Item 11 on our agenda this afternoon is a debate on the third supplementary budget of 2020-21, and I call on the Minister for Finance and Trefnydd to move the motion, Rebecca Evans. 

Motion NDM7622 Rebecca Evans

To propose that the Senedd, in accordance with Standing Order 20.30:

1. Approves the Third Supplementary Budget for the financial year 2020-21 laid in the Table Office on Tuesday, 2 March 2021.

2. Notes that the category of accruing resources for the Public Services Ombudsman for Wales under Part 2 of Schedule 4 of the Supplementary Budget Motion on page 22 is revised to include ‘repayment of pension surplus’ as reflected in the Explanatory Memorandum submitted by the Public Services Ombudsman Wales to the Finance Committee for consideration at its meeting on 15 January 2021.

3. Further notes the corresponding adjustments to Schedule 6 on pages 27 and 28 to correctly reconcile the resources requested by decreasing the Public Services Ombudsman Wales’ Resource DEL by £974,000, increasing Resource AME by £974,000 and increasing the Resource DEL Unallocated Reserve by £974,000.

Motion moved.

Thank you. This supplementary budget presents the Welsh Government's final spending plans for the current financial year. It revises the financing and expenditure plans approved by the Senedd in the second supplementary budget in November. It increases the overall Welsh resources by £2 billion. This is a further 8 per cent increase on the position set out in the second supplementary budget and reflects a total increase of more than 32 per cent on spending plans set at the beginning of the year. 

In this supplementary budget, Welsh Government fiscal spending plans have increased by £2.13 billion. This includes £318 million for the reconstruction package announced in October, along with key allocations that continue to support the Government's response to the impact of the coronavirus pandemic. A total of £660 million has been provided for business support through to the end of March. This includes £134.5 million of additional funding for the firebreak lockdown in October, an additional £5 million for the discretionary support fund, and £220 million targeted support for the ERF business restrictions fund, and sector-specific support. So, £12.2 million has been allocated for the cultural recovery fund to provide essential support to theatres, music venues, heritage sites, libraries, museums, galleries and independent cinemas, and includes the first freelancer fund in the UK. 

We have allocated £32 million to provide a £500 payment to support people who have been asked to self-isolate, or parents and carers of children who have been asked to self-isolate by test, trace and protect services, and £16.7 million to top up statutory sick pay for social care workers. Alongside our efforts on contact tracing and self-isolation support, we are delivering the biggest vaccination programme Wales has ever seen. To ensure the success of the programme, we have allocated £27 million for the deployment of vaccines, the majority of which will be provided to health boards. Sixty-nine million pounds has been provided for hardship support for higher and further education to support the many students who have faced upheaval due to the pandemic, and we continue to support local authorities with an additional £30.7 million for the council tax reduction scheme and loss of council tax.

In addition to these measures in response to the pandemic, some £825 million has been allocated in this supplementary budget to support other areas, such as £62 million for city and growth deals, providing £36 million to the Swansea bay city region deal, £16 million to the north Wales growth deal and £10 million for the Cardiff city deal. Thirty million pounds has been added to address the cost incurred in dealing with the recovery from the impact of flooding in February 2020, and for coal tip safety. A £270 million extension of the Wales flexible investment fund has been added, and £50 million to support local authority capital maintenance costs for schools.

I would like to thank the Finance Committee for their scrutiny of this third supplementary budget, and I will fully consider and respond to its six recommendations for the Welsh Government in due course, but I can say now that I am minded to accept them. I welcome the committee's recognition of the challenges faced this year regarding engagement and communication with the UK Government, both in respect of the need for clear, systematic changes to the funding process, and on specific issues such as infrastructure for Welsh ports and the lack of detail on the UK shared prosperity fund. I also acknowledge the committee's recommendation for continued transparency of Welsh Government spending in its annual outturn report, and my commitment to our agreed protocol that established this important element of our reporting framework.

I ask Members to support the motion. 

Thank you. Can I now call the Chair of the Finance Committee, Llyr Gruffydd? 

Thank you very much, Deputy Presiding Officer, and it's a pleasure to speak in this debate today on behalf of the Finance Committee. The committee met on 24 February to consider the Welsh Government’s third supplementary budget for 2020-21. As the Chamber will know, having a third supplementary budget is very unusual, but it does reflect perhaps the continued impact of COVID-19. So, we're grateful to the Minister for bringing this supplementary budget forward and the transparency afforded to the Senedd.

This budget consolidates adjustments arising from the UK Government’s supplementary estimates, and we heard that this regularises allocations to and from reserves, and transfers between and within portfolios. It also includes adjustments to the budgets of the Senedd Commission, the Public Services Ombudsman for Wales and Audit Wales.

