Finance Committee

Welcome back to this meeting of the Finance Committee. We've had a change of personnel around the table, and we have different people with us too.

Adrian, you're back for this session. Could I ask your colleagues to introduce themselves for the record?

Morning. I'm Dave Thomas, audit director at Audit Wales.

Fantastic.

Bore da. Matthew Mortlock, audit director at Audit Wales.

Fantastic.

A warm welcome.

A warm welcome to you, and thank you for coming in. A slightly different aspect of what we're doing, looking more at the work that you do, how that feeds into scrutiny of the Welsh Government and how money is spent in public service around the country. I just wanted to start by asking whether you've got any insights into productivity in particular in the public sector, because that's something that we've decided as a committee, when looking at the budget this year, is one of the key elements. And with having a two-stage budget process, it gives us some of that space to be able to do that.

So, in your report on the 'Financial sustainability of local government', you echoed the view of the National Audit Office's Comptroller and Auditor General that

'promoting productivity and making public money work harder should be focuses for the whole public sector.'

Through your work, how much of a focus do you see in that area?

Diolch, Caderydd. Just to extend the introductions, Dave leads all of our performance audit work in the health sector, and Matt in the remainder of the central Government sector, so they're the two most expert people I know on the work that we undertake. So, I'll be drawing on their expertise a lot this morning, I suspect.

You're right: productivity, I think, is absolutely key to the situation that we face in the public service at the moment. Over the last few weeks, I've been recording some material and preparing some speeches that I hope to give over the next few weeks and months, reflecting on my experience over the last seven and a half years, and, at a headline level, I would say that our model of public service delivery is unsustainable on its current trajectory. Bluntly, demand across all areas is outstripping our ability to increase funding, and so increasing public sector productivity and getting better value for money from the resource that we do have is absolutely central to squaring that circle.

You'll have seen, from some of the examples of work that we provided in our submission, some of what is needed, I would say, from our perspective, is fairly unglamorous, but vitally important, a focus and investment in some of the building blocks that any public organisation requires. So, our investment and development in the digital space, and workforce—workforce issues come up time and time again through our work as a barrier to delivery—and also not only capital investment, but investment in routine maintenance and upkeep. My observation would be that over two decades of really tight budgetary settlements, these are areas that have been somewhat hollowed out and neglected, and, unfortunately, we're now paying the price of that. So, there is no simple fix, from my perspective at least, for the productivity question. It's going to require year-on-year investment and focus on some of those basic building blocks as a starting point.

Mike.

Diolch, Cadeirydd. In England, the health Minister has said he expects a 4 per cent productivity improvement in health during the next year, and areas that have been identified are artificial intelligence and improved technology. Do you have any views on that? Do you think we should have the same in Wales?

I think it's perfectly fair for Ministers to set productivity targets. Essentially, they are doing that naturally through the budget-setting process. I think that the potential productivity gains from technology and artificial intelligence are undeniable. They are self-evidently there, and Audit Wales and every public organisation are starting to dip their toe into that water.

I would be wary, though, of viewing AI and digital as some magical solution that will solve the productivity question, because what we see repeatedly through our work is that many organisations are operating from a pretty antiquated position, in terms of their IT systems and so forth. We did some work in local government just last year that concluded that only around half of local authorities have an up-to-date and robust digital strategy in place, and many of them are not clear about how they are going to monitor, deliver or resource those. In the NHS, Dave could come in and give you some concrete examples of some of the challenges faced there.

So, going back to my opening point, unless we address the basic building blocks of the technological infrastructure of our public sector, and address some of the data challenges that come with that, then artificial intelligence will not go as far as it can in terms of improving productivity. But, Dave, you have a much closer grip on the NHS in particular.

Yes. Thanks, Adrian. I certainly endorse all that, Mike, and I think that it also depends on how you measure productivity as well. A 4 per cent increase could be in lots of different areas, but I think, undoubtedly, there are opportunities for technology and AI, in particular, to help. That's done jointly with the service and the patient, of course. It's not just about implanting a new bit of software, and instantaneously you get more productivity. It's about the whole system working differently.

It's also about ensuring that AI is safe to use as well. Actually, if we put too much reliance on it, you've got to quality assure it and make sure that it's actually doing the thing that it's supposed to be doing. I think it's worth noting, of course, that a ministerial advisory group reported earlier this year, in Wales, to the Cabinet Secretary on productivity and performance. It really identified, going back to Adrian's point, some quite basic issues.

So, before you get anywhere near the technology and AI, there are some basic care pathway, everyday routine NHS activities that need to be better: following recognised good practice; following evidence-based good practice; supported by stronger accountability and clarity around, if targets aren't being achieved, why. So, all those factors, I think, come into it when you look at productivity. It's not just about technology.

