Item 16 is next, and that is a debate on the first supplementary budget for 2022-23. I call on the Minister for Finance to move the motion. Rebecca Evans. 

Motion NDM8037 Lesley Griffiths

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

1. Approves the First Supplementary Budget for the financial year 2022-23 laid in the Table Office on Tuesday 21 June 2022.

Motion moved.

Thank you, Llywydd. The first supplementary budget of 2022-23 is the first opportunity to amend budgetary plans for the current financial year, which were published and approved by the Senedd in March. I'd like to take this opportunity to thank the Finance Committee for its consideration of this budget and publication of its report. I'll provide a detailed response to its 12 recommendations in due course. 

The main change in this first supplementary budget relates to a technical reclassification of budgets to reflect the implementation of the international financial reporting standard, or IFRS 16, as it's commonly known, on leases. The changes relating to IFRS 16 do not affect the spending power of the Welsh Government but simply reflect existing spending plans on leasing arrangements more appropriately as a capital investment. In addition, this budget regularises a small number of allocations from reserves, including an allocation of £20 million to support our response to the war in Ukraine. This allocation will support schemes such as the sponsorship programme, our welcome centres and increasing the provision of good-quality temporary homes with their associated costs.

As is usual for supplementary budgets, the changes also include small adjustments to the overall level of resources available to Wales, reflecting transfers and consequentials arising from changes in UK departmental spending. This budget also regularises approved transfers within and between ministerial portfolios.

Although it's limited in scope, the supplementary budget nevertheless represents an important part of the budget and scrutiny system. In-year supplementary budgets build on the plans set out in the draft and final budget, with a greater focus on the pressures and opportunities that arise in-year.

Since the final budget was published, the increase in inflation means that our budget is worth £600 million less over this three-year period. I'm closely monitoring the position with my Cabinet colleagues, and the impact that the rise in inflation is having on delivering our spending plans.

I will table a second supplementary budget later in this financial year. Any further allocations from reserves this year will be regularised in the second supplementary budget and will include any further consequential changes to Wales that arise as a result of changes to UK Government departmental spending. So, I'd just like to finish by thanking the Finance Committee once again for their scrutiny of this supplementary budget, and I ask Members to support it.

I call on the Chair of the Finance Committee, Peredur Owen Griffiths. 

Thank you, Deputy Presiding Officer. I am pleased to speak in this debate today on behalf of the Finance Committee. The committee scrutinised the first supplementary budget on 30 June and I thank the Minister for her attendance.

The committee’s report was laid before the Senedd yesterday and makes 12 recommendations. First of all, the committee is extremely concerned about the impact that inflationary pressures will have on the affordability of the Welsh Government’s budgetary proposals. Given that these exceptional pressures will persist and could worsen, we ask the Minister to provide an assessment of the impact that this is having on the Welsh Government’s plans. We also ask the Minister to consider bringing forward the second supplementary budget this financial year so that funding can be provided to priority areas as quickly as possible, if urgent action is required.

Turning to specific areas, before I talk about the Welsh Government’s response to the war in Ukraine, may I take this opportunity to pay tribute to those affected by the war and the incredible efforts made by local authorities, individuals and services across Wales to ensure that those fleeing the war in Ukraine are given refuge and a safe place to stay? However, the committee was disappointed that funding received by the Welsh Government from the UK Government to support Ukrainian refugees does not extend beyond the current financial year. We therefore urge the Minister to raise this issue with the UK Government at the earliest opportunity, so that funding for those key services continue to be provided. As the support provided reaches into different areas within the budget, the committee also felt that it was becoming increasingly difficult to understand how much money was being spent in particular areas. That is why we are asking the Minister to provide a breakdown of the funding dedicated to supporting Ukrainian refugees in future budgets.

On this issue, the committee was alarmed by the lack of meaningful consultation between the Welsh and UK Governments regarding the contributions made from devolved budgets towards the £1 billion provided in military aid to Ukraine. We agree with the Minister that devolved budgets should not be spent on non-devolved areas. This is a fundamental principle, and these actions represent a dangerous precedent. We therefore ask the Minister to raise these concerns with counterparts elsewhere in the UK to ensure that devolved budgets are protected from being used to fund non-devolved areas.

Dirprwy Lywydd, I would now like to turn quickly to other policy areas. The committee welcomes the levels of funding provided to the NHS to support its recovery from the pandemic, and particularly to deal with waiting times and the planned care backlog. However, the committee wants further clarity on how the money will be spent. We are also concerned to hear that a number of health boards were unable to utilise the additional funding allocated. Although the committee accepts the significant impact that the omicron variant has had on health service planning, it is concerning that a large chunk of these allocations were not spent. The committee is also highly concerned with the growing strain on NHS staff who are, according to a recent report by Audit Wales, tired, stretched thinly and under pressure. We believe that greater efforts need to be made by the Welsh Government to develop a longer term workforce plan so that these pressures can be mitigated and staff burn-out avoided.

