Finance Committee

So, we'll move on, then, to item 3, which is the introductory session with the Minister for Finance and Local Government. So, welcome. We've got everybody here. Thank you very much for making time to come and see us today and to come to the meeting. Could I ask you just to introduce yourselves just for the record, please?

Yes, good morning, Chair, and good morning, committee. I'm Rebecca Evans, Minister for Finance and Local Government. I'll ask officials to introduce themselves.

Hello, I'm Andrew Jeffreys, I'm director of the Welsh Treasury.

Good morning. I'm Matthew Denham-Jones, I'm deputy director for financial controls in Welsh Government.

Lovely. Great. Well, welcome. We've got you for an hour, hopefully, so it would be great to go through this introductory session. I just wondered if you wanted to make some comments to start, Minister, and then we'll take it from there.

Thank you, Chair. I'd just like to, really, reflect on the really positive and useful working relationship that Welsh Government established with the Finance Committee over many years now, and I think that, obviously, Finance Committee provides an excellent level of scrutiny, which does help inform our budget plans. It always challenges us to provide various forms of information and to be as open and transparent as we possibly can be. And then, we've also taken the opportunity to find common ground with committee. For example, in our calls to Treasury for greater budgetary flexibilities through the pandemic, we found committee's support on that particularly useful and heartening, given the fact that you are a cross-party committee. So, I'm really looking forward to being scrutinised by the new committee, but also to finding that common ground, where we can make shared representations on things that are important to all of us.

Thank you very much. Well, just to start off with, I've got a few questions to start with. We're looking at the UK fiscal events and how they'll impact on Welsh Government, and the budget timings that we've got, and the plans for increased transparency in this Senedd term. So, what are the timings of the UK spending review and autumn budget, what do they mean in terms of preparation and timings for the Government draft budget, and will the Government provide a three-year spending plan within that draft budget?

Thank you, Chair. So, the Chancellor has confirmed that he will be publishing the results of his multi-year comprehensive spending review on 27 October. So, that means that we won't know our multi-year settlement for 2022-23 and beyond until that review concludes. We are, however, anticipating that it will be a multi-year settlement. But, having said that, we always have to maintain that element of flexibility in case plans do change at a late point, as they have done in previous years.

So, as I set out in my letter to committee of 1 July, we intend to employ the approach that we have, actually, employed in the last two years, in terms of providing a departmental and outline budget on—well, this year it will be on 20 December, ahead of Christmas, and that will accommodate the late timing of the UK spending review. And I can confirm that is in line with the exceptional circumstances in the budget protocol, which we have established between Welsh Government and committee, and it does recognise the circumstances of the UK spending review and how it will impact on our own plans.

The timetable we've set out has been designed to ensure that we have enough plans to effectively undertake our budget preparations. This is the first multi-year settlement that we've had since 2017, and it's a significant piece of work to undertake those preparations. But it also means that we'll be able to provide an appropriate level of detail in our budget documentation, whilst also then trying to ensure and ensuring that we have the maximum time available for scrutiny in the Senedd. So, that's our plan. And we've also set those dates with a view to not being in the position that we've been in previously, where we've had to make late changes to those plans, which have obviously been inconvenient for committee, but then also inconvenient for partners—local government and elsewhere—who have to rely on us before they can set their own budgets.

Lovely. And—.

Oh, sorry, Chair, you also asked about the three-year spending review. So, as I say, it is the expectation we'll have a three-year review, and it's fully our intention then, if we're in a position, to pass that confidence and certainty on with three-year settlements to public services too.

Great. Has the UK Government given any commitment on the timings of future UK budgets and fiscal events? Have you heard anything from them?

No, we don't have any times for further events. Andrew Jeffreys might want to say something about the general rhythm of events and the kind of estimate process as well, which might be useful for committee.

Thank you. So, the kind of normal rhythm has been very significantly disrupted in recent times. And what we're hoping, I think, and this isn't certain yet, is that, in the budget and spending review next month, the UK Government will not only set out its new fiscal framework—the kind of fiscal rules within which this Government will operate; people have been waiting for the Chancellor to set that out, and obviously, because of COVID and the impact that's had, they've not been in a position to do that hitherto, but hopefully we'll see that in the budget and spending review—but also, yes, a sort of clarity about what approach the UK Government will take to its fiscal events. Will it revert back to spring budgets and one budget a year, or is it going to intend to have this kind of cycle of twice yearly fiscal events? We don't know that yet. But hopefully, we'll see something on that in the budget and spending review on 27 October.

Okay. Thank you. It's always been a challenge for the Senedd to see how the Well-being of Future Generations (Wales) Act 2015 and the action to mitigate the climate emergency are reflected in budgetary decisions. How are you looking for that to be improved during this Senedd term?

Well, a couple of years ago, I introduced our budget improvement plan, which is a rolling five-year look-ahead to the ways in which we'll improve our budget processes. I think that's been very well received, and it's very much within the context of how we will bring the well-being of future generations Act to life through our budget process and the decisions that flow from that. So, I think that's a really important and useful piece of work. And also in the past couple of years, we've been trying some new innovations, in terms of piloting a model to estimate greenhouse gas emissions connected to spending proposals, for example. So, that's been a useful new tool, really, for us to understand the impact of our spending. And last year as well, for the first time, we developed a new distributional impact model, which analyses public spending in Wales, to understand the impact that it's having on different groups of people. So, that's been another innovative tool.

We're always keen to work with committee and understand what further information and level of detail committee would like to see. So, keen to hear your views and the views of others as to what it is that we're not providing that you would need at the moment. I do think just the breadth and depth of information that we've been providing in recent years has grown year on year, and I think that now we provide quite a comprehensive set of information. The chief economist report, for example, is always published alongside the draft budget, and that's a really, really useful document, which I would recommend to all committee members.

I also reflect on the fact that there are even departments in Whitehall, with larger budgets than us, that publish a fraction of information compared to that which we provide. So, we do endeavour to provide as much useful information as possible to committee, and try to make it as accessible as possible. So, in recent years, we've published a children's version of the budget document, for example, which is an easy read but very engaging, to try to ensure that children and young people have access to the knowledge that they need to understand the budget. So, we're always trying to improve, but if there are things that committee would be keen for us to do, we'd be glad to hear about that.

Thank you for that. Looking at timetables, and looking at scrutiny of the budget, it's expected that the period of condensed draft budget scrutiny will overlap, possibly, with the scrutiny of the forthcoming tax Bill. Have you got any comments on that at all?

We don't have—I'm not clear yet on the exact date for the introduction of the tax Bill. However, there's some final work that we're doing on it at the moment, although, as you say, it is a commitment to do it in year 1 of the Senedd. I think that scrutiny of the tax Bill, obviously, will be a matter for this committee, and you'll be obviously scrutinising the overall budget approach, which is also really important. But it's important also to recognise that colleagues across Government are scrutinised by their subject committees. So, actually, the level of scrutiny of the overall budget is quite large and quite intense, so there's a lot of shoulders to the wheel in terms of scrutinising Welsh Government.

And another innovation that we've done in recent years is to publish and make public all of the evidence papers that we provide to committee in one, so that people can have access to that. It often runs to well over 100 pages now, so there's a danger, potentially, of providing too much information. So, we try in our narrative document to pull all of that together in a way that is engaging and useful to people. I realise that our budget scrutiny period for the draft budget—although it runs to the seven weeks, it does include some recess weeks. And of course, I'm happy to make myself available to committee during recess, if that's convenient, to try to ensure that you have the space to do all of your work as well. I know there's a lot required of committee at this time.

I know that the committee is already looking at dates, trying to plan that out. So, you being available during recess would be very welcome. Thank you very much.

My last question on this point before moving on to Rhianon—and it's good to see that the technical issues have been sorted there, so that's good—do you support the committee's view that an independent group should be set up to review the current budget process in Wales, and, if so, what role would you wish to have in setting up the membership and terms of reference for that group?

Well, we're actually looking at what used to be called BAGE, our budget improvement and equality group—no, budget equality group—but changing the focus of that to be much more about scrutinising the wider budget process. So, I think potentially, we've got some shared interests there in terms of trying to improve the overall process of the budget. So, perhaps outside of this meeting, I'll ask officials to share with you some of the thinking that we've been doing in terms of the future of BAGE and the wider role that it can play in terms of looking at the budget process itself.

That will be very useful. Thank you very much, Minister. I'm going to pass over now to Rhianon and she's got some questions, I think.

Thank you very much, Chair. Apologies for the technical difficulties at this end.

The National Audit Office investigation around devolved funding, Minister, found that the process for allocating block grant funding was complex and lacked transparency and was unpredictable. And you've highlighted previously the cumulative impact that this funding uncertainty has had in regard to Welsh finances. So, in your view, has the UK Government improved its transparency to Welsh Government and others in terms of the block grant funding? And how, as a Welsh Government, are you engaging with the UK Government on this matter?

Sorry, I'm unmuted now. So, I probably couldn't disagree with the NAO's assessment there, certainly in terms of how difficult it is sometimes to get the level of information and detail that we need from the UK Government. The UK Government's block grant transparency document is useful—it was last published in June 2020-21—when that presents the total changes arising from spending review settlements at a UK departmental level rather than at a programme level, as that's generally the way in which the Barnett formula is applied at spending reviews. That report provides good retrospective transparency and that's to be welcomed, but what it doesn't do is add to the information that we have in terms of being able to manage our own budget and to anticipate changes to our funding. So, this remains an ongoing challenge.