If you look at the digital challenge facing the NHS in Wales, it is significant. There's a lot, as Adrian said, that needs to be done with a finite pot of money to support it. So, there's a very clear need for prioritisation, as well as building the skill set in the service to use that technology, which probably isn't there at the moment either. So, beyond that sort of statement, Mike, there are quite a lot of important things to unpack.

Based on what you're saying there as well, and you touched on it, and I'll come to Matthew in a second, and maybe more so in your field rather than yours, but I suspect it would be in both—. From a data point of view, one of those building blocks is getting data that is meaningful and consistent across the public sector, so that you're asking the right questions, but you're getting the accurate, meaningful data to be able to actually understand that.

So, setting a target is all well and good. I'm a fan of targets in general, because it's more about measuring where you're getting to, or trying to get to. But if it's based on flawed data, then you're flogging a dead horse. So, it's that aspect of it. Could you comment on that sort of data infrastructure that we have? Any of you, really. Matthew.

I think you're getting into the space of kind of evaluating value for money as well. Obviously, that's a lot of what we do through our work. A consistent theme through lots of our work over Adrian's tenure has been around whether public bodies are themselves able to tell a clear story about value for money, based on good data—not just quantitative data, but also service user experience, importantly, and that perspective of the person receiving services. So, it's a consistent theme throughout our work.

If we took an area like active travel, which Mike will be familiar with, which the Public Accounts and Public Administration Committee has been looking at, one of the themes there is, yes, increased investment from Government in active travel, but not at the same time putting in place the building blocks to be able to evaluate the impact of that funding, and to be confident that it's delivering value for money. Nobody would necessarily dispute the merits of investment. We know the potential benefits that might arise from active travel, but from our perspective, it's also important for Government and other public bodies to be able to tell that story themselves of what they're actually achieving with the money they're spending.

And there was a similar theme. You may have seen the report that we published last May on the Wales infrastructure investment strategy. Looking at the Welsh Government's capital investment, it was well over £3 billion every year of capital investment. In our view, there were some positives around that strategy, around a clearer focus on the well-being goals and the outcomes that Welsh Government and public service could realise from that capital investment, but there was still a message there from us around the level of ambition from Government in really thinking around how do we maximise all of the wider benefits that we could potentially get from this spending.

That theme has played into our—. We call it our 'No time to lose' report that we published in April, our statutory report under the Well-being of Future Generations (Wales) Act 2015. Again, a big theme in that report was around the assessment of performance and delivery under the Act. I think we made a recommendation in that report about the Welsh Government taking a fresh look at how it assesses and tracks performance in delivering against the wider well-being goals and the national indicators. We see quite a bit of inconsistency at present in how bodies are tracking their own delivery and performance against some of that wider agenda as well, when you come top-down from the well-being indicators.

That was exactly the point I was going to come on to, really. We see in all parts of the health service, local authorities, that the quality of performance management is not robust enough, perhaps, because when you've got fewer resources to do more, the need for good performance management and the measurement of targets is even more fundamental than it might have been. In my own experience, if one part of the performance management cog stops, it all tends to stop and then it gets behind.

One of the things I've been quite concerned about when I've been in this place for a few years is that, sometimes, it's very difficult to see targets and to be able to challenge targets. You don't get to see many Government delivery targets being scrutinised—it's done in-house—and I worry there's a lack of scrutiny, and certainly in health boards, a lack of political scrutiny of performance management and delivery plans. So, how do we know they're doing the best they can with the money they've got?

I completely agree with that, Peter. The data point that Matt identified is critical. We struggle to come to a conclusion on whether policies and programmes are delivering value for money because the data simply isn't there. Now, if we're struggling, that says that organisations can't tell that, can't answer that question either. When resources are tight, we've got to make choices about where we spend money, and you've got conflicting demands, both of which will carry merit, but you have to make some sort of choice. How do you make that choice from an informed position unless you can rely on the data that you have to hand?

I think your point about the NHS and more generally is an important one too. What are the sanctions for organisations when targets are missed? Dave and I were chatting yesterday about the NHS, where, for several years now, health boards have been failing to meet what is a statutory obligation for them to break even over three years, but I'm struggling to see what sanction is applied when organisations miss targets like that. If anything, the sanction is that some more support is put in. So, it risks encouraging a mentality where it doesn't matter if we miss a target and a dependency culture within some leaderships.

I see that.

Just thinking about that data sharing across the public sector in general, who do you think would be responsible for making sure, for trying to align some of that—the collection of data of what's asked for? Because there's possibly some data that's been asked for that is collected diligently and well, but never sees the light of day, or isn't meaningful enough, or is collected in so many different ways that it makes it unintelligible to be able to glean some of that information. Where do you think that responsibility lies? Does it lie with health boards? Does it lie with local authorities, Welsh Government? What are your thoughts on how some of that could be fixed?