On free school meals, I'm pleased that the Minister is bringing forward this policy so that it is available to pupils from September onwards. That said, the committee is aware that individual schools will be in very different situations in terms of whether they have the infrastructure to implement this initiative and to make it a success. We therefore ask the Minister to provide clarity on the dedicated funding that is provided to local authorities to support this policy. As Chair, I want to work with other committees on matters where there is common interest, and that is why, on these specific issues, I have written to the Chairs of both the Health and Social Care Committee and the Children, Young People and Education Committee so that scrutiny in these key areas can continue.

Finally, the committee notes with concern the plans by the UK Government to cut 91,000 in the civil service, and further notes that a Barnett share of those jobs would amount to approximately 6,000 jobs being lost here in Wales. The committee is concerned that such cuts could have a disproportionate impact on Wales. As a result, we want further information on the UK Government’s intentions in this area, and assurances that any decisions made at a UK level do not have a detrimental impact on the public sector workforce in Wales.

Deputy Presiding Officer, I am pleased to have been able to speak in today’s debate on behalf of the Finance Committee. The committee welcomes much of the laudable aims expressed through this supplementary budget, but is keen to ensure that Wales’s finances are robust and resilient in the face of increasing economic pressures. Thank you.

I thank the Minister for her statement and welcome the contribution of the Chair of the Finance Committee, and I would like to associate myself with the comments he made around local authorities and the work they put in. I'm contributing to this debate as the Welsh Conservatives' spokesperson for finance, and from the outset I would like to confirm that we will be abstaining on the motion before us, as is the custom of the group on supplementary budgets. During the pandemic, we saw a series of extraordinary supplementary budgets where hundreds of millions were allocated in addition to the final budget, in recognition of the huge response that was required to tackle COVID-19.

This supplementary budget is far closer to the norm that we expect to see—most of the allocations relate to technical changes—but, unfortunately, this budget is set, once again, against the background of even more extraordinary times. I fully understand that the budget was produced at the start of the Russian invasion of Ukraine and the cost-of-living crisis, and so doesn't fully take into account these pressures. However, Deputy Llywydd, it is almost certain that more support will be needed to help ease the burden on people, in addition to what has already been provided, in particular to those people who do not qualify for benefits but need financial help at this time. Minister, what discussions are you having with colleagues from across the UK regarding the possibility of future support? And what planning have you done regarding the type of Welsh-specific support that may be required during the autumn and winter periods? Furthermore, the budget allocates £20 million from reserves as emergency financial assistance for local government to help with the resettlement scheme for Ukrainian refugees, as we've heard. Whilst I, of course, welcome this, I do note with some disappointment that last month the Welsh Government paused its supersponsor scheme. Minister, how effective do you think that this funding has been in putting in place an adequate support network? 

There is also the issue of how we support our public services through these difficult times. Inflationary pressures are putting a huge amount of strain on funding services, whilst the cost of things like potential public sector pay increases will need to be met. Minister, what steps are you taking to analyse the financial health of public services in Wales, as well as what future resources may be needed so that additional costs are not borne by service users, local government or services themselves?

With specific regard to the Welsh NHS, what work are you undertaking to better understand the barriers that NHS organisations are facing in actually spending the additional funding being provided to them? As you know, Audit Wales noted that NHS bodies returned £12.8 million of the £200 million allocated in 2021-22. Surely, given the huge strain that the NHS is under, we need to ensure that all of the funding provided is making its way to the front line to tackle waiting times and treatment backlogs. Thank you.

I'll start with reference to the over-allocation against the general capital budget. Obviously, because of inflationary pressures, that is coming under considerable pressure, probably reflected in the fact that the over-allocation in the supplementary budget before us is £68 million, or just over £68 million—down £7.5 million from the final budget. I'd ask, maybe, that you could give us some information about where you're likely to be disinvesting, or at least what process you used for prioritising or deprioritising that particular spend.

I'd like to reiterate some of the comments around support for people from Ukraine. I very much welcome the allocation of an additional £20 million from reserves for emergency financial assistance for local government to support the response to the crisis in Ukraine. We can all be very proud of the Welsh response and the fact that Welsh Government spending is going above and beyond the funding provided by the UK Government.

It is hugely worrying, on that, of course, that the UK Government has raided devolved budgets to pay for non-devolved military spending, and I'm wondering what impact that will have—losing that £30 million—on the budget for this year, particularly in relation to investment in health, education and other key areas. Does this not set a dangerous precedent, in that it could happen more often? What it does do, of course, is highlight how fragile and how weak the devolution settlement is in reality, when the UK Government can take away money that's rightly ours.

