank you. I don't seem to have any other Members trying to attract my eye. Ah, I do. Alun Davies. 

Thank you very much, acting Presiding Officer. I was surprised to hear both Nick Ramsay and Mark Reckless refer to my advocacy of a legislative process. My own notes here read that I came to this from the point of view of having no preconceived ideas and no principled approach to start with but to listen to the evidence. Perhaps I listened a little more, how shall I say it, actively than I'd thought myself. 

In many ways, I enjoyed the investigation, I enjoyed the report, I enjoyed the debate and the conversations that we had as a committee between ourselves and our witnesses. And, in many ways, I felt that this report and this debate goes to the heart of our role as a legislature and as a Parliament. It is right and proper, of course, that the Government has a right to its business and its budget. The Government enjoys the confidence of the Parliament and it has a right to its business, and that includes its budget. But we also have a right as parliamentarians to scrutinise that budget and to scrutinise and challenge the spending and taxation decisions of Ministers. I recognise the force of the point that Mark Reckless made about the range of those powers, but I would say very, very clearly that, if a Government wishes to tax me, whether it's a penny or a pound, I would anticipate and expect my elected representatives to challenge that Minister and to challenge that Government as to what that funding is necessary for and how it is expended. And I would certainly anticipate any Parliament fulfilling that role. 

But, really, this debate goes to the heart of the two imperatives: the right of Government to its business and the right of the legislature to its scrutiny. I did become convinced, during the conversations and during the inquiry, that we have not got that balance in the right place today. In many ways, the way in which we debate and discuss our budget remains a hangover, if you like, from the old days of administrative devolution and the old days of a body corporate. It does not reflect today's reality of a parliamentary democracy, and this is probably the final element, if you like, of that particular jigsaw that we need to put in place. 

I did read the Minister's response and I recognised what was being said—'we have no principled objection but perhaps not yet'—and I get that, I understand that, but if not now, when? I do believe that we can't constantly have these debates without coming to a conclusion and to ensure that we are able to move forward. I share with Mark Reckless the concerns about the Westminster process, and I agree with him that they are not adequate, that we should not seek to replicate those here, but I do believe that we've got something to learn from our Scottish friends, and I do believe that there are other international examples where we can also learn those lessons. I do believe that a legislative process provides both the scrutiny for the Senedd, but also the necessary stretch for Ministers. And I believe that we do need to test Ministers in a way that is more profound than we're doing at the moment, and I believe that the legislative process provides for that sufficient test and that scrutiny that doesn't exist at present. 

But I'll conclude, acting Presiding Officer, with this: there is a need to reform our systems, but I recognise that, within our systems, we are—[Inaudible.]—within a UK system that is itself broken. The way in which decisions are taken by the Treasury, the way in which decisions are taken by the Westminster system, mean that we are constantly running and chasing decisions taken elsewhere, and that needs to stop and that needs reform. I hope that the Minister, in responding to this debate today, is able to look hard at our processes here within our own democracy, but that she also able to have a more profound conversation about the wider financial structures of the United Kingdom, because they equally need reform. And I hope that we will be able to form some sort of agreement between this place and the Government—if not today, then over the coming months—and that those Members who are elected next May will be able to take that forward and complete this much-needed reform. 

Thank you. I don't think I have any other Members trying to attract my eye, so I'm going to call the Minister. I call the Minister for Finance, Rebecca Evans. 

Thank you, acting Presiding Officer. I welcome the Finance Committee's report on their inquiry into a legislative budget process. It's provided a really valuable opportunity to reflect on the changes to the budget process over the course of this administration, and it's also demonstrated how the good working between the Welsh Government and the Finance Committee over many years has improved the budget process in Wales. 

We're all familiar with the increases in the fiscal responsibilities of the Senedd over this Senedd term. The most significant of these was the devolution of tax powers, which led to the jointly agreed budget process protocol in 2017. As part of this debate, it's also right that we consider the suitability of the current arrangements, particularly given the way in which these processes have needed to respond to the circumstances that have impacted our budget preparations in recent years. 

Before I respond to the points on legislation, I want to focus on flexibility, because flexibility is an important requirement for a budget process. It's a positive reflection on our existing approach that, despite the unprecedented circumstances, our jointly agreed 2017 protocol has provided us with sufficient flexibility. This has included ensuring that the increased scrutiny period that the protocol introduced—from five weeks to eight weeks—has not been unduly compromised, despite the circumstances that have affected our preparations. 

In contrast, a legislative process introduces additional time constraints, which could impact on flexibility and scrutiny. Given that Wales and Scotland have both faced the same circumstances, I read with interest the assessment of the Scottish legislative budget process and I would argue that our protocol has provided equivalent abilities to respond without the need for legislation. It is right, however, that as we continue the journey of devolution and seek greater fiscal responsibilities we should also consider the potential role of legislation such as a budget bill or a more comprehensive finance Bill.

We're already committed to using legislation where there's a demonstrable need to do so. We're developing tax legislation at the moment to ensure that we have a mechanism for making changes to the Welsh tax Acts at short notice, as required, whilst allowing for proper scrutiny by the Senedd. Any consideration of a legislative budget process also needs to be balanced against the potential disadvantages, and I welcome the Finance Committee's recognition that these risks need to be fully explored to ensure that we don't adversely impact upon our ability to provide funding certainty to partners and to stakeholders.