I think it lies with Government, initially, to design the expectations that you're putting on local government, on health bodies, in terms of what they collect and how they use it. That can be in the actual data items or, indeed, how different systems talk to each other. There isn't a great track record in Wales of that happening, in terms of the systems in particular. I think there's also, then, the risk that you would just add on data request upon data request, so the system is awash with data but doesn't have the real management information it needs to know what's happening. So, sticking with the NHS example, in our report earlier on this year, on cancer services, we looked at what was examined in terms of performance information. Understandably, it focuses on the national target of treatment within 62 days, and that's fine, it needs to be focused on. But there's a whole raft of really important information on every stage of the pathway that will tell you an awful lot about how those services have been delivered, but which isn't routinely collected.

And then, if you add on the more outcome-focused performance information and data, which, again, is underdeveloped—. We've had some encouraging scenes recently in the NHS in terms of the changes in ambulance targets, where they're focusing more on the outcome for the patient, from an important call, rather than whether they got there in eight minutes or not. But as a rule, there isn't enough focus on actually what matters. So, you can do very transactional data monitoring, but it's actually the outcome. So, I think there's an awful lot—

It's that the 'so what' bit.

The 'so what' bit, Peredur, absolutely.

And I suppose the 'so what' bit then turns into what does it mean from a cost perspective.

Yes.

And if you're looking for more efficient systems and productivity improvements, that's the crux of the discussion—working out what are the meaningful questions. I suppose—. Is there a role for our universities to help in that, hand in hand with Audit Wales and other bodies who have a more, possibly, analytical aspect to looking in at organisations, or should the organisations themselves find that expertise within themselves?

There's undeniably a contribution—think tanks, organisations, higher education institutions, ourselves—that we can make. But none of us can make organisations behave in a particular way. Organisations need to take responsibility for this kind of thing themselves. It's just part and parcel of being a well-run organisation, I would say, that you need timely, accurate, complete management information. If you're going to invest money in a particular area, you need to think through to what end—what outcome am I hoping to achieve from this? Only if you can do that can you then assess whether programme A or programme B is delivering good value for money. So, yes, there are contributions that others can make, and, yes, the Welsh Government can send signals to the system, but, ultimately—

So, from a leadership point of view—

Yes. But, ultimately, a lot of this comes down to the individual leaderships, I would say, of organisations. Matt, you wanted to come in.

Yes, I was just going to touch on local government as well. Obviously, over the past five years, there have been changes in the local government performance regime as well. I think there are still some questions, perhaps, around whether we've now got gaps in intelligence, if you like, around how local government collectively is performing on a consistent basis, following some of the changes that have been made. If you went back five to 10 years, some of the data sets that existed back then are no longer in operation. That's not to say they're necessarily the right things to focus on, but I think there's been an evolution in local government, or a change in local government, that, potentially, there's a bit of baby with the bath water that's gone. So, there's perhaps opportunity in the local government space. But that gets you into all sorts of questions, I think, around the democratic accountability of the individual bodies and the ability of the Welsh Government to provide that top-down steer. And even from a funding perspective, the direction of travel on funding has been towards dehypothecation of money, and so less control, if you like, around simple things like grant terms and conditions, in terms of setting expectations that go with that. I talked about active travel earlier, obviously, where the Welsh Government, providing a specific pot of money, has that ability to lay fairly bare its expectations of what it wants to get back in terms of evidence and data. But that's different when you're talking about the big block of money to local government.

A quick point on that—it's funny, I was just challenging myself the other day, and I remember the realms of corporate assessments for local authorities to really do an in-depth challenge. We've moved away from that for a few years now, but from the outside looking in now, it looks like things are getting a bit slack in some ways. Do you think a regime of back to the corporate assessment days, to actually put the sanctions, to hold to account the organisations, might be—or one round of them—a good thing to get them back on course? I won't be popular for saying that. [Laughter.]

I guess, coming from Audit Wales, we naturally favour an analytical approach; we're interested in evidence. So, I wouldn't object to a regime that focuses on data and performance and holding to account. The latest iteration of the regime, as well as the governance work that we undertake, was around peer-review assessments in the local government sector. From the ones that I've seen, they're certainly taking a pretty thorough look at the entirety of the work of councils. The proof of the pudding will be in the eating as to whether that actually is effective in driving up standards. I feel as though there does need to be a bit of edge to any accountability regime, be it in local government, health, in respect of Audit Wales, anywhere.

Thank you.

So—

Sorry, Peredur, to cut across, but as Matt was talking, I think this theme links to the signals that get sent to the system. So, you might want to ask us questions about the whole prevention agenda and the future generations Act, which, of course, sets the framework in which the public service ought to be operating.

We're going to come on to that sort of aspect, yes.