I'd reiterate comments by the Chair of the Finance Committee about the disappointment that funding received by the Welsh Government from the UK Government to support Ukrainian refugees doesn't extend beyond the current financial year. The zombie Prime Minister that we have in Westminster, who's in post but not in power, tells us that the UK is in it for the long haul on Ukraine. Well, that's clearly not the case when it comes to supporting Ukrainian refugees, and I would ask you to assure us that regardless of whether the UK Government provides funding, the Welsh Government will do everything it can to continue its support for those from Ukraine who need it.

The question about health has been asked. We are aware that—. Given that health boards weren't able to spend their additional funding allocations last year, can you give us assurances that additional funding for health to help tackle waiting times and the planned-care backlog this year will be utilised fully? 

Finally, in the face of the cost-of-living crisis, of course, there is increasing demand for public sector pay to keep pace with inflation. Now, the UK Government's policy is to bury its head in the sand, which could well lead to a summer of discontent. I'm hoping, clearly, that the Welsh Government takes a different approach, and maybe you could tell us a bit about what scope there is in your budget this year to meet any potential increases in public sector pay, because it's wholly unacceptable that our public sector workers are going through the wringer at the moment, whilst the rudderless UK Government is just going through the motions.

The first supplementary budget has usually been a minor event, making slight changes, which this one does. But the supplementary budget comes at a time of high inflation, which is currently at 9.1 per cent—the highest for 40 years—and maybe higher now than when I wrote this. This is a unique experience both for the Senedd and the Welsh Government. Inflation will affect both capital and revenue budgets. We have commodity-led inflation made worse by the declining value of the pound. Those are two issues over which the Welsh Government have no control whatsoever.

On capital spending, the cost of construction has been estimated as rising between 20 and 30 per cent year on year, and, with a shortage of both labour and building materials, it has been reported that supply chain disruption and continued high cost of production will remain a challenge for the British construction industry this year, resulting in cost increases in materials—bricks, plasterboard, cement, concrete et cetera. What these changes mean is that either there will be a need to borrow at a time when interest rates are rising, or there will be a slippage in the capital programme. What programmes are being managed so that expenditure moves into the next fiscal year? One of the nice little tricks that people in finance can always do is slow things down and move them into the next fiscal year. We're at a very early stage in the fiscal year and things could improve, but I don't think that's very likely.

On revenue expenditure, where the pay of public sector employees is the major cost, then in the response of the Welsh Government to the various pay review bodies and in direct negotiation with the trade unions there are two risks. Public sector workers could receive significant real-terms pay cuts, with the danger of salary levels in the public sector falling behind the private sector, leading to an exodus of skilled staff with highly marketable and sought-after skills. Alternatively, pay rises could meet the rate of inflation, but that causes budgetary problems for the whole of the Welsh public sector and, ultimately, for the Welsh Government. The most likely outcome will be somewhere in between, leading to the worst of both worlds.

While traditionally we've had two supplementary budgets, can I repeat my call at the Finance Committee for a second supplementary budget in the autumn term? That will be two months or three months earlier than we normally have it, but I think there is a need for a second supplementary budget, due to the fiscal situation we're in at the moment. You'll then have your normal second supplementary budget as a third supplementary budget at the normal time.

It's important that Welsh Government keeps the Senedd informed of the in-year funding position and its impact on spending. This can either be done via reports to the Finance Committee or regular statements to the Senedd. Ever the optimist, there may be consequential funding to Wales of increasing expenditure in England. The same problems are facing the English public sector, who are starting off from a worse position than we are in Wales, due to two things—the benefit of the Barnett formula and the good management of finance by the Welsh Government. 

The Welsh Government will need to report any consequential income based upon Westminster expenditure. I very much welcome the piece of legislation IFRS 16, which means leases are included into accounts. Leases used to be a trick that accountants used in order to keep capital expenditure off budget. I don't think it was a very good idea, and I'm very pleased to see that can no longer be done, and the Government have said this will lead to no material changes in what we have to spend, but it means all expenditure will be on the books, not some hidden off the books.

Civil service jobs—if it was only just as bad as Peredur mentioned. Of course, we have a higher percentage of our Welsh population employed in the public sector, including civil servants paid by Westminster, so, if the reduction is of the level they're talking about, then we'll have more than our Barnett share of job losses, which will devastate constituencies like mine, which have a very high number of civil servants employed in them.

Finally, this supplementary budget has been set in turbulent economic and, now, political times. So, can I just repeat my calls for a second supplementary budget in the autumn term, that the Senedd, either directly via Government statements to Plenary or indirectly via the Finance Committee, is kept updated on changes to the financial position, and that the Senedd is kept updated, again either directly or indirectly, on the capital programme and any slippage in the capital programme? This is not to try and get at the Government or criticise the Government; it's so that we're all aware exactly where the problems are.