Between spending reviews, the Barnett formula consequentials from individual UK Government measures are identified, so we'll look at announcements made by the UK Government, for example, but the challenge there is understanding whether this is new funding, whether it's being funded from existing departmental budgets or through savings or reprioritisation by Whitehall departments, for example. And actually the final decision on funding may not take place until very late in the financial year at the UK supplementary estimates, although the new programme might have been in operation in England for much of the year, so that provides us with a real challenge in being able to understand what, if any, consequentials will be coming to us.

What we really need is a commitment from the UK Government for earlier notification of those Barnett consequentials and just clarity, really, as to where the funding is being found for the new schemes that the Government announces so that we can have more certainty in our budget planning. It's certainly not ideal at the moment.

Okay, so, to summarise, you're talking about clarity and earlier information upfront. It's just picturing our ask of the UK Government as far as the committee is concerned in regard to our engagement with the UK Government and our articulation of our concerns—and obviously the Finance Committee's recommendations are clear and your discourse with this committee and in your letters is clear and transparent. How are you engaging and how is the Welsh Government engaging to actually make us understand, as a Finance Committee, how strongly that is being presented to the UK Government, Minister?

Well, I have had an introductory meeting with the new Chief Secretary to the Treasury on 20 September, and fair play to the new Chief Secretary of the Treasury for reaching out to the devolved Government finance Ministers at an early point. That was welcome, and that, I would hope, bodes well for future relationships. So, at that meeting, I was able to outline our key priorities ahead of the UK Government spending review. As part of that spending review, I, alongside the other devolved Governments, have asked for flexibility so that any funds received before the end of the year can be used within a full financial year of the date that those funds were received. Obviously, that will help us, then, with effective budget management and allow us to plan ahead.

We also have the next finance Ministers' quadrilateral meeting scheduled to take place before the spending review, and that's on 14 October, so, obviously, the spending review will be a key item on the agenda for that meeting. And ahead of that, I'll be writing to the Chancellor outlining our priorities for Wales. Those priorities—you'll have seen some of them in the written statement at the time of the launch of the spending review, and the things that you would obviously expect to be there—. We discussed coal yesterday in the Senedd; we've talked many times about fair funding for rail, fair funding in terms of getting our fair share of research and innovation funding and so forth. So, those things are all in train at the moment, and officials have already sent a paper outlining Wales's asks of the spending review to Her Majesty's Treasury officials, so there's some good advance notice, really, of the priorities that we have.

Can I just bring Mike in for just a second? I think he's had his hand up for a little while. Sorry, Mike. You're on mute. There we are.

Sorry. Thank you, Chair. Just one statement and two very simple questions. The first one is: I agree entirely with what the Minister said. The first question is: why don't you publish what you think is the amount of money we should have and let the Treasury argue back against you? So, if you publish that, then we have what we think. The second one, which is more complicated, because sometimes the money is moved at Westminster from non-devolved areas and, more dangerously, from partially devolved areas: how do you ensure we get our Barnett consequential share of that? It's easy if they've put £1 billion in health—then we get our one twentieth of it, approximately. That's easy. If they move the money out of, let us say, transport, some of which is devolved and some of which isn't, how do you ensure that we get our fair share of that?

Thank you for both of those questions. In terms of why we don't publish what we think we should be getting, it's just because, essentially, we don't have the information that we need to come to a firm view as to what we think we should be getting, because the fact is that we would need to understand how the UK Government is funding these schemes in the first place. So, if the UK Government announced a new scheme that was funded by underspends within a department, there's a good case that we wouldn't have any funding, so it would be difficult to argue that we should. So, I think we'd risk muddying the waters and be fighting UK Government on a whole load of fronts where we perhaps wouldn't have the evidence behind us. I can see Andrew Jeffreys has got his hand up; he probably wants to respond to the point you made about non-devolved areas, but, in doing so, it might be useful for him to reflect on the work that has been done to identify the comparability factors and how that might play into how the amount that we get from different departments is determined.

Great, thank you. Andrew.

Thank you. Yes, so I think it's probably worth trying to differentiate two slightly different problems that we have with transparency in the system. One, and probably the more common one, is where we genuinely don't know what the implications of a UK Government spending announcement are for Wales and, at that point the announcement is made, probably the Treasury don't know either. So, recently, for example, there was an announcement of significant additional funding for health in England in the current year—I think £5 billion, roughly, for health in the current year—and the UK Government will quote a figure at that point. So, this would equate to—I think it was £320 million in terms of a Barnett share of that additional spending in England. But what Treasury are not able to say at the moment is whether that's all net additional spend and hence we'll get £320 million or whether some of that additional funding will be financed by underspends in other devolved areas, for example, which would mean less funding net for Wales as a result of that announcement. And so, in those situations, there's genuine—. There's an absence of clarity about what the exact implications are. And in those situations, there's not much we can do in the Welsh Government to help clarify that situation, really. That's a matter for the Treasury to resolve. And, in the previous year, we had the Barnett guarantee, which helped a bit to provide some certainty about the levels of funding available to Wales.

The second problem, which I think Mike Hedges may be alluding to, is where the UK Government says one number—that Wales is going to get x—and the Welsh Government says another number, where Wales is going to get y. And I think, in those situations, probably we can do better in terms of explaining why our figures differ from the ones that the Treasury or the UK Government are putting out there. And I think that happened a couple of times last year. So, I think that's something that we've noted and will try and improve on if that kind of situation arises in the future.

On the point about reallocations from non-devolved or partially devolved areas, or the other way, from devolved areas to non-devolved or partially devolved, to be fair to Treasury they're generally pretty scrupulous about providing details of all of that stuff. They don't tend to get into the public domain until after the fact, obviously, with the transparency report that the Minister mentioned, but, in the estimates at the end of the year, there is an enormous amount of detail about where the reallocations have come from and where they've gone to. And there is scope to debate some of the details of those things, but, eventually, the detail of that information is pretty well publicised. But the trouble is it's after the fact and sometimes it's not there at the time when, perhaps, the committee wants to try to understand it. It's too late, really, to be of much use to the committee. So, I think that's something that we can take back to Treasury about the timeliness of some of the information that they publish about the process.

Thank you, Andrew. I'll come back to Rhianon.

Thank you. And you've led into the next question in terms of your last comments, Andrew, in regard to how we, as Welsh Government, when we challenge that additional spending for Wales and consequentials for Wales—what sort of higher commitment than that can you give us as a committee, in terms of when we disagree in terms of that additional comment? And, additionally to that, the new player in the ring, really, is policy spend in devolved areas. I'd like to know where you feel the transparency for Wales is—perhaps this is better directed at Rebecca Evans, the Minister—in that regard. Two points there, if you might pick those up.

Thank you. The first point—

In regard to the commitment to this committee as to how we can better communicate where we, as Welsh Government, disagree, essentially, with the consequentials. And there have been many instances of that in the last year.

So, the First Minister gave an update yesterday in terms of the inter-governmental relations and the ways in which we're trying to put in place structures that will provide the framework for better relations in future. And I think there is a real opportunity there for us in regard to finance, if we can come to the proper agreement, where at last we will have a formal process for raising a dispute that is probably more robust than the one that we have at the moment. So, that has yet to be tested, but it could obviously be tested in future, and we'll think carefully about which will be the first case in terms of testing that inter-governmental machinery. So, there's a new way there, I think, to challenge, which could be of use to us in future.

But there have been so many cases, haven't there, that we've discussed at committee in recent years—the £1 billion extra for Northern Ireland, which obviously we don't begrudge at all, but the statement of funding policy does say that we should be receiving funding; and also the teachers' pensions issue, whereby the UK Government took a decision that had a direct impact on our budget but didn't provide any funding as a result of that. So, clearly, that was unsatisfactory as well. We raised these issues directly in meetings with the Chief Secretary to the Treasury, but I'm more hopeful now that we have a more formal route of raising complaints that things might improve in future in that regard.

And then, the point about policy in devolved areas is very much new and uncharted territory in many ways, because UK Government's obviously taken powers for itself to spend in devolved areas, and we'll be watching that very closely, as we watch the areas where the UK Government does have responsibility but has failed to spend as well. So, I think this will be an area of particular interest. But you're absolutely right that the reporting mechanisms need to be there for you and for Welsh Government to be able to see transparently what is happening with the UK Government funding, what the outcomes are and so forth.

Thank you, Minister. In that regard, then, in terms of my question of how the Finance Committee can be more strategically involved in that information chain, I presume the outcome of this review will have that conversation in regard to how this Finance Committee will be updated so that we can scrutinise exactly where we need to be in Wales.

Yes, it could be an opportunity for the Finance Committee to explore with its counterparts in other devolved Governments how they're seeking to get the kind of transparency that they need. We work very closely with our counterparts in Northern Ireland and Scotland to try and ensure that, where we have shared concerns, as we have many shared concerns about the shared prosperity fund and the implications of the internal market Act, and what that means in terms of specific policy areas such as free ports and so on, we always try to have a united voice on those where we share concerns. And I think that's a helpful way to approach this.