Alongside scrutiny, I recognise the importance of enabling the Senedd to have an opportunity to influence budget priorities and allocations earlier on in the process. We've already taken a number of steps that have been achieved without the need for legislation, and this includes the agreement to a Plenary debate before the summer recess to influence our early preparations, and I would welcome further discussions on what other improvements can be made to our current approach.

We have also continued to improve transparency by providing a greater level of detail and supporting information. In this context, I welcome the Finance Committee's acknowledgement of the steps that we have taken to publish our tax and borrowing plans and forecasts. We also now publish the chief economist's report; the Welsh tax policy report; the Welsh taxes outlook; the children and young people's budget leaflet; the budget improvement plan; and consolidated written evidence to Senedd scrutiny committees. This is more than is provided in many other national budgets, including countries where they have legislative budget processes, but, of course, we are committed to exploring what more we can do.

The issue of providing multi-year settlements is also something that we've discussed on many occasions. Unfortunately, our ability to provide longer term funding is largely dependent on the UK Government's budget cycle and the extent to which we can provide realistic and sensible planning assumptions given the current fiscal and economic climate. As such, a legislative budget process wouldn't impact on this issue.

So, in summary, today's debate has shown that there are many benefits identified within this report that we can explore taking forward without the need for legislation. However, on the fundamental point of a legislative budget, we do not feel that the additional benefits of undertaking these reforms have yet been demonstrated, but, that said, in recognising the importance of this longer term agenda, we would be open to discussing the option of a review process, such as the Scottish budget process review group. With both Government, Senedd and invited external experts engaged, a review could be undertaken of the benefits and issues of introducing further reforms to our budget process, including the use of legislation.

So, in closing, today's debate has provided an important opportunity to consider how we continue to ensure that our budget process is both transparent and inclusive. Diolch yn fawr.

I call Llyr Gruffydd to reply.

Thank you, Dirprwy Lywydd dros dro. For a minute, I thought the Minister was rowing back a little bit from what I had understood the position to be, but I think—. I'm presuming that being open to continuing with this discussion is actually saying that you are happy to and that you will engage, and I'm sure your successor in the next Senedd will hopefully be amenable to that. 

Just in response to the contributions—and can I thank everybody who has participated—this may not be the talk of pubs and clubs, Nick, but the implications of budgets certainly are the talk of pubs and clubs, particularly when we're talking about tax varying powers and taxes potentially going up or down, increased funding levels, decreased funding levels. Certainly, those are the things that people are talking about and the level of scrutiny that this place affords that process, I think, needs to be as robust as possible. And you're right: it is about devolution growing up because as responsibilities and fiscal powers here grow and evolve, so should the way that we scrutinise, influence and arrive at those decisions. You and other Members talked about striking the balance, the right balance, and there is a balance to be struck—I think committee recognises this—between the Government's ownership of its budget and its ability to bring its own budget forward, but also this legislature's ability to influence and change it where we feel that's appropriate and necessary.

Now, whether it's a budget Bill or a finance Bill or a hybrid or some other model is something that we can discuss, but certainly that is a discussion that I'm particularly keen—and the committee is particularly keen—will happen in the next Senedd. The current set-up is a hangover of administrative devolution, as Alun Davies said, and whilst that is being tweaked and modestly refined—and the Minister referred, of course, to the additional debate that we can now have pre recess—I would contrast that to the process that's in Scotland, where there's strategic year-round consideration of the budget. Committees publish pre-budget reports in October, before the Government tables a budget, and the Government then needs to respond to those reports as it publishes a budget. And prior to Stage 1 of a budget, conveners or committee chairs hold a Plenary debate, and then, of course, that influence isn't so much brought forward in amendments, because if the Government is in listening mode, then much of that is dealt with before we get to a point where changes and amendments need to be brought forward. So, there is a lot that we can learn from Scotland, and the Minister is right: flexibility is important. We've learnt that in the last few years, haven't we? Certainly, having that agility within the system is important. Yes, the system that we have now is comparatively agile and is probably serving us pretty well in that respect, but, of course, that doesn't mean that it can't be done utilising a legislative approach as well, and that's exactly what I hope is going to be explored as we move, hopefully, to the next stage in this discussion with, hopefully, the creation of a group to consider this further.

We have come a long way, of course, since the start of devolution in 1999, with more powers for the Government and the Senedd, the powers to set tax rates here in Wales, et cetera, and it is important that the way we pass a budget reflects those changes. In any modern democracy, it's key for a Parliament to properly hold a Government to account, especially on its spending plans and tax levels. These are decisions that affect people's lives every day and we want to make sure that the process is fit for the future and to ensure that the process is simple, is transparent, and that the Government is truly accountable to Members of the Senedd and consequently to the people of Wales. Taking work forward on a legislative budget process will be a matter, as I said, for the next Senedd and the next Welsh Government, but I very much hope that this report from the Finance Committee will serve as a foundation for the continuation of this work. Diolch.

The proposal is to note the committee's report. Does any Member object? The motion is therefore agreed in accordance with Standing Order 12.36.

Motion agreed in accordance with Standing Order 12.36.

There will now be a short break to allow for a changeover in the Chamber.

Plenary was suspended at 16:53.

The Senedd reconvened at 17:01, with the Llywydd in the Chair.