Okay. I'll keep my mouth shut.

You're pre-empting some of the questions. But just on this theme, before I bring Peter in in a second now, thinking about the Welsh Government's budget and thinking there now about active travel, in one instance, but across that, in allocating funds—it goes to that point you were just making, giving signals—how the budget expenditure lines and the other aspects within those budgets are prioritised is how Welsh Government signals priorities from that. So, from your audit work, how much is the current Government, through the budget that we've got laid before us, giving an indication that you need to be better at collecting and analysing data to get better outcomes and productivity? Is that seen in any other documentation that you've seen, or any experience that you have, or is that something that Welsh Government should be looking at developing as part of a more holistic way of budgeting?

I'm not sure whether it plays through the budget documentation per se, but that's not to say it doesn't play through in other ways.

Where does it, I suppose?

So, I mean, I think we do, you know—. Again, I touched on the Wales infrastructure investment strategy as an example, and there are programmes in that space where we see the Welsh Government trying to press for better social value for money. So, when we talk about community benefits and that wider benefits agenda, we certainly see an ambition to do that and you see it play through in some of the design of those programmes. But even then, at the back end of those programmes, we're not necessarily seeing the data collection.

So, I think our work on affordable housing was another example of this, where—. No doubt that the Welsh Government is keen to leverage that wider kind of impact from the significant investment that it's putting into affordable housing, but our work on affordable housing, one of the messages was around, in our view, that they still hadn't done much again to actually tell that story back-end and set those expectations for local authorities and social housing providers in terms of what they expected to get back in terms of data and evidence of impact on the ground. So, sometimes I think we see the kind of implementation gap, if you like. There's no doubting that, from a kind of policy-setting, programme-setting perspective, some of the thinking is there, but it's not necessarily playing right the way through to kind of close—

So, you don't see it followed through?

Yes.

Dave.

Just to follow on from what Matt was saying, in the NHS, I think we do see a fair amount of focus on things at a national level from the Welsh Government through things like the national value and sustainability board, because they will identify opportunities for efficiency and productivity gains and they will say what they expect health bodies to do to achieve those. The question that comes then is, 'If they don't achieve them, what happens?' I think it goes back to the accountability and also the fact that a lot of these sort of scrutiny cycles are predicated on short-termism, of, 'What can you afford in a single year?', as opposed to, 'You might need a longer lead-in to achieve some of these productivity gains by some system redesign.' And digital is an example that we talked about earlier, but there are many others. The whole system at the moment is probably still in firefighting mode in terms of the challenges it's got to get over, whereas, what it needs is to, obviously, get those performance measures better, supported by good, intelligent data, but also to have the system redesign that makes it more sustainable, going right back to what Adrian said at the start of his address, which is that the system isn't sustainable at the moment and, unless something changes, it's only going to get worse.

Okay. Thank you very much. On that note, I'll bring Peter in.

Adrian, you'll be pleased I'm going to give you an opportunity to talk about prevention. It's absolutely fundamental to lots of things we've been talking about. And, actually, with the increased resource, for instance, into local authorities, it's a prime time to think about prevention. I know, from your 'From firefighting to future-proofing' report of February 2024, you said it was difficult to find any demonstration of local authorities—or public bodies, rather—moving their resources toward prevention. I just wondered, since then, have you seen any indicator—recognising there has been more money going into the system—of that shift yet?

We definitely see examples of preventative action and programmes, which are great. Are we seeing a fundamental system-wide shift? No. So, Matt mentioned a report we produced earlier this year called 'No time to lose.' So, that's our big, once-in-a-Senedd-term assessment of the application of the Well-being of Future Generations (Wales) Act 2015, where prevention is one of the core ways of working. We concluded in that that we're not seeing that system-wide change as a result and, in order to enable that kind of change, prevention seems to be the key, to me, to unlock it. In that report, I made four recommendations, all addressed to the Welsh Government. One of them focused on prevention. So, I think we included it in our submission to you. It was drawn in very broad terms. So, I recommended that the Government should work with public bodies to strengthen their understanding of the levels of investment in prevention that we have already—the basic question: how much are we spending on prevention? We don't know. What impact is it having?—work with others to embed prevention into the budget-setting process, and incentivise and protect prevention spending at a local level. So, to this point about conflicting signals, if we want you to act preventatively, but then hold you to account for a short-term target, that’s a conflicting message to the system. So, that was my recommendation to the Welsh Government—to really build and enhance our understanding and focus on prevention.

We had the response from the Government to our report just this week. It’s coming to the Public Accounts and Public Administration Committee in a fortnight, I think, but that recommendation has been rejected and I don’t fully understand why. It’s disappointing that it’s been rejected, because it seems so fundamental, and we consciously drew up that recommendation in a way that I felt enabled it to be readily taken on board and acted on. Because it’s not just us saying this; this debate is taking place all across the country, and internationally as well. Everyone seems to agree that that’s where we need to focus our efforts, to square that circle I mentioned at the beginning. We’ve got to get more value for money from what we’re spending already, but we’ve got to be taking action further upstream to manage demand later in the system.