Okay, thank you. And briefly, if I may, Chair, the final question that I wanted to just fit in in regard to the devolved competency for Welsh Government to administer new taxes in regard to that being deemed not fit for purpose for Wales: what action is currently being taken to progress the vacant land tax to ensure a much more suitable process for possible future devolved taxes, Minister?

The efforts to devolve the vacant land tax have been frustrating, to say the least. There's a set-out process that the UK Government agreed jointly with the Welsh Government and, unfortunately, it has proved itself to be not fit for purpose, because we followed in good faith every step along that road, and it's taken us at least two years, probably three years now, to get to this point. One of the things we had to do, and the most recent step, was a Joint Exchequer Committee, which is where I met with the UK Treasury Minister to outline our proposals for the devolution of the tax, and then the Minister would then write around to UK Government departments to get their view, and then there would be a debate and so forth. So, there'd be lots of steps to undertake. But we were making really good progress, but then, all of a sudden, the UK Government came back and asked for further information. I wrote back—it was some time ago now—asking what more the UK Government needs from us in this regard, and I haven't yet had a response. So, it's very much the case that I'm raising this now with the new Minister to see if we can make some progress.

Interestingly, the UK Government has said that it potentially wants to bring forward legislation in this regard itself, which, if it's good enough for the UK Government, certainly it should be good enough for us. We chose this tax because it's the first time for testing the mechanism; it's not a controversial tax and it's one that has, I think, good support. There doesn't seem to be a reason other than potentially the anti-devolution approach of the UK Government as to why we haven't been able to make any proper progress.

Thank you very much. Thank you, Chair.

Thank you, Minister. Thank you, Rhianon. I'll bring Peter in now, if I can.

Thank you, Chair, and good morning, Minister. It's great to have you with us once again. I want to just explore a few points around the national insurance announcement that we recently heard, and try and establish a few bits of thinking around that, perhaps, and try to establish how you see that as a quantum coming through. So, there's a bit of unclarity for me a little at the moment, because we hear the command paper suggesting there's a £700 million consequential coming through to Wales, and we hear Government talking of £600 million—you know, £100 million's a lot of money. Is that why the First Minister is saying there isn't the clarity for Wales to be able to go forward to plan more around social care, whereas England have the clarity? Is that because we haven't got sight on that difference between a £700 million or a £600 million allocation to us?

I think there are two separate points here, the first being that HM Treasury, as you say, have quoted a £700 million benefit to Wales in 2024-25, but that, of course, includes any UK-wide spending, and also covers the additional cost to the public sector employers of the national insurance increase, which is effectively going straight back to the Exchequer, which is why our figure is in the region of £600 million.

But there's a more substantial and fundamental point, really, in the sense that we only see part of the picture in terms of the announcement on national insurance contributions, and it will only be in the spending review on 27 October that we see the full picture in terms of our budget. So, what we don't know yet is what the impact might be of the UK Government's efficiency review. Could we be looking at lower spending as a result? The consolidation of public finances following the pandemic—to what extent will we see that factoring in? So, there are lots and lots of unknowns. We know the national insurance side of the picture, but, beyond that, we don't know where the UK Government will be focusing its spending, to what extent areas will be devolved and attract a Barnett consequential, and where they won't. So, way too many unknowns at the moment to understand the full picture.

Yes, the headline figures always make it look a lot simpler than it actually is. Yes, I do get that. So, how do you think all of these announcements are going to affect your programme for government from now through to 2026? Is it going to really have some significant implications? Has it made you change your direction significantly?

Our programme for government will obviously be at the heart, really, of our budget plans. So, at the moment, we're very much undertaking the budget preparation work across departments, where I'm very clear with colleagues that the programme for government and the delivery of it has to be at the heart of their proposals as to how the budget is spent in future years. Obviously, we want to make some early progress on some of the major and important commitments that we've made. Ultimately, how far and how fast we're able to go will depend on the quantum of funding that we receive in the spending review, and there are lots of uncertainties there at the moment, but I'm really pleased that it's just a few weeks away now, and we'll get that final figure, and then we can start motoring ahead with our more detailed budget plans.

Thanks for that, Rebecca. Just so I'm clear, I'm not 100 per cent clear on the hypothecation nature of this money when it flows through, because normally consequentials aren't hypothecated, are they? This, I understand, might be, or am I misunderstanding that? If it is, obviously then, I suppose the Government will allocate all of this levy through to social care and health. Or isn't that clear yet? I don't know.

No, this will form part of our overall budget settlement, and then it will be for Welsh Government, with the support of the Senedd, hopefully, through our budget debates and votes, to allocate the funding. Andrew has some more detailed information, though.

Yes, thanks. I wonder whether it might be worth us sending a short note to the committee on this point, because I think there were some things said around the announcement that I think have created some confusion about exactly how this funding will flow and how it relates to existing flows of national insurance receipts into the Welsh Government's budget. So, this is a long-established aspect of the public spending system, but it's probably not very well understood by anybody, let alone the general public. So, I think, maybe, just a short note on that particular aspect might be helpful, just to clear up any lack of clarity on that.

Thank you, Andrew. I think that would be really helpful, because the public are going to be confused. I was really interested, Minister, in what you said earlier. I didn't realise we did a child-friendly budget presentation. That's about the level I need. [Laughter.] I always welcome an idiot's guides to budgets, and that would be really helpful.

Obviously, the First Minister made it quite clear in the Senedd on 14 September that he would be an advocate of devolving national insurance. How has that conversation been taken forward in the Government, and is there a bit of deeper thinking you can share around that?

So, as I understand it—and, again, I think Andrew might have some more detail on this—I think that what the First Minister has said has been misunderstood slightly. I think that what he was talking about would be the choice between—. You know, at the point of the Silk commission work, and so on, if there was a choice between the devolution of income tax, or Welsh rates of income tax, and national insurance contributions, then he would probably have gone for national insurance contributions. But it's not something that we're currently pursuing at the moment as an additional tool. Our focus, really, is on the devolution of tax powers in relation to the vacant land tax, which I described previously.

Thank you, Chair. I think that's all from me.

Thank you, Peter. I'll bring Mike in now, then. He's been waiting patiently there. Mike.

Thank you. I'm never quite sure whether I need to unmute myself or I'm going to be unmuted. I was unmuted. Thank you, Chair. My first question is: how will the Welsh Government apply the five Es of value for money to next year's budget?

Apply sorry the—?

The five Es: effectiveness, efficiency, equity, equality and environment. It's a well-known method of setting budgets.

Well, all of these are very much at the heart of the work that we undertake anyway in terms of our setting of budgets. So, the process really does begin well before the summer recess, with an initial budget discussion with colleagues in Cabinet. At that point, we discuss what our absolute key priorities must be. And, of course, we had the debate ahead of the recess, which was really helpful, with the Senedd to understand their priorities. So, clearly, again, health and social care and giving local government the best possible settlement are our priorities, and I think that's the first way in which we start narrowing down what we do. But then, the budget commissions that we ask departments to fill in very much touch on those elements that you've described. I might ask Matt or Andrew to talk a bit more about the budget commissions and the kind of information that we require from colleagues.

Yes, I can say a little bit. We don't apply exactly that model in the way that we are running the budget this time around, not explicitly anyway, but those kinds of considerations are clearly central to the work that we and all the Welsh Government departments are doing now to plan budgets for the next three years. Particularly, the frame that we're using is, as ever, the Well-being of Future Generations (Wales) Act 2015, but also the current programme for government. Those are the key driving principles that we're putting our plans through and, yes, there's a huge amount of work going on at the moment to try and look at all of our existing programmes and potential future commitments to try and ensure that we put forward a set of spending plans that maximise the delivery of the priorities that the Government has.

And you asked as well about how we're driving value for money. There's a lot of really good work going on on the procurement side of my portfolio in terms of how we define value for money, because I think that all of our views have shifted, really, in terms of it moving from being the cheapest to an option that delivers public good. So, we're very much doing lots of work there. We've published the new social value themes, outcomes and measures, for example. We're working very closely in looking at the model that we had established with the Centre for Digital Public Services, as a repository, if you like, of excellence and of expertise, to see if we can do something similar on the procurement side. That's very much about driving social value rather than just going for the cheapest option. It's about changing the mindset, really, behind the choices we make.

Going back to Andrew, why don't you think the five Es are appropriate?

I don't think I would suggest that they're not appropriate, it's just that we focus on, in particular, the future generations Act methodology—if that's the right word—to drive our financial decision making. There are different models, obviously, that you can use, but that's the primary one that we use, and it does pick up the same kind of principles that the model that you're talking about picks up, but perhaps in a somewhat different way.

Okay. Fine. I won't pursue that any more. A simple question here: you've put additional money into business support, you've put additional money into schools, and you've put additional money into health; is any of that going to be in the base budget for next year?

No. The additional funding that we've provided from the COVID funding is very much from the COVID reserve, which we've put together from COVID funding that was received from the UK Government, both in the budget and also through consequentials, but also the COVID funding that we were able to move over from the previous year as well, because of the late notification from the UK Government. So, the additional funding that has been announced recently, including, for example, the £551 million for health, has been from the COVID recovery fund. What we don't know at the moment is whether or not the UK Government intends to have specific COVID funding available next year. When we do have clarity on that, that will help us in terms of thinking of our way forward. But actually, one of the things I've asked colleagues to be clear about when they're putting forward bids to the COVID reserve is very much that this is funding that needs to be used in year and delivered on projects that can be delivered this year, because we can't be confident that we'll have that funding for next year.