During the second supplementary budget, many of the committee’s recommendations related to the issue of transparency. This situation hasn’t changed, and although we recognise that the pandemic continues to put a strain on the fiscal framework, it has been difficult for the committee and this Senedd to have a clear picture of the funding being made available to the Welsh Government. Our first recommendation is that the Welsh Government continues to press the UK Government for clear, systematic changes to the funding process in relation to the structure of UK fiscal events.

There's been an increase of £244.5 million to the health and social services main expenditure group compared with the second supplementary budget, and we believe that this is prudent given the continued uncertainty up until the end of this financial year. The pandemic has had a significant impact on local authority incomes and this will continue into the next financial year. Of course, throughout the pandemic the Welsh Government has provided emergency funding to local authorities, with the majority of that through the local authority hardship fund. We would like reassurances from the Welsh Government that the funding provided to local authorities is taking full account of the differential impact of COVID-19 on local authority incomes.

The situation has also had an impact on the ability of the third sector to raise revenue. It plays a key role in providing support and services to support health, social and local services. Whilst we welcome the additional funding provided within the third supplementary budget for the discretionary assistance fund and the third sector response fund, the level of additional funding is modest in comparison to the support given to health services, for example. The Welsh Government should therefore confirm that the additional funding provided fully reflects the impact on different areas and organisations within the third sector. 

This supplementary budget is the first since the EU trade deal was agreed. The Minister told us that discussions with the UK Government were ongoing regarding funding of the infrastructure costs to update ports. We recommend that the Welsh Government provides an update on these discussions when that is possible.

The UK shared prosperity fund has remained of interest to the committee since 2017, when the UK Government first announced that it would replace EU structural funds. At that time, very little detail was known, and the situation hasn’t improved much despite efforts made by the committee and the Welsh Government to access information on how this fund will be allocated or administered. Tomorrow, the Finance Committee, along with members of the External Affairs and Additional Legislation Committee, will take evidence from the Secretary of State and we will be pursuing these funding changes. We recommend that the Welsh Government continues to put pressure on the UK Government to ensure a fair funding settlement for Wales and that Wales does not miss out on one single penny.

As mentioned at the outset, this budget motion also includes adjustments to the budgets of the Senedd Commission, the Public Services Ombudsman for Wales and Audit Wales, and the committee is content with the variation in these budgets.

Finally, we are pleased that the UK Treasury has agreed that the Welsh Government can carry forward £650 million funding that was provided late in the financial year, in addition to the current limits to the Wales reserve. I would like to reiterate that the committee supports end-of-year flexibility. Having flexibility over borrowing limits, too, and reserves, would help the Welsh Government in its planning, particularly in the current circumstances. Thank you.

This month's Finance Committee report, as you've heard, on the Welsh Government's third supplementary budget for 2020-21 reports that this allocates almost £1.3 billion additional fiscal resource and almost £837 million in capital, with the main increases in economy and transport, housing and local government, and education. The backdrop is the £5.2 billion provided by the UK Government to the Welsh Government to combat the COVID-19 pandemic in 2020. The additional £650 million this financial year brings this to £5.85 billion, on top of £1.4 billion increased Welsh Government funding for 2020-21 following increased spending on public services in England. The UK Chancellor of the Exchequer has already confirmed that the Welsh Government will have at least an additional £1.3 billion to spend in next year's budget, and his budget last week added a further £740 million of funding to the Welsh Government. The Finance Committee recommends that the Welsh Government continues to press the UK Government for clear, systematic changes to the funding process in relation to the structure of UK fiscal events.

Further, the Minister told us that the Chief Secretary to the Treasury did allow a degree of flexibility in terms of carrying forward any consequentials generated through the operation of the Barnett formula over and above the £5.2 billion guaranteed funding previously confirmed on 23 December. So, the supplementary budget details the £660 million that will be carrying over into next year, and that is because of the very late notification. However, she fails to acknowledge that the excuse constantly given by the Welsh Government for its slow responses to just about everything, the COVID-19 pandemic, also applies to other Governments, and that, despite this, the UK Treasury worked closely with all three devolved Governments this financial year. As the Chief Secretary to the Treasury stated in his 23 February letter to the Finance Committee, officials have had even more frequent engagement; a full breakdown of 2021-22 funding was provided at the spending review 2020 last November, and they will also publish the next iteration of block grant transparency later this year, which will, again, include a full and detailed breakdown of funding. In reality, therefore, the Minister doth protest too much to justify carrying forward so much funding to spend at a later date.