Thank you for that response. You’re quite right, and we hear it in many other committees I sit on—prevention should be the thing. Do you think that it needs a bold Government to say, 'Well, actually, we might need to frontload prevention whilst dealing with the reactive'? And, yet, there seems to be a difficulty in making that transition. And it’s really disturbing that that’s been rejected, because, at a time where—I’ll use local government because we’ve talked about the lump of money and we’ve seen this increase—. Well, no, let’s talk about all of the budget— £1.6 billion extra last year. Well, wouldn’t it have been a good idea to actually frontload the preventative agenda to get on top of this? If this doesn’t happen soon, we’re just never going to catch up.

Spot on. It is not easy to do. So, when you’re faced with the scale and range of the immediate demand pressures that every part of the public sector faces, of course I can understand the desire to address the immediate, to firefight, as Dave said. But you’re absolutely right, Peter. We all can identify this problem. We can also see the trajectory. The longer we delay, the bigger the problem becomes. So, it will take quite a significant shift of emphasis by individual leaderships within public organisations to prioritise this kind of agenda—by the Welsh Government, undoubtedly, to send a really strong signal to the system, both in its own decisions about spending and prioritisation, but also in the accountability framework, and so forth, that it sets for other parts of the system. And it will require support politically, not just within the Welsh Government, but across the Senedd, because this will not be a quick fix, and you may well see some price to pay in the short term in order to get to a better position for the medium term.

Thank you for that.

Just to follow on from that, I suppose, the logical bit, again, there would be: do you think that the public are aware enough of these problems? Being aware of the problems, but taking that action—. How aware do you think the public are, and how forgiving would the public be if you would say, 'Actually, we’re not going to spend on anything else here. We’re just going to put it all on here'? Is there that awareness in the work that you do across the public sector, or an understanding? Obviously, everybody who works in the public sector actually lives in our communities as well, so they’d feel that aspect happening. Are there any thoughts around, if the Welsh Government was to take that drastic action, how it would manage the comms, I suppose, in that aspect?

Matt's itching to come in, so I'll just talk for a little bit and then hand over to Matt. I don't think we've got a particular evidence base ourselves for public opinion or appetite for that shift. But, from my seat, I would say that it is inevitable, I would say, if we are to put the public sector on a more sustainable footing—it has to be done. It requires leadership at lots of different levels: executive leadership to take some difficult decisions in individual organisations; political leadership, not only from within Government, but across the Chamber, because some of these things it would be very easy to criticise in a short-term, point-scoring way, because they're difficult. But some of this will come down to our ability to communicate the reality of the situation, the reality of the choices that we face and our capability in driving forward these changes as swiftly as we possibly can.

I was looking the other day at some data in respect of London and Paris, where both cities have put in place some quite onerous restrictions on car travel—bluntly, ULEZ and so forth. That is translating quite swiftly into improved air quality in those two cities, but it has come at a really significant political price for the leaderships there, and, of course, the benefits from improved air quality will be seen years down the line and in different parts of the public sector. So, this is a difficult thing to do, undeniably, but it needs political leadership to drive it through. Matt is itching to come in.

Well, Adrian has said, I think, what I was going to say, but essentially this is the policy challenge for Government, and it's at the heart of the Well-being of Future Generations (Wales) Act 2015 as well: how do Government and public bodies make that balance between meeting the needs of the present while at the same time thinking about the long term and about future generations? Equally, it's not a binary choice in that sense between the next generation and the present. The onus is on Government and public bodies to strike that balance effectively. But I agree with Adrian that a lot of this comes down to communication with the public as well. But, picking up on what Dave was saying as well, if there are targets that drive a certain behaviour, the media will report on whether public bodies are meeting those targets, and that will be what people hear—a failure of public bodies to meet the targets that have been set for them in the present day. So, some of this all comes together, really, in how the system works, perhaps in a different way, going forward.

There are some real challenges, and just picking up on what Peter said in terms of whether things have changed—and Dave may touch on cancer services, as another example where our central message really was around the system not shifting in that arena towards prevention—we published a report on temporary accommodation in July that highlighted, and I think you've had evidence from WLGA on this as well, significant cost demands in responding to temporary accommodation needs. That's another prime example where, effectively, public bodies are in firefighting, reactive mode when actually there is a better way, potentially, through that challenge, if only they can get ahead of that demand and start staving it. So, as Adrian said, yes, we're seeing pockets, but I think the big drivers of demand that public services need to get on top of through prevention are still going along the wrong trajectory at the moment.