Do you mean delivered or spent?

Spent.

Thank you. Thank you, Chair.

Lovely. Going a little bit further on that point, with inflation starting to rise and the pay awards in place for education and health, how do you think that's going to impact your budgets?

Pay inflation is one of the biggest pressures on the Welsh Government. Around half of our budget is exposed to pay in one way or another, so it is a major pressure on our budgets, which needs to be considered by all colleagues who have responsibility for pay within their portfolios. So, that is a significant challenge for us.

Okay. We know that there have been quite a few things coming through now; we've seen universal credit being cut, we've seen gas prices going up, we're seeing an increase in national insurance. That's just a few of these things that are really going to hit people—the least advantaged people in our society. In what sorts of ways can you, using your budget and your influence with other ministries, and possibly with your own ministry with local government, help support local people and support the Welsh public?

You're absolutely right that there are so many things coming together at one time that are going to make things really difficult for individuals and families here in Wales, particularly those on low incomes. So, we're very, very focused on supporting those who need help most. You'll see, within our current budget, and, I'm sure, anticipating our future budget, that colleagues will be investing in all kinds of schemes that are there to support people who may be struggling, and actually to have that preventative approach to stop people struggling in the first place. I have pulled together, as part of the budget work, a few inter-ministerial meetings where we can have a round-table where there are particular areas where I think that, if we continue to work across Government and work better across Government, we can have a better impact on the outcomes for people. Tackling poverty is absolutely one of those areas, and that's because that's an area where we all have responsibilities to do as much as we possibly can. So, those meetings have been really useful in terms of helping me focus my thoughts for the budget. We've also had a similar meeting on mental health, for example, recognising that it's not one Minister's responsibility to ensure that we're investing in mental health and, again, that preventative kind of approach. We're also having similar meetings in regard to skills and that employability agenda—again, that's absolutely critical as we move through the pandemic—and decarbonisation, of course, which is very much at the heart of our preparations.

You're talking about some of these schemes, and that's great—that you're working with your colleagues across areas. I talk to quite a few charities and people who are going through very regular funding grants and trying to keep very, very good schemes going. Will you give a commitment, or try to encourage your colleagues who are running these schemes to give a commitment, that if you've got a three-year spending review and a three-year plan, three-year funding is available at least, or longer term funding available, for some of these fantastic schemes that are happening in our societies, to keep these things going so that they've got some certainty, and so that they can plan as well?

Actually, Chair, we've been doing some really exciting work looking at the grants and the period for which they are awarded, with a view to grants being provided for longer periods, and then looking at what happens at the end of that grant period. We're almost at the point where I'm able to say a little bit more about that, but if you're content I will provide the committee with a further update on that when we've just finalised some of the plans and had some further and final engagement with the third sector on this as well, which will be done very shortly.

I'd be very interested, and I'm sure that my colleagues in the committee would be interested, in hearing that. Coming to the final part of our conversation today—thank you very much for your time again—the previous Welsh Government explored the use of land value tax as an alternative to council tax, and we've touched on that on vacant land tax earlier. But, land value tax is another element as an alternative to council tax. Could you give us an indication of what timescales the Welsh Government are looking towards on reforming local taxes and when these would be expected to be implemented?

This relates to our programme for government commitment to make council tax fairer for all. This is probably one of the, potentially, largest pieces of work that I will have in my portfolio, and one of the, potentially, most exciting and radical pieces of work that we have.

At the moment, we're in the position where we're considering all of the work that was commissioned over the course of the last Senedd. You mentioned a land value tax; that's just one of the options. Other options might include revaluation with additional bands, it might include revaluation with spot values, it might include local income tax—that was also looked at. So, there are lots of options that are there at the moment, alongside additional improvements that we can yet make to the existing system. Despite the fact that we've done lots in that area, there are some choices that we could look at there.

The piece of work at the moment is to explore all of these options and determine the way forward. Some of these—the land value tax you've described, for example—would take at least one Senedd term, maybe two or maybe more, to deliver, whereas there are others that, if we make a decision soon and start working, can be delivered in this Senedd term, the example being the revaluation work, which could be delivered in this Senedd term, with a view to making a fairer system.

So, there are lots of choices and we're really keen to hear the committee's view as to which of the options might be the right option. But, as I say, the timetable and the timescales will depend on which option is chosen. I'm hoping to say something—I have said before Christmas, but I feel like I'm making myself a slight hostage to fortune there, given the seriousness of this decision and the difficult choice that it presents. But I'm keen to get moving soon so that if we make changes that will be done within this Senedd term, we can get on with it. Some of the options also would require primary legislation, so, again, I need to consider that in terms of the programme of work on the legislative side. So, big decisions and big opportunities, but I'm keen to hear the committee's thoughts.

With regard to that, I'll bring Mike in in just a second. Do you think you've got—? Because I've read a few of the reports and inquiries about these different taxes. Do you think the level of data that is collected and that we have and the accuracy of the data that we have in Wales around this area—is it fit for purpose or do we need something better, to help you make those very difficult decisions?

We've been quite fortunate in terms of the data that we've been able to access; some data sets we've been able to access for the very first time. So, we've had the benefit of analysing data that has previously not been available to us. Inevitably I think there are gaps in some of the data, but overall I think that we've had access to good data and had access to real expertise. The Institute for Fiscal Studies, Bangor University and a researcher at Cardiff University have all looked at various different aspects of the proposal, so we've benefited very much from their expertise and insight.

I know Mike wants to come in. There you go, Mike.

Diolch, Cadeirydd. What I'd like to say first is that I actually believe in a tax on property, because it's very difficult to avoid. The second thing I want to say is: put it on absolute values, not on bands, because bands disproportionately affect those lower-cost properties—they tend to pay more.

My questions, though, are on a land value tax. If you bring in a land value tax, how would it be possible for housing associations and councils to build in high-land-value areas, like in your constituency, in Pennard, where the housing association has just built? And how would it not affect, in terms of commercial property, city centres, where city centre land is substantially more expensive than land on trading estates? Isn't land value tax a tax that is very likely to have an effect of stopping people moving into social housing in affluent areas, and is it not likely to drive people out of the city centres on to much cheaper industrial estates?

Well, those questions are absolutely the ones that we need to be thinking about in terms of determining the way forward: which of the possible options that I've described, or a combination of those options or even other options, do give us the greater step forwards in terms of making a system that is fairer but then also delivering on the other things that we care very much about, for example, making housing accessible in communities, improving the building of social housing and increasing the pace of that? So, all of these things will have to be weighed up in terms of determining the way forward, and absolutely the points that Mike Hedges has made would be arguments that would be considered—looking at whether or not the land value tax would be the right way forward. So, all of these decisions are, as I say, really, really tricky ones, but as Mike has just shown, there are many aspects and angles that will need to be considered.

Thank you, Minister, for attending. I'd like to thank you all for attending this morning. It has been excellent to listen to your responses and it's good that we have come together like this to discuss these important issues. We look forward to seeing the budget when it comes out and to scrutinising it in detail. But thank you for giving your time this morning. We'll take a short break now in order to set things up for the next session. Thank you very much for attending.

We'll make a start, and welcome back, everybody. Sorry about the technical issues. One of the downsides of this wonderful new way of working is it just holds things up sometimes. But can I, first of all, welcome you all here today? It's really good to have you, auditor general, and chair, and Kevin with us today. I know it's not long since we did have a little chat, but there's a huge amount of things on the agenda. Members, you've had all of the supporting papers and a huge amount of information that describes the work that the audit office have been putting in for some time. So, colleagues, I’m sure Peredur will be joining us shortly, and I’ll hand back to him when he manages to join on, but perhaps I’ll—. Before I kick off, is there anything Adrian or Lindsay—any of you—would like to say before we go into this evidence session?

Thank you, Mr Fox. I don’t think so. Hopefully, Members are familiar with the team. We’ve all met. Lindsay, as you know, is the chair of our board, and we're joined by two of our senior leadership team—Kevin Thomas who is the executive director for corporate services, and Ann-Marie Harkin who’s the executive director for audit services. So, hopefully we’re equipped to answer the questions that you have for us.

Thank you. How remiss of me I—I didn’t welcome you, Ann-Marie. Good to see you again.

And you.

I’ll kick off with some lines that the chair would have been taking. So, obviously, we want to understand the delivery of the Audit Wales 2020-21 work plan, and we’d like to understand really how Audit Wales reshaped its governance and understand the value-for-money work the programme identified in 2020-21, and learn a little bit around what you learnt around COVID and the learning opportunities or the learning project that you’ve been undertaking.