As our report also states, reassurance is required from the Welsh Government that the funding provided to local authorities is taking full account of the differential impact of COVID-19 on local authority incomes. And the committee recognises that the role that the third sector plays in providing services that support health, social and local services has also been impacted in terms of ability to raise revenue. The level of additional funding that this sector is receiving is modest in comparison, as the Chair said, to the support given to the health service, and that will cost the health service dear.

You only need to read the explanatory notes with this third supplementary budget and you will see what an unprecedented year this has been. I'm sure we can all agree to that. Huge allocations like this within financial years isn't something that we've traditionally seen as part of the usual budgetary processes over the years.

May I praise the comments made by Llyr Gruffydd as Chair of the Finance Committee and make some further comments of my own? I understand the temptation for the Conservatives to say, as soon as any funding becomes available, 'Well, spend it immediately', but I do believe, generally speaking, that caution and holding some funds in reserve has been important, particularly when, on the one hand, you consider that the landscape has been evolving from month to month over the past year, but also that there is a symptom here of the fact that the Welsh fiscal system isn't one that works for us, particularly at such a challenging time.

I'll refer to two issues. First of all, the Barnett formula has proved to be a very ineffective tool—far too simplistic in how it distributes funding from Whitehall to the devolved Governments. I can take you back to one of the earliest papers written by Wales Fiscal Analysis at Cardiff University at the beginning of the pandemic, which suggested that allocating funds on a population basis wouldn't reflect the specific challenges posed by COVID for public services in Wales. And they were quite right; Wales has a higher proportion of older people and people with health complaints than is the case in England, something that isn't taken into account by what's described as the 'needs-based factor'. The paper also suggested that although the Welsh Government made a commitment to provide the same support for businesses through business rate relief and so on as is provided in England, the cost of providing that support wouldn't necessarily be provided for sufficiently by Barnett consequentials. I'll quote from the paper:

'For instance, Wales has a higher share of retail, leisure and hospitality properties (43%) compared to England (38%)—though this is likely to be offset by their lower average rateable values. Their lower rateable values meant that a relatively larger share of Welsh premises (75%) qualify for the £10,000 grant compared to England (70%). This is despite the fact that the grant is only made available to businesses with a rateable value of less than £12,000 in Wales, whereas businesses with a rateable value of between £12,000 and £15,000 are also eligible for this support in England.'

I think that the paper was right. On the publication of that report, Plaid Cymru argued that there should have been, at the very least, temporary reforms made to the formula, for example including a specific coronavirus needs-based factor. But ultimately, I think the pandemic has shown that we need that sort of longer term reform of Barnett, and we need it urgently.

The second issue is the inflexibilities placed on the Welsh Government in terms of the ability to borrow and draw down from the Wales reserve. I certainly—as did the Finance Committee—welcome the fact that there has been some budging by the Treasury on this, in reference to their agreement to allow £650 million to be carried over to the 2021-22 budget. But, we are still in no better position in terms of the Government's actual fiscal powers than we were at the beginning of the pandemic. The Minister has repeatedly said that the Welsh Government are in talks with the UK Government on addressing these inflexibilities. We are none the wiser really as to how those talks have gone, or are going, which suggests to me that things aren't going well; little surprise, given the fact that Government hasn't been willing to do things that it has been able to do—for example, borrow. I will quote Gerry Holtham here:

'Failing to borrow in two successive financial years'— that's 2019-20 and 2020-21—

'seems unambitious.' I agree with him. So, Dirprwy Lywydd, these are unprecedented times. There's a lot in this supplementary budget—the third one, remarkably—to welcome here. But, what this financial year has shown is that the Government cannot afford to bury collective heads in the sand on the need to move forward on Wales's fiscal autonomy.

I very much welcome the third supplementary budget from the Welsh Government. Our clear approach in Wales to scrutiny of public finances is both transparent and reliable. As a member of the Public Accounts Committee and the Finance Committee, I do very much value that we prioritise and spend wisely the public moneys available to us in Wales.

However, in Wales, we have to operate—as has been said—within very significant constraints, unlike our counterparts across the UK, as presented to us by a Tory Chancellor of the Exchequer who refuses categorically to honour the devolution of this place as a mature Parliament, give Wales flexibility and give back control over how we spend key elements of our money. However, Deputy Llywydd, I expect little from a Chancellor who announces a budget with a plethora—a rainbow—of his own PR on Instagram and social media videos, and totally fails to mention in his speech the damning disarray of the 1 per cent pay offer to the nurses of England, who have fought, and are continuing to fight, right on the front line of the COVID-19 pandemic.