Yes. I think we've covered my questions, really, because you've articulated really well the importance of a shift towards prevention at all levels. So, I don't think I've got anything more I need to ask.

I just suppose, before I bring Mike in, it's more about, in that we have a budget-setting process and we're doing budget scrutiny now, what comments you would like to make around setting a budget in understanding what that preventative agenda looks like. Are there any recommendations from you as to how the Government should be thinking about this and are we seeing it in the current budget, or are we seeing pockets of it in the current budget, and what would you like to see, going forward?

One first step, I didn't complete my reading out of my recommendation. The final point that was recommended was that we should learn from others beyond Wales, for example taking account of work that the Chartered Institute of Public Finance and Accountancy is undertaking on understanding preventative spend. So, a basic first step that we need to understand is how much are we spending on preventative activity, and then we can start to assess what are we getting for that, what is its impact. We can judge over time whether we're putting more or less into those areas. But at the moment, we're having this conversation without being able to answer how much money we're spending.

We're not even measuring it.

No. CIPFA have been undertaking a big piece of work over the last year or so, and they reported just in the last fortnight. They've trialled in local authorities all across England and Wales an approach to identify and measure prevention spending. Their report is quite upbeat. It says, 'We think we can do it, and this is a methodology that could be developed and applied'. That would be one basic step that we could take: let's at least try to get to first base, and put some numbers around how much we're spending.

Because we might be spending quite a lot of money, but we're not necessarily measuring it to be able to understand how—

It all comes back to what we were discussing: you're spending this, and what are you getting for it? What are its impacts, and where is it being felt?

And I think that's the important point: actually, how well is the preventative money being used as well? So, if you're putting a screening out in health for one thing, are you using that data well enough to identify two or three things with that same pot of money? And so, we don't know. Until we know what the money is—.

I was going to say, to pick up something Adrian said earlier, the challenge here is across the whole of the policy breadth that the Welsh Government has, but also in terms of the cycles that we work to in terms of budget setting, and even political cycles. Because, to pick up Adrian's point, your goals for prevention are not going to be achieved often in one year or two years—they're longer term. So, you need that longer term view, that longer term strategy, which political parties have a common view on, otherwise you'll just get chopping and changing of strategy and policy every time there's a new cycle. So, you need that sort of consistency and threads.

There are some practical things that can be done in the interim. If you take the NHS allocations, the Welsh Government could stipulate, 'We expect a nominal amount of this to be ring-fenced for prevention', and hold NHS bodies to account for what they've done with that money, and what outcomes have been achieved or are being achieved as a result. And similarly in other sectors as well. So, there are some immediate things, but there's also the view that you've got to hold the line and realise that your end result here is going to take a little while to come through.

Peredur, you asked earlier around what would the population, the public, think. I suspect they'd want both: they'd expect that there's an investment in prevention, but they'd want their core services delivered as well. But there's a contract with the public as well, because lifestyle factors have a significant bearing on how NHS services and other services are used. Wales does well in some areas, but there's a lot further to go in terms of smoking cessation, alcohol consumption, healthy lifestyles. Obesity is a massive problem and the results it has for things like diabetes and other things—they all produce a massive impact here and now on services. It's about how you get that longer term view in place to tackle that. It's not an overnight solution.

Thank you for that. It's very interesting to understand that and to embed it into a budget-laying process, and beyond that work—all the policy work. I'll bring Mike in now with some further questions.

The first thing I'd like to say is that perhaps we need—and today is not the right time—to talk about prevention, performance and productivity within the public sector as either part of our role or part of the role of public accounts. So, I think that somebody needs to be looking at that.

But what I'm going to say to you is that, on the budget, and you're aware that Mark Drakeford has said it's a standstill budget, for health, for example, it's 2 per cent for prices, 2.2 per cent for wages and salaries. You also tell us that all seven health boards breached their duty to break even over a three-year period. What do you think the rate of inflation is for health bodies?

I'm looking to Dave, but he's carefully avoiding my gaze. [Laughter.]

Sorry, I was considering Mike's question, thinking, 'How on earth do I answer that?' They will be subject to the market forces as other bits of the public sector will be, but I'll have to come back to you with a more detailed answer than that, I suspect. There are cost inflation pressures that the NHS faces, and some of the Welsh Government additional allocations to the NHS in-year have reflected those cost inflationary pressures. But I suspect you may have some information behind your question, though, Mike.

I don't believe CPI has any meaningful relationship to health expenditure—and later on, I'm going to mention local government, and leave you out, Dave. But I think what we need is figures of what inflation is for health and for local government. I'll just concentrate on health. We need to know what the expected pay increases are going to be, we need to know what the expected price increase is going to be, and we need to know what is needed to upgrade the kit in health. I think that you can stand up quite easily and say, 'Well, 2 per cent for prices, 2.2 per cent for pay, because that is what CPI is telling us.' I just say, again, I think CPI is a meaningless number in terms of health costs.