Okay. Quite a lot of ground to cover there. Perhaps if I just started with a few remarks on the impact that COVID has had on us as an organisation and our delivery in particular, and I’ll ask Ann-Marie to come in later to flesh that out. I’m extremely proud of the fact that you’ll have seen from our annual report that we maintained an exceptionally high level of delivery through 2021. So, we met something like 98 per cent of all our statutory deadlines. Those are essentially for the audit of accounts work that we do, but also a very high proportion, over 90 per cent, of the other audit products that we produce—value-for-money studies and so forth—that Members will be familiar with. Over 90 per cent of those we met the timetables we set as well. And that was after we had reshaped a lot of our work to reflect the new priorities that we saw as a result of COVID. So, Members may be familiar with work that we have delivered in areas such as the vaccination programme; the delivery of the test, trace, protect programme; the procurement of personal protective equipment; and also some major pieces of work on the big financial flows and their impact.

You mentioned too our COVID learning project. That was a different and unique piece of work that we undertook in the early days of the pandemic where, rather than the traditional after-the-event examination, typical of audit work, we used our network of contacts and connections throughout the public service to try to hoover up large quantities of information from colleagues elsewhere in the public sector, to analyse and synthesise all that within Audit Wales, and then to play back any lessons or learning that we saw from that in close-to-real time to our colleagues elsewhere. So, that project has ended now, but we received a lot of positive feedback from colleagues elsewhere on that, and it’s a form of working that I’d like to retain to some degree in the future.

In terms of how this new environment has affected our work, there are some advantages and efficiencies for us. So, for our accounts audits, for instance, where we are able to access financial systems directly and remotely, that is advantageous, undeniably, and clearly we’re not having to travel anything like as much as we did historically. That said, on the whole, we’re finding this is a less efficient way of undertaking a lot of our work. We estimate that in 2021 we saw something like a 20 per cent cost overrun that we've had to absorb as an organisation, and that level of overrun is very similar to that seen by our colleagues in the other public audit institutions in the UK, and, indeed, by the private sector firms. But where that bites in practical terms is just in the reality of the conversations that we have to have with colleagues in audited bodies. We pose them questions, we ask them for information and evidence to support our audit work, and that can prove tricky to do in this environment, for reasons you'll understand.

Thank you for that, Adrian. I absolutely can see that. The heart and soul goes out of organisations when you're not able to interface properly. I recognise the good work you all managed to do in getting all of the annual reports and everything done on time, against all of these challenges. I just wondered—and I think Peredur's back with us, but I'll finish off this question and hand back to Peredur—what work hasn't been completed and what has? Have you managed to cover everything, or are there some things just not physically possible to have got done?

Ann-Marie, I'll kick off, but please come in and flesh out what I say. I wouldn't say we have not done work. So, in our value-for-money programme, what we have done is reshaped the programme to reflect the priorities that we now see. So, some projects that we would otherwise have delivered, we have not done, but that's been out of positive choice on our part, and we focused on the issues that we believe are most important at this point in time. In terms of our accounts work, as I say, we've delivered a full programme of work. One of the ways that we've been able to do that though is by delaying a lot of the planning and preparatory work for subsequent years' audits that we would ordinarily have done by this stage. And so, there's a wave and a backlog of work that is proving very difficult for us to get ahead on. Is that fair, Ann-Marie?

Absolutely; I think that's really accurate, Adrian. I think we would normally be much further into beginning planning for next year's audits, or the 2021-22 audits, than we are currently. So, in other words, 2019-20 was delayed; that knocked into 2020-21. We're still finishing off 2020-21 now. That means we're a bit later starting 2021-22 than we would like to be. Having said that, the staff are working and have worked absolutely brilliantly to try and be as efficient as we can be in the circumstances, and I think we are making good progress.

Thank you, Ann-Marie. Peredur, good to see you back with us; you've taken the pressure off me now. Can I hand back to you? I just, as you'll see, picked up a couple of the points I know you were thinking of raising.

Thank you, Peter, for stepping into the breach, and sorry about the technical difficulties we had just then. So, hopefully I'm coming through clearly. Thanks, Peter, for starting with those questions. One of the interesting things there you said was that doing things remotely is a little bit less efficient than doing things as you've always done them, as it were. I'd be interested just to tease out what's the definition of 'efficient' that you're using. Is that just getting through your tasks on time, or is it in the best use of your staff, or what those elements are? And then, what impact being slightly less efficient has on the bodies that you're auditing.

So, again, I'll kick off, but ask Ann-Marie to flesh out with a more expert eye as well, but, simply put, it's because an awful lot of our work takes longer to do in this way, and when our work takes longer, it therefore costs us more, and where that inefficiency is down to remote working and the impact of the pandemic that we're all feeling, we're not passing that on to our audited bodies through their fees, we're absorbing that ourselves. But, just in practical terms, as I said to Mr Fox, it's the necessary and understandable delay that arises in trying to obtain information and respond to queries, engage with our audited bodies directly. Pre pandemic, we would have been on site, colleagues would have got together, popped next door, had a chat with the relevant people, and moved on. Doing it remotely, unfortunately, just on occasion brings delay into the equation.

There are also some specific aspects of audit work that prove either impossible or very difficult to deliver in this kind of environment, so, for example, physical stock takes have proved very difficult for us to undertake. But, Ann-Marie, anything further you'd want to add?

No, I think that sums it up again. I think with physical stock takes, also, you can imagine one of the things we have to do is verify that assets exist at the end of the financial year, but we worked around it, we managed to take photographs and have the dates of newspapers by the photographs, but what that, of course, meant was that instead of a member of staff being able to just walk around and physically verify an asset, we had to work very closely with the finance teams in the audited bodies to identify the assets themselves, take photos, send them over to us. So, it just all took that little bit longer, but, again, working closely with the finance teams, I think we were able to achieve miracles, really. I think some of what we've learnt throughout the pandemic probably will remain with us.

Thank you. I think you mentioned in the report that you set up in the work programme a COVID learning project, so how successful has that project been? And whether or not you can demonstrate the outcomes of this work. What difference has that made for your audited bodies?

I touched on this earlier. It was a project that we initiated in the very early stages of the pandemic, when, No. 1, we were not able to undertake our typical programme of performance audit work in our audited bodies. We weren't physically on site, it didn't feel to me like a priority for us to be in that space at that time. So, instead, we asked a lot of our staff to use the networks of contacts that they had throughout local government, throughout the health service and the wider public sector to try to gather large volumes of information about anything and everything, to be blunt, to see what lessons people were learning, how they were tackling issues in front of people at the time, and then we synthesised and tried to look for trends, patterns or lessons to be drawn from that and played them back to our partners elsewhere in close to real time. We did that through tweets and Twitter threads; we did it through short blog pieces; we did it through direct phone calls and contacts with our colleagues. So, there was a wide spectrum of output from it, some of it genuinely just little nuggets of information, for instance about how some local authorities were reopening services after the initial impact of the pandemic; a heavier piece of work around the delivery of the free school meals programme across the country and so forth.

So, in terms of feedback from audited bodies, very, very positive, both in terms of the outputs and lessons learned themselves, but also in terms of the way in which we went about the work. So, I think partners recognised the value of having that much more immediate and real-time support and advice from us, rather than the more retrospective approach that would be traditional to our audit work. The project itself has now come to an end, so we're not continuing with it. However, I would like to retain some of that light touch and immediacy of response in a lot of our work.

Lovely. Thank you very much. And, moving on slightly, I think you have the maxim now of, 'self, family, work...in that order' at the forefront of your staffing policy. And part of your key performance indicators involves the employee experience. But, as part of that—. Well, I think it says there that it requires significant improvement. What has it meant to put that maxim into practice in everyday working? You've got the slogan. What does the slogan mean in practice for people, especially when it's not quite meeting the KPIs that you're reporting back?

Sure. I'll say a little about the 'self, family, work' first, and then maybe I, and Lindsay, as chair of the board, could respond on the KPI performance. 'Self, family, work', I assure you, is more than a slogan. It was something that, at the very start of the pandemic, I felt very strongly about. We all were alarmed and anxious about the pandemic, especially in those early days, and it felt to me the right thing to do to try to signal to the organisation that I wanted work not to be a further form of stress and anxiety for them, but actually, as best we could make it, a form of stability and support for people. And so we started to use this maxim, and we continued to do so. In fact, in my weekly message to the organisation just last week, I referred to it again, because I have been making use of it because of some pressures that I have been feeling personally.

In practical terms, we've done a number of things. Perhaps the most significant is that we created a dedicated time code for colleagues, so that those who have to record how they use each hour of the day for us in order to inform our fee setting did not feel under pressure if, for instance, they had caring responsibilities, if their children were having to home school when the schools were closed, and so forth. So, we made it very clear to the organisation that if colleagues were simply unable to deliver what they otherwise would have done, that was okay, and I didn't want to put them under further pressure to make up for that lost time through the night, and so forth. Colleagues made use of that, to a degree, and clearly, from feedback that we received, that was greatly appreciated. It was not abused, and you can see that from our overall performance and delivery.

In other things that we've done, we had quite a significant programme of learning and development and engagement activities that was centred around supporting people through the remote working experience and the pressures of the pandemic, and a whole raft of social activities to lighten the load and get back some of that heart and soul, as Mr Fox said earlier, that we ordinarily would have had from the organisation.

