Dirprwy Lywydd, as Wales emerges from the pandemic, the Welsh Government, and the Minister in particular, is facing significant challenges in responding to economic pressures, the effects of climate change, Brexit and in mitigating the squeeze on household incomes. Pandemic-related pressures also remain significant for health, local government and businesses. Our report makes 41 recommendations. Given the time available, I will focus on our main concerns.

There is a notable and welcome shift in this draft budget towards recovery. The funding available to the Welsh Government has been better than expected and revised forecasts for the Welsh tax base also indicate an improved economic outlook. We welcome the increases in the Welsh block grant, which have enabled the Welsh Government to increase budget allocations across all expenditure groups. This is much needed and puts solid foundations in place for future years. However, whilst the draft budget for 2022-23 includes significant increases, the increases in the following two years are far smaller, and these years will be even more challenging.

As a committee, we are also concerned by the constrained outlook for capital funding, which, in real terms, is likely to be cut over the three-year period. Difficult choices will need to be made. To address this, we are pleased to hear that the Minister has changed her approach to allocating funding for capital projects, which is intended to maximise available funding, through borrowing and potential consequentials. However, we'd like to keep an eye on this new approach and we have recommended that Welsh Government reports back on the in-year funding position associated with overprogrammed capital plans and provides regular updates on the funding contained in the Wales reserve.

In terms of funding, the committee believes that the Welsh Government should have the autonomy to push funding from one year to the next, to prevent any Welsh funding being lost. To do its job effectively, the Welsh Government needs maximum budget agility, so we support the Minister in pressing the UK Government for greater flexibility. As Members are aware, in November last year, the co-operation agreement was announced between the Welsh Labour Government and Plaid Cymru, which included a number of additional spending commitments. Whilst the Minister told us that the agreement had little impact on the budget prioritisation process for this year, we recommend that the Welsh Government provides clarity on how the funding of associated policy commitments will be reflected in future budget allocations.

I'd now like to turn to how the draft budget impacts on specific policy areas. The committee welcomes the views that health, social care and local government have received a good settlement, which reflects the prioritisation of local services. We're also pleased to hear the positive comments regarding the Welsh Government’s response and financial support during the pandemic. However, these sectors are subject to unprecedented pressures. As mentioned, capital allocations will be a particular constraint, given the demands for service transformation, investment in infrastructure and the wider implications of decarbonisation and reducing environmental impact. To address this, we have recommended the Welsh Government considers switching revenue to capital as part of future budgets and allows the health sector to do the same, to provide flexibility, given the limited capital funding available. We're also concerned about staff shortages and workforce issues, with staff suffering from burnout and COVID-19 absences. There are also longer term challenges to deal with, such as high staff vacancies, with many in the health and social care sector making alternative career choices, often with better pay. As a result, the committee recommends the Welsh Government provides information to demonstrate how the allocations for 2022-23 will alleviate the immediate pressures on staffing across the health, local government and social care sectors.

The businesses we spoke to as a committee told us that engagement between the Welsh Government and the sectors they represent had been good. There was an acknowledgment of the swift support provided by the Welsh Government during the pandemic, particularly the business rates waiver, furlough scheme, grants and loans. However, we also heard that more could be done, which is why we recommend that the Welsh Government considers further allocations being made in the final budget to increase the support for business rates relief. To enable smaller businesses and retailers to recover from the pandemic, we further recommend that Welsh Government prioritises investment in digital infrastructure and skills and helps those businesses to develop an online presence.