We're probably not the people to put the precise number on it, but I know you've had some evidence already from the IFS and Wales Fiscal Analysis on this. Seeing the submissions you've had from the NHS confed on behalf of the NHS, from the Welsh Local Government Association for local government, I think we would recognise that there is a demand profile to service provision in the NHS and local government that is driving costs beyond—that almost sits outside of any inflation calculation per se. The demand itself is driving costs. And then you've got the things that are more inflation-led, like energy costs or wage inflation. Obviously, a lot of that will come down to the Government's agreements with the big sectors that are driving the pay bill for public bodies. So, I don't think we can answer this specific question, but it is there.

And you touched on the maintenance cost; I think we've mentioned in our paper some of the latest figures for the NHS backlog maintenance bill, which gets ever more eye-watering in terms of its scale. So, to what extent is that going to just continue on an upward curve, or is there going to be an effort to do something about that and get it back into a more sensible position? Because it comes back to what Adrian said earlier around providing the facilities that support good productivity as well. If you looked at that metric, there's a kind of inflation on that metric going up all the time, quicker than general cost inflation, if you like.

I'll give you a question that is well within your purview: how much was the inflation in health for last year? What was the increase in expenditure of the health boards in 2024-25 as opposed to 2023-24, and what do you expect it to be in 2025-26?

We'll have to come back and do some calculations on that.

I don't have the numbers off the top of my head, Mike, but the point I would make is I completely agree with you. CPI is a measure of consumer price. It's a basket of goods that aren't particularly relevant to delivery of healthcare or local authority services. So, you're absolutely right: every organisation and individual faces their own particular inflationary measure. But I think it's important—going back to our earlier conversation—that at some point, we've got to break out of a cycle of the budget being driven by inflationary pressures alone, because we can't keep up with inflation alongside the increasing level of demand that we're seeing, not only in the NHS, but right across the public service. We need to somehow break out of that cycle and utilise the money that we do have in different ways. Dave could expand on some work that we we've been doing in the NHS recently, looking at where we've put a figure on the cost of delayed transfers out of hospital. Something like 17,500 people last year were kept in hospital when they were medically fit to be discharged. Keeping them in hospital cost the NHS something like £185 million. That is an example where that significant sum of money could be deployed in different ways, undoubtedly to deliver better outcomes for citizens and potentially to deliver that more efficiently and at lower cost, as well.

Surely the net cost is zero, because those beds will be filled by different people. It'll be good, because waiting lists will come down and more people will be being treated, but the net cost to the health boards will be zero, won't it?

Yes, it's not a cost saving, Mike, it's how you use your NHS capacity differently and how you should use it appropriately. You've got £184 million-worth of NHS bed capacity wrapped up in patients who are fit to be discharged. That bed capacity should be used for other stuff, as you say, to get the planned care throughput through, to allow A&E departments to discharge onto wards in a more timely fashion.

Just to pick up, Mike, on your point about NHS spending, I think in our NHS finances release in September, which comes after the end of our accounts work for 2024-25, we pointed to health services having received just under £11.6 billion of funding last financial year, and that was a cash uplift of £927 million. I think we calculated that that was equivalent to a 4.5 per cent real-terms increase in funding in health last year. So, I don't know whether that directly addresses your query on how we assessed the position for last year, but that was the outturn picture last year. I think we're still seeing NHS bodies under pressure in-year this year, even so.

The month 6 position at the moment in the NHS is forecasting a £191 million deficit by the end of the year, mainly spread across three health boards in particular. You're seeing year after year the same picture—that the dial isn't turning, really, despite those inflationary or above inflationary increases in funding.

I could ask exactly the same questions I've just asked on local government and I'm sure I'd get very similar responses. What I will ask, though, is this. We've seen in England a number of local authorities fall over, they've become effectively bankrupt. What we also know is that size is no protector; the largest local authority in Europe, Birmingham, was one of those that have fallen over, but also you've got smaller authorities in the south of England that have fallen over. Political control in England has made no difference to local authorities falling over. It's happened in Liberal Democrat, Conservative and Labour-run authorities. So, there's no political point scoring in terms of what's happened in England. No local authority has fallen over in Wales yet and effectively become bankrupt. How close are we?

Close. I did a big piece of work last year that looked at financial sustainability across the LG sector, and looked at each authority individually as well. There are undoubtedly a few authorities that are very close to having to issue a section 114. Our assessment at the time of publishing our report was that none were about to, so they all had sufficient grip on their in-year position, so it wasn't imminent. But some are right at the edge, and they are all facing some very significant demand-led pressures in areas like children's services, additional learning needs, temporary accommodation, which are very hard to predict. But when you're right at the edge of financial sustainability, if you get hit with a couple of significant cases that you have to deliver against, that could be sufficient to tip authorities over the edge. And going back to the previous session, the obvious question is around the implications if the budget were not approved. Local government, I would suggest, is going to be the area most immediately and severely hit, because some of them are so close to going over the edge.