You asked, I think, essentially, 'Why hasn't that been reflected in your KPIs?' Well, I believe it has. The KPIs we're looking at in this report were from October-November 2020. We have two employee experience KPIs there, and one is about our engagement index, which is at 70 per cent, which is in the top decile of the 100 or so organisations that undertake the equivalent civil service people survey that we do. That's an extremely high level and speaks to a strong, healthy culture within the organisation. The other indicator is extremely demanding, and it's what I'd describe as a stretch target for us. To see us in the upper quartile of every one of the 10 themes within that survey is exceptionally demanding. So, I'm not surprised we're not there. I wouldn't anticipate that we would be there this year either, because that is an exceptionally high level of performance. But, for me and the board, I think we like that, because it means that we're always going to be pushing ourselves even when we improve. Lindsay, you'll have more to say, I'm sure, from a board perspective.

Yes, absolutely. I think Adrian's referred there very clearly to the fact that the board have been very keen to see this as something of an aspiration when we're looking at employee engagement and the employee experience. So, again, we're mindful of the fact that we've not hit that target, but we're not overly concerned. What we then want to make sure as the board is that we understand what's being done to continue to work towards that and work towards achieving that target. And I think, on the learning and development side, it's been clear that we wouldn't necessarily need to ask; we've delegated this down to the remuneration and HR committee to kind of keep an oversight of the progress against that and what's being done in the learning and development space and how that's being moved forward. And that's because that clearly is something that's been highlighted through the staff survey. So, we're hearing on a regular basis what's being done. We clearly won't know fully until the next staff survey takes place about, ultimately, what difference that's making, but we are getting feedback on a regular basis in that area as well.

Just touching on the staff survey before I move on to Rhianon, one of the measures in there is on how change is managed within the organisation, and it appears low at 26 per cent. With you running a change programme at the moment, and we've heard about some of that stuff and read it in the paperwork that we've received and in conversations with you, how do you view that result, and how do you think that can be addressed?

It's not where we want it to be, very clearly, and I think there are myriad reasons for that, looking back in time, but we're in the here and now. We've done a number of things to strengthen our performance in that area. A couple of years ago, we established a small change team that, for the first time in Audit Wales, brought in some specific expertise in project and programme management delivery. First and foremost, what that has done so far is to give us a much clearer and more transparent view of the various change projects and initiatives that we have in the organisation, and the resourcing implications that flow from that. You'll be aware, too, that, as part of the reshaping of the senior team in the organisation, we established a new role for an executive director of communications and change, and her focus very much is in that space to give some real leadership and clarity to our change agenda.

Some of the significant things that we have been delivering in the last year that, from my perspective, appear to have gone well, and so I hope would be reflected in future surveys, are around delivery of some new IT platforms for both strands of our audit work. Those have both progressed and delivered to budget and time. I'm very pleased with that. And we've also done a lot of work, firstly, around the potential reshaping of our physical estate as the leases come to an end, but through the pandemic, obviously, that strand of work has morphed and grown significantly as we start to engage the organisation in thinking through what will be our future model of organisational delivery in this environment. So, some really hefty change pieces on our plate at the moment.

I'll bring Rhianon in now. Thank you very much, Adrian.

Thank you very much. It's been a very challenging time for all organisations, public sector or otherwise, and, obviously, there is recognition of that. There has been big change, hasn't there, this year, and I suppose my first question, if I may, Chair, so that I can understand and scope where we're at, is a question for Lindsay Foyster in the board. Obviously, it's encouraging that there are additional women in the directing team, but it's still low. In regard, then, to the decline in learning and development, change management, pay and benefits, performance management, how have those been effectively challenged within the board because, obviously, they are significant?

Yes, and I would say—and we'll come on, possibly, to the board effectiveness review—that one of the things, because we can be clear about what we believe we need to do, is that it's very helpful when we get external assessment of whether we're doing the right things, and one of the things we've had flagged up to us is that we do take our assurance role incredibly seriously. So, our approach on our regular performance reporting that comes into us is that we work with the leadership team to flag up to us those areas that they consider are the things that might not be keeping them awake at night, but really are the key things for us to be focused on. But that doesn't preclude, whether it's the non-exec board members or the elected employee members of the board, being able to look into and drill down and explore other areas that may be of concern to them. So, I believe that we do have a vigorous approach around that at board.

We also, through our committees, whether it's relevant to the remuneration and HR committee or through the audit and risk assurance committee, can go into further detail on areas that may be raising particular concern. And, as Adrian has said, I think we also are very aware of where it may be that our targets have been particularly stretching. So, we want to look at continuous improvement, we want to look at how we can further improve what we do, and we would be very mindful as well, then, if there are areas where we feel that our performance is dropping.

I'm conscious I may be straying, Lindsay, into other questioners' areas, and I'm going to leave it at that, if I may. I just wanted to touch upon that if I had the opportunity.

So, in regard, then, to the questions that I have to ask or explore around, one of the transformational changes would have been your new team, and in regard to the remits for the new executive directors, and in particular the executive director of communications and change—there was no previous role there—how would you say you came to that decision, that that was an important thing to do?

Thank you, Rhianon. Yes, absolutely—so, thinking back, I formally initiated that restructure process in February of 2020, and there were two main drivers for me at that time. No. 1, I thought there was scope for rationalisation of the team—it could be smaller than it had been. But perhaps the more significant one is the one that you've identified, namely that I wanted a senior leadership team that reflected the new priorities that I and the board had established for the organisation. So, perhaps the single most striking feature of those new priorities and ambitions for the organisation was the much greater focus that we now place on our external engagement, on increasing our impact, our visibility, as well as driving forward some positive internal change. So, it was those factors in particular that shaped my thinking about the need for that new post that you identified.

So, in that regard, bearing in mind that the staff survey results are maybe slightly out of sync, this new post was post the staff survey? Because, obviously, there are some serious issues there in terms of those areas that I've mentioned. If that were to be the case, you could actually say that that is not a successful journey at this moment in time. Can you just clarify for me when your staff survey took place compared to the appointment of this new position?

Of course. We undertake our staff survey—we're just about to kick off this year's next week—in October-November each year. Like I said, I initiated the restructure process in the February of last year. Initially, I had wanted to get it completed by the summer, but, of course, we were overtaken by the pandemic, and in March went into lockdown. So, it felt the right thing for me to take longer over the change to give the organisation some continuity of leadership through those early months—

I'm sorry to interrupt you, Adrian; just so that I'm clear and the committee's clear, the new position was in place after the staff survey results that we're interpreting here.

Absolutely. The current postholder joined the organisation at the very start of this calendar year, 2021.

Thank you. I'm sure that others will come on to that, because the impact on staff morale seems to be heavy and, obviously, it's very difficult to dissect the pandemic and the new way of working within the organisation within that. What do you feel staff morale is at this moment in time? Obviously, that's pertinent to the change management that's occurred.

To take the change management issue first, undeniably it's a significant feature, but it's not the dominant feature in staff morale or performance. I think we need to keep it in perspective. In terms of the hard data from our staff survey that was conducted in the autumn of 2020, so in the thick of the first period of the pandemic, our performance in my view held up remarkably well. As I said, the 70 per cent engagement score is exceptionally high. A lot of organisations would love to be able to see that.

On morale, we get a more regular sense check of how the organisation is feeling through some smaller pulse surveys that we've been conducting throughout the pandemic period. So, those gauge a number of things but, in essence, how people are feeling. What we have seen is, fundamentally, that morale has held up, but there's undeniably been waves that have been affected more by the wider environment—the lockdown situation, schools closing et cetera.

The other key feature that has come from that has been around workload. Over the last six months especially, we've seen staff reporting very high and prolonged workloads, higher than they feel they can comfortably deal with. Ordinarily, we would see peaks and troughs in people's workloads—that's to be expected—but working in this way for a prolonged period through the pandemic has meant that those peaks of workload are higher and more sustained. And that goes back to the point I made earlier about the backlog of work that is flowing through the system.

So, in a nutshell, I'd say given the pressures that every organisation is facing, Audit Wales has held up in terms of staff morale as well as any, I suspect, but that's not to suggest that we're not without very significant challenges.

Thank you. I don't want to go into too much detail, but it does say here on page 266 that Audit Wales is above the civil service people survey median for resources, workload and pay and benefits. I just thought I'd highlight that. So, in terms of consideration, then, for delaying implementation of the new structure, did you consider that in terms of the pandemic? A simple, brief answer—

The brief answer is: yes, I considered it, and yes, I delayed it. I had wanted to do it in six months; it's taken me a year, and that's entirely because of the impact of the pandemic.

Thank you. In regard, then, to the cost-benefit analysis that was undertaken prior to the restructure, has there been any change to that in terms of where you are?

Yes, for the better. At the start of a process like that, clearly, we would have made provision for the maximum potential cost that we could foresee. In reality, we have not incurred the same level of cost that we could have done, but we have achieved the benefits in terms of having exactly the structure and the personnel in place that we wanted to see. So, yes, a positive impact there on the cost-benefit analysis.

Thank you. In regard, then, to your new change programme team and the prioritised portfolio of change projects—there are some very fancy titles there—what change projects, then, have you started or have you finalised? I'm trying to encapsulate, from what you said earlier, the fact that you've been struggling with the audit work in regard to the pandemic and the new way of working. So, in regard to that portfolio of change projects, and obviously we're talking more strategic here, have you started any of those? Could you give some sort of scope to the committee in regard to where you're at with that?