Whilst the majority of changes identified in the supplementary budget are technical in nature, I do want to focus my contribution on the revised expenditure in response, majoritively, to the war in Ukraine. The supplementary budget identifies also £20 million for the Welsh Government's response to the war. It is a bold statement by the Welsh Government, both supporting the wishes of the Welsh people and articulating the mood of the Welsh nation that we stand in solidarity collectively with the people of Ukraine.

By 9 July, nearly 600 people had arrived in the UK under the Welsh Government's supersponsor scheme and, on 30 June, the Minister told the Finance Committee, of which I'm a Member, that the budget will be worth £600 million less over this three-year spending period than we understood it to be at the time it was settled. So, with inflation hitting a 40-year high, and the Bank of England currently expecting it to increase to further than 11 per cent, these prevailing pressures will definitely impact on the cost of delivering services.

It is then, Deputy Llywydd, imperative that this UK Government and its Treasury seek to support the devolved nations and this place far more systemically in this regard. And as inflation rises so astronomically, they need to do more as people suffer and deliver an annual uplift to budgets to aid this Welsh Government in delivering on its democratic agenda. So, today, Minister, we are suffering, as you know, the most exceptional and unprecedented financial time. It's hurting the economy, it's hurting our constituents, forcing people to heat or eat, and it's harming lives, harming well-being and the mental health of the UK. The UK Government must now act in this capacity in order to make devolution work.

I call on the Minister for Finance to reply to the debate.

Thank you. As a number of colleagues have observed this afternoon, this supplementary budget really does take us back to what we used to know supplementary budgets as being before the pandemic, in the sense that there are very small movements, small allocations, and it's mostly technical in nature. So, much of what we've heard this afternoon and much of what I'll respond to doesn't relate specifically to the supplementary budget, but I think it is an important chance to get some of these important and pressing current issues on the record. A number of colleagues have referred to inflation and asked how this is impacting on the Welsh Government's plans and Rhianon Passmore outlined how our budget is now worth more than £600 million less than we anticipated when we formulated our spending plans in 2021. We're constantly assessing the wider macroeconomic trends and their impact on Wales, but, given that we have only recently agreed the multi-year spending plans to 2025, we're not proposing a fundamental review of these plans at this time, but what we are doing is better understanding the impact of inflation on those  plans, and I think that Mike Hedges is quite right in the sense that it will inevitably, I think, lead to some difficult decisions about how we profile some of our capital investments, particularly, but I know that colleagues will be considering that as we enter our next budget period, and we're doing lots of work on that over the course of the summer.

There were some questions about public sector pay, and, of course, it is an absolutely critical issue. The latest figures from the ONS suggest that public sector pay is rising around 1.5 per cent over a three-month period, 8 per cent in the private sector, and that's the largest gap that we've seen in terms of pay growth between the public and private sectors, and, inevitably, that's going to have an impact, I think, on service delivery when people are looking to the private sector for potential different employment. So, we absolutely need the UK Government to step in to this space and undertake to provide a decent pay uplift to people working in the public sector to recognise the work that they've been doing over recent years and to recognise the value of public services.

Several colleagues have referenced the funding that is within the supplementary budget for Ukraine and, as the committee has asked, that Welsh Government endeavours to press the UK Government for clarity on years 2 and 3. At the moment, we only have that clarity in terms of the first year of funding for people coming from Ukraine, and nothing at all on years two and three. And my concern is that the UK Government will just assume that, because people are eligible for support through benefits, they're eligible to work, that they won't need further support, and local government won't need further support to support those individuals. But I absolutely give that undertaking to continue to press these points with the UK Treasury—points that I've already made in regard to Ukraine with the CST at a recent finance Ministers' quadrilateral meeting. And also I was pressing the point that the family scheme needs to have equity with the Homes for Ukraine scheme, because there is a real disparity between those two schemes and the funding and support that the households who are providing kindly their homes for family or strangers to receive. So, that's another area that is of concern.

I completely agree with those colleagues who have outlined that devolved budgets shouldn't be spent on non-devolved areas. Of course we want to support Ukraine, but it's for the UK Government to act in these non-devolved areas. And I am worried that it sets a precedent, because the situation is going on longer than was perhaps anticipated, so it could be the UK Government comes to us again for this further funding. I can see my time is out. I could talk all day about the supplementary budget and the scrutiny, but I don't think I will, and I'll save colleagues that. But I will respond to all 12 of the recommendations from the Finance Committee. 

The proposal is to agree the motion. Does any Member object? [Objection.] There is an objection. I will therefore defer voting until voting time.

Voting deferred until voting time.