In Wales, we value transparency in our public finances, and this couldn't be in more direct and stark contrast to England, where the UK Tory Government has not afforded scrutiny across the year of its financial proposals. The Welsh Government, then, is to be commended for its faithful and regular reporting to this Parliament at every stage of the process—seeking and affording public scrutiny of its proposals. As we await the unanswered silence around the shared prosperity fund, crucial to Wales, I wish to thank you, Minister, for all that you and the Welsh Labour Government have done, despite considerable constraints, to produce a clear, strategic third supplementary budget, which will build back fairer for Wales.  

I call on the Minister for Finance and Trefnydd to reply to the debate—Rebecca Evans.

This third supplementary budget is a really important part of the budget process. Approval of this supplementary budget will authorise the revised spending plans of the Welsh Government. It sets the limits against which our financial outturn position will be compared. It also authorises the cash that can be drawn from the Welsh consolidated fund to support that spending. I do thank Members for their contributions to this debate today. I will respond to a number of the points that have been raised.

There was a question seeking an update on the position in terms of the discussions that we have had with the UK Government on ports and borders. I can let colleagues know that I have now received a response to my representations to HM Treasury in regard to the funding for the infrastructure and the ongoing operations needed at the Welsh border, following our exit from the European Union. The Treasury has agreed, in principle, to fund additional costs associated with the inland sites in 2021-22 via a reserve claim. The Treasury has recognised our concerns about the substantive operational costs for these facilities and has confirmed that this will be addressed in the upcoming spending review. The UK Government should meet the additional operational costs of this significant and entirely new function directly resulting from EU exit, and which forms an important part of the Great Britain-wide biosecurity infrastructure, which will underpin an important element of the future trade deal. So, those additional operating costs will be important as well.

I was very interested to hear Mark Isherwood's analysis of the carry over of funding into next year. I just think it's beyond that the UK Government saw fit to provide such a significant additional amount of funding—£660 million—with six weeks to go to the end of the financial year. So, I was pleased that we were able to negotiate that carryover. But if Mark Isherwood or members of the public in Wales are wondering how we are in a position to carry over such a large amount of additional funding into next year for investment in our response to the COVID pandemic as we move forward, I can tell you that it is because we have managed Welsh public money properly here in Wales. We've driven value for money at every point in our process. We have been very careful with the investments that we've made and the decisions that we've made, and you can see that represented no more clearly than with the decisions that we took around contact tracing. Our system here in Wales is delivered as a public service, it's delivered through local authorities and our health boards, ensuring that there's value for money and that we've looked after Welsh people's money. Whereas across the border, of course, the system is much more poorly performing than our excellent system here in Wales, and has been outsourced to the private sector where huge profits are being made, and people are not getting the service that they're getting here in Wales.

And, of course, the kind of decisions that we were able to take on personal protective equipment here in Wales have also been looking at driving value for money for taxpayers. So, that is why we're able to carry forward funding into the next financial year, and I don't think any of us should forget that. And for me, this will be one of the big stories of the pandemic, when people look back on this period in the years ahead and compare the different approaches and responses of different Governments to the pandemic and the different priorities that have driven the decisions that we have made.

I will say, in terms of the period moving forward, I know that we do have our debate on the final budget later on, but there's been no meaningful engagement with the UK Government whatsoever on the 2021-22 budget, an absolutely appalling lack of engagement on the levelling-up fund and the shared prosperity fund, but I'm sure we'll have opportunities to discuss those things in more detail in due course this afternoon.

So, this has been a year of uncertainty, and one in which we have seen unprecedented changes to our fiscal position. I committed to ensuring that those changes would be transparent and fully scrutinised by the Senedd, which began with the first publication of our first supplementary budget last May—very early on in the crisis—an interim second supplementary budget in October, and culminating with this third supplementary budget today.

So, in total, over £6 billion has been added to our spending plans in year, which has been essential to deal with the immediate response to the coronavirus pandemic, and to start addressing the long-term impacts of the pandemic on services, on businesses and individuals, and this funding has been allocated throughout the year to deliver the most effective outcomes in Wales, and using the flexibilities that have been at our disposal. And I think, as all colleagues who have spoken in this debate have recognised this afternoon, it has been an absolutely exceptional year. I do want to put on record, Llywydd, my thanks to officials who have worked so carefully and diligently to support me in ensuring that we manage our position in year and bring through the supplementary budget in such good shape, and I'm very grateful to them. Diolch yn fawr. I move the motion.

[Inaudible.]

I'm afraid you're on mute, Deputy Presiding Officer. Or at least I can't hear you.

Can you hear me now?

Yes.

Sorry. So, the proposal is to agree the motion. Does any Member object? [Objection.] Yes, I did see objections. So, that's fine. So, we defer voting on this item until voting time.

Voting deferred until voting time.