There are two elements to it. There are some nuts and bolts projects that aren't about fundamental organisational change, but they are necessary projects that we need to implement. I mentioned previously the development of two new IT platforms on which all of our audit work is based. We have a project under way, too, to put in place a better staff resourcing and time recording system, which Ann-Marie has been heavily involved in. But those are operational projects; they're not about fundamental organisational transformation. To answer your question, Rhianon, the key themes in that space, I would say, are about our future operating model. We're engaging staff a great deal at the moment in trying to work through what our way of working will look like in the future, so getting back the best of what we have missed from the pre-pandemic days whilst keeping all that is good from this new remote way of working. That will fundamentally change our operational model. We're in the process, too, of developing a five-year strategic plan with the board and the organisation at the moment, which will signal no great fundamental change of direction for the organisation, but will, I hope, give a much clearer prioritisation of the key points of change and transformation that we need to undertake over the next few years.

I think it may be useful, with the time available, Chair, if there is perhaps a note that you could send to the committee in terms of that programme of change, further to what you have just stated, Auditor General. That would be of use so that we can scope what it is in terms of the model.

Before I finish, in terms of the pandemic and the effect that it has had on all organisations, which is acknowledged, you have gone through the eye of that storm as an organisation, and obviously that understanding will be there when you're doing your audit work in the future. How will that give your lens to the organisations that you are auditing? Will it have an impact? Will it have an effect? Because, obviously, in terms of your KPIs, the knock-on effect is there for all organisations and you are the gold standard in that regard. Is there going to be any impact on the way you carry out your work, in terms of your ability to understand the difficulties of the organisations that you will be auditing?

That's a great question. A lot of our work is extremely prescribed. In our audit of accounts we have to follow internationally agreed standards and procedures. That is what it is, and we have to do that work in that way. Where I think we will see, and are seeing, a different approach is in more of our performance work. So, I touched on a very different approach that we took in respect of our COVID learning project earlier, but we're seeing that desire from Audit Wales to work alongside organisations as best we can whilst respecting our need for a degree of distance and independence. We're weaving that into our audit programme far more than we have done previously. We're working very closely, for instance, with local authorities and health bodies to help them through the process of restart for their services, and helping with the risk assessment and development of their plans to move forward. We're getting a lot of positive feedback for that approach. And the final thing I'd say, which I think is one for me in particular to have in mind, is that when we're auditing we need to audit through the lens of organisations that have been through this period. It's easy, with the benefit of hindsight, always to criticise. Where we see things that need to be called out, we will do that, but, at the same time, we understand, just as all organisations have had to do, that at times during the pandemic exceptional measures needed to be taken. Some of what might have been usual practice, in terms of risk management and governance, for a period had to be altered.

Okay. And a tiny question: in regard to no absorbing of fees, which you mentioned—which was mentioned at the very start, Chair, if I may—and in regard to the emergent model that you're talking about, I would be seeking some reassurance that there wouldn't be any will from the audit committee or the board in terms of any additionality of fees being passed on to clients. You did state clearly at the beginning that that's not your intention.

No. We charge fees for the work that we do, and we're very heavily prescribed and governed both in our need to do that and also in the degree to which we can do that, so we certainly can't charge any audited body more than the full cost of the work that we deliver. In terms of the work that we deliver, we deliver work that I am required to deliver by statute.

What I said earlier was that through the pandemic, because we have seen significant cost overruns in a lot of our work, where those cost overruns have arisen just because of the impact of the pandemic and the impact of remote working, we've not passed those on to audited bodies; we've absorbed those ourselves. But, fundamentally, as we move forward, we will cost the work and we will charge audited bodies fees for the work that we deliver.

Okay; thank you, Chair, for your indulgence.

Thank you, Rhianon. Peter, I'll bring you in now.

Thank you, Chair. I'm conscious that time's moving on, so there are just a few little points that I wouldn't mind talking to. Lindsay, obviously, it's been about 12 months now since you started in your role—well, nearly 12 months since you first joined the previous Finance Committee. I just wondered whether you've got any reflections on your first year in office, if you like.

Yes, indeed; well, as we've alluded to all the way through this conversation, it's clearly been a very unusual and challenging year. I think one of the positives has been that I was able to provide continuity through that level of upheaval and turbulence, so I think that's been a positive aspect of it.

As well as the pandemic, and partly because of the pandemic, we've had a big agenda to be dealing with as an organisation. I think the board has looked at how it can work effectively in that virtual space; I'm sure, as a committee, you've been challenged with those kinds of considerations as well.

So, in dealing with looking at, as we've said, staff well-being primarily, we've really thought about how our decisions impact on—how we can mitigate any negative impact on staff well-being, and thinking about, as Adrian's talked us through, delivery of the work programme.

I think one of the other important aspects that is very different now is the fact that, again, as we've mentioned, we've established the new executive leadership team, so we have in place all of our executive directors. There's been work being done there by me personally, but also by the board more broadly, in terms of building those relationships, not only with the individuals but as a collective leadership, working relationship between the board and ELT.

I think a good example of where we've worked really well together in those early conversations and early stages is about thinking about our five-year forward work programme. We've got our vision and ambitions; we're not moving away from those, but we are putting the substance behind what this will look like in five years and what it's going to take us to get there. So, that's, again, another big piece of work we've been involved in.

There are other aspects. There's some reference, probably, at some point around the travel and subsistence review that we're undertaking with staff. That's taken up—it's the biggest internal issue that we've been focused on as a board—a lot of work in supporting internally and scrutinising the work around that, and the staff task and finish group that was working on that. Adrian's already mentioned about some of our major transformation programme—so, thinking about future workplaces as well. So, it's been a big agenda, a big agenda. But I think one of the things that's really struck me, if I look back over the year, is about that adaptability and the resilience of our staff—I think they've been amazing. And I know they're not alone in the public sector in having to deal with unprecedented times, but I think, for me, seeing the commitment that they've had to the work of Audit Wales, and just recognising the importance of the work that they do for the sector—.

Thank you, Lindsay, for that insight, because it's been a challenging year for anybody to take on a new role—so much turbulence, so much of a work programme as well. I just wondered how that new executive team—. Has the governance around that changed significantly from the old governance set-up?

Well, the terms of reference for the new ELT have been updated, to reflect that you've now got a core ELT with the executive directors. There was staff input directly into ELT previously, and Adrian will say something in a minute, I think, around those changes, and how we're currently getting input from staff at that level. But just very briefly to say that the schedule of delegation that the board oversees, alongside Adrian's schedule of delegation, they've been updated to ensure that there's clear reference to the new ELT and the new executive director roles. But, Adrian, I don't know if you want to say something on the staff input.

Thanks, Lindsay. So, from my perspective, much clearer now in terms of governance at ELT—myself, three executive directors, and everything that is delegated to me and onwards to those directors is now crystal clear in where the accountability lies. Lindsay mentioned the staff input in particular. So, my executive leadership team compromises myself and those three executive directors, but we have established a staff panel of seven individuals, drawn from across the organisation, of all different grades, who shadow our work, who are privy to all of the papers and discussions that we have, join us in our formal meetings, and have direct input to that. So, it's early days—we've only had that in place for two or three months—but the signs are positive so far.

Well, that sounds good. Lindsay, you talked about the travel and subsistence review, and I know, Adrian, you spoke to us before about some of the turbulence that that might be causing amongst the staff complement. I just wondered if there was any further information you'd glean now around the practical matters, such as how policy will be implemented, and why that review was being undertaken. How is it panning out?

We're very much in the thick of it at the moment. So, you'll be aware that this dates back quite some time—we had a report from our external auditors, RSM, Finance Committee-supported, in 2019, which looked at our travel and subsistence arrangements pre-pandemic. And their report demonstrated very clearly that it was no longer delivering value for money. In large part, that was because of a very significant element of it being driven by a fixed allowance, a travel allowance, of £3,350, which is paid to about 200 of our staff. We've indicated to the organisation that we believe we need to remove that allowance, because of the value-for-money arguments associated with it, but are wanting to reinvest a significant portion of the savings that we derive from that back into remuneration or a revised T&S system for the organisation. To develop the proposals for the future, we established a staff group, and gave them autonomy to design and come up with proposals for what that future scheme should look like. They've done that. I'm happy to say that the board has endorsed, more or less en bloc, the proposals that they made, and those proposals now form the centrepiece of a package of reforms that we've consulted on with staff. So, we're just at the end of that process. We've completed a six-week consultation with staff. Our focus now is on deciding how most positively and constructively we can respond to the feedback and concerns that staff have. And we've also opened more formal discussions and negotiations with trade unions. And so, in the next few weeks, we'll be taking that forward with them. I hope it will lead to a ballot of our trade union members in November, and clearly my focus, and the board's focus, at this point in time is absolutely on trying to put forward a package of reforms that can garner sufficient support from trade union members.

For me, as auditor general—[Inaudible.]—

I think we're losing you a little there, Adrian.

Yes, we're losing you, Adrian. [Interruption.] No. No, I think Adrian's frozen. Maybe, Adrian, if you turn your camera off and see if that helps. No.

I think we might have lost Adrian. Perhaps Adrian's colleagues will be able to—. I've only got a couple of final points, really, but that was really interesting—to get a flavour of how that task and finish group was coming—. Adrian, you might be back with us perhaps.

Maybe. We're plagued with technical difficulties today, unfortunately. Ah, I think you're back.

Is that any better? I got kicked out and I'm back in. I'll be very brief. Shall I keep going?

Yes. Unless Peter's got a final question to come through, so I can go to Mike, then.

I had a couple more points, Adrian, but thanks for that insight into that piece of work that's going on. I wish you well for that and however that finalises itself. I had just a couple of final bits. I wonder if you could give us a little bit of an update on the proposals for a commission that was going to look at an independent review of your board's effectiveness. I wonder if there's any update on what's happening with that commission.

Yes, Chair, I'll answer that one. So, that was our external board effectiveness review. We make a commitment to follow good practice around that and that, as well as having an annual self-assessment, we do then engage with an external consultant to come and do an independent evaluation of our board effectiveness. So, that is nearing completion. The work has been completed and we have a final draft report that is currently under review and being finalised.

I would just say, to give you a very quick summary and a flavour, that the overall assessment has been very positive—it describes us as an effective board with a number of clear areas of strength, but also recognising that we are very keen on continuous improvement and so it also highlights areas for continuing some of the development work that we're doing, but also some areas for further development. And as a result of that, we will establish a prioritised set of actions, following on from the recommendations that have been given to us.

So, in terms of the key strengths, just very briefly, the assessment is that we have capable leadership of the board; that the relationship, which is a crucial one, between myself and Adrian, is very positive and that the relationships between the board and ELT are positive; that the board is able to draw on a wide range of skills and diversity of thought, which is, again, very important in terms of being able to work effectively and to add value and also reflecting, in a way, where staff are at—that all board members have a very strong commitment to Audit Wales and the work that we do and that we take, as I said earlier on, our assurance role very seriously.

In terms of further development, I think one of the things that shone through is not surprising: that it would be really good for us to get together, face to face, as restrictions are enabling that and as they’re easing, so that we can do some more team building— we've had two new members during this year; we’re going to have new members on an annual basis for a number of years—and so finding a way in which we can build into our work programme regular face-to-face development time. We will include the whole of ELT in that as well so that we are building the relationships with the senior leadership team as well as through the board.

The need to think about how we engage, continue to engage and develop our engagement with staff and what our role is in adding value to engagement externally with external stakeholders. And then, just in terms of board processes and how we actually operate as a board, can we become even sharper about making sure we’re thinking and discussing the right things at the right time, that we have really focused papers that enable us to do that, and that there are clear expectations of the board and from the board of ELT? And enabling us, when we do come together, to explore our ambition to be a model board. What do we mean by that? What does that look like to us? What's our shared understanding of that? And what's our shared clarity of purpose within the statutory framework that we have to operate to? Just to give you a flavour.

I think Rhianon has a comment on that, so I'll just bring her in quickly then.

Sorry, just very briefly. Before the dialogue from Lindsay I was going to ask whether it's possible for that to be presented to us as a scrutiny committee or some sort of feedback formally. But—

Yes.

That was my question. Thank you.

Yes, absolutely. Once that report is signed off, then that is something that we'd be looking to share.

Thank you. Peter, I think you've got one more question, have you, Peter?

Yes, just one thing, and for once I'm almost going to feel like an auditor in this question, because I've always been on the other side in many years gone by. I notice from RSM's audit finding that the board operated inquorate in May 2020, and I just wonder if you could give us some reassurance or give us an insight to what decisions were taken at that meeting and how and why that situation occurred, and what measures have been established so that doesn't happen again.

Absolutely. Absolutely. It was—. Notwithstanding the issues that we've rehearsed previously with committee or predecessor committee around the quorum rules, that meeting was a meeting in May 2020 that was an extraordinary board meeting that we called as an emergency to understand Audit Wales's response to the COVID-19 pandemic. So, it was an unusual and extraordinary meeting in that sense, and there were no formal decisions made at the meeting, because of the nature of the meeting, and the non-executive member who was unable to attend was unable to attend due to serious illness. So, it's not something that we can always promise to avoid because sometimes, particularly if a non-executive member is unable to be there for unavoidable reasons, we do have to look through the agenda and the items and look at what items are for noting and what items are for decision. We do try and adjust the agenda around unavoidable absence, if you like. But it's the need to have the non-executive members in the majority at a meeting, and so we operate that by enabling one of the employee members to stand down, but be in attendance at the meeting. We've had a change to our terms of reference to reflect that. So, that shouldn’t be a problem going forward, but it does tie back into one of the proposed amendments around the Act, which I know we've discussed with you in our briefing session, and your predecessor committee looked at and has recommended to take forward at some point.

Thank you, Lindsay, for that clarity, and that makes absolute sense. Okay. Thank you, Chair.

Thank you. I'll hand over to Mike now, and we'll try, hopefully, to finish by midday on this session, but I don't want to stifle Mike with his questioning, so over to you, Mike.

Thank you, Chair—no pressure. [Laughter.] There have been a lot of changes in your budget, obviously, due to the pandemic. How many those do you think are going to carry on? Will you actually have lower costs, for example, for accommodation, as you need less accommodation? Do you see some of these changes moving on? And, whilst your supplementary estimate expected income fee was higher than the actual, and you've also talked about bringing everything in-house rather than having it in the private sector, how many of these things do you think are going to carry on as you planned them, and how many are going to be changed by the pandemic?

Mike—

Thanks, Mike. Kev, do you want to pick that up?

Yes. Thanks, Mike. We made a number of savings during the pandemic. One of them in particular was around a reduction in travel costs. Adrian's referred earlier to the fixed element; there's also a variable element. We saw a significant reduction in that. Into 2021-22, we've also got an ongoing reduction in travel costs, and we'd anticipate there's real potential to keep those lower in future than they were at pre-pandemic levels. We've also had a number of other changes during 2020-21. We've looked at our procurement activity and we've secured savings through smarter procurement of supplies and services to the organisation, which we see working through going forward.

In terms of accommodation, which you touched on, we're currently reviewing our estate strategy. I think, when we started looking at that at pre-pandemic times, we anticipated needing less office accommodation at our three main sites across Wales. Clearly, a lot has changed during the pandemic. We've been trying out new ways of working. We've also been thinking about our estate. We took the decision as a board in the summer to extend the lease on our Cathedral Road office in Cardiff by one year, so that we could explore new ways of working. But one significant development for us is the availability of our audit rooms. We've got around 20 audit rooms that are used at client sites across Wales. It seems that some of those may no longer be available to us as things have changed, not just for us, but of course for our audited bodies. We're working through that at the moment, but it may actually be, that if those are unavailable, we might need more office accommodation in future. So, that's something that we're keeping under review as part of our estate strategy, and we'll be reflecting that in that five-year rolling programme that we include in our estimate.

Mike, to pick up the second part of your question—I think that was about bringing our audit work in-house—I'll ask Ann-Marie if she could respond to you on that.

Thank you, Mike and Adrian. Yes, we brought the work back in. We brought some significant work in: the health boards, local government bodies and community council work as well, for 2020-21 audits. We did that, obviously, with board approval. It was the best approach cost wise. So, the work is being done currently in-house, but that's something that we keep under review. So, we will continue to review that and see how it goes, but currently that seems to be working well for us as an organisation.

Thank you. My final question is: on the restructuring, voluntary severance payments, I understand, were made to two of the three people who left, but not to the third. Am I right that that's the case, and if it is, why did the third not get voluntary severance pay?

You are right, Mike. So, all the details are included in our report and accounts. So, severance payments were made to two departing members of staff, and not to the third. All of those decisions were taken within the framework set by the civil service compensation scheme, which sets not only the level and limit of any payments made, but also the eligibility criteria for payments.

I know it was in your accounts, but sometimes things drift from one year to the next, don't they, so although you make a decision in one year, the financial effect of it shows in the following year. That isn't the case; the third person was not eligible.

Correct.

Fine. Thank you very much. Back to you, Chair.

Well done, Mike—brevity. Thank you ever so much, Mike, for that. And thank you for coming this morning, Adrian, Lindsay and the team there; thank you for joining us. Just one quick question to finish off: how much are the resources that you've put forward to COVID-related projects, what the nature of that work is and how are your staff equipped now to undertake that work in your plan, going forward? So, obviously, some of the resources have been put into COVID-related projects, how do you see that playing out over the next few years, I suppose? Or maybe we can pick that up in your next meeting when you come to see us about your—

About our forward plans.

Yes.

If you'd like us to address that then, for the sake of time today, I'm very happy to and we'll make a note and come prepared to do so.

There we are. If we look at that in—I think you're with us in November, to look at that again.

Thank you for attending.

Thank you ever so much. Sorry about the extension due to the technical issues that we've had, but thank you very much for making time available today to come before the committee.

Diolch yn fawr iawn. We will drop you a note on the issue that Rhianon requested, and I apologise for my own connectivity. So, we'll maybe include in that what I would have said in respect of the T&S review for the sake of completeness.

Lovely. Okay.

I propose in accordance with Standing Order 17.42 that the committee resolves to exclude the public from the remainder of this meeting and for meetings in the future until we hear differently. Are all Members content with that?

Yes, content.

Diolch yn fawr. Thank you.