I mentioned our work on temporary accommodation, but also we're doing some work at the moment on children's services, which is set in the context of the Welsh Government's policy around eliminating profit. That will be focusing on some of the challenges and financial pressures there.

We're also doing some work on ALN at the moment, on additional learning needs as well, focused on whether public bodies—again, it comes back to some of the things we've been talking about—know enough about what they're spending, what's driving their costs, and how they're performing in terms of service delivery. So, just to make the point that, in local government and some of our studies work, we're definitely trying to shape our work programme as well around some of these pressure areas for bodies as well.

Thank you for that. You'll be pleased to know that we are coming to the end of my questions now. The last but one is: you talk about improving the information used by public bodies to get a better grip on resource implications and to make sure that they can understand impact. Can you outline some of the weaknesses that you've seen in this area, and what can be done to improve them?

We are probably in danger of rehearsing some of what we have covered, Mike, but, as we have been saying earlier in the session, there is a common theme from our work. I wouldn't just pick out one example; it is a recurring theme around lots of the value for money work that we do around bodies' ability to tell a clear story about what they are spending, and even to get to that picture easily is not always straightforward. Some of that comes back to what Adrian was talking about earlier, around financial and other kind of central corporate systems that public bodies have as the building blocks for everything that they do. So, even getting a picture of expenditure is not always straightforward, and then getting that picture of performance and outcomes and wider benefits as well—it's just a recurring theme throughout much of the work that we do.

As we've touched on, the concern would be that public bodies disinvest in that work, rather than investing in that work, in a kind of false economy, if you like, as they are under other financial pressures. From our perspective—we would say this, wouldn't we, as auditors and value for money auditors, but—we think that it is important for public bodies to know, for themselves, whether they are getting value for money. People often ask us the question: do we know? Well, we are not everywhere. We have got a big body of work that we do, and you've seen some of it laid out in our submission. But the onus is on public bodies themselves to be able to demonstrate, and to be held to account for, whether they are delivering value for money. That requires them to have a clear picture of what they're spending and what they're getting for it.

Finally from me, you've produced a lot of value for money reports—some on individual areas, some on individual authorities. Where will I see the effect of that in the savings made by some of these organisations?

The work that we've undertaken, Mike—is that your question?

Your value for money. How will I see your value for money coming through to, effectively, value for money?

Yes. We have a key performance indicator, which we report to you. Our target is to deliver savings of at least £30 million over a rolling three-year period. So, that, at a headline level, is exactly where you would see it. I guess that, at a more local level, you should look to the kind of feedback that we get from our stakeholders on the value that they place on our work, which is pretty consistently positive.

Okay. Thank you very much.

Diolch, Mike. That brings us nearly to the end. Obviously, before we conclude, this may be the last time that you—

You said that earlier.

I know. [Laughter.] But it may be the last time that you're giving evidence to this committee in your current role—who knows what you're going to do after that? It may well be. But I would just like to extend our thanks, as a committee, to you as the Auditor General for Wales, and thank you for the engagement that you've had with myself and the committee over the years, and for providing us with invaluable insights and information that has helped us in shaping our scrutiny. Obviously, we scrutinise you as well, from an organisation side of things. So, thank you for that. I just wanted to give you the opportunity, again, in this area, beyond looking at your budget and that aspect—. Is there anything that you would like to comment on, on the budget process or any scrutiny processes, or any other aspects of your work that you want to highlight to this committee before we bring this session to an end?

Thank you. It's kind to give me the opportunity. I think I said at the start of this session that I am going to be publishing some kind of legacy reflections between now and Christmas. If it would be helpful to the committee, I'd be very happy to put some of that in writing to you and the public accounts committee so that that's formalised and put on the public record. Much of what I'll be saying is reflected in the session we've had today, really.

I am concerned about the sustainability of the system on its current trajectory, but I'm not without hope and optimism. I think we can turn things around, but we will have to tackle many of the things that we've talked about today: improved productivity, and a much sharper lens on value for money. The shift towards prevention is key, and addressing some of those basic building blocks that have perhaps been neglected over time that are so crucial.

There is one other area that I think is really important that we've not explored today, and that's around governance. That's an obvious line of sight that we have as Audit Wales into just every part of the public service. By and large, our public sector is well governed, well managed, and money is spent sensibly. But, during my time in this role, I've had to publish reports on examples where that has not been the case, and, to Mike's point, really, it's not been specific to any area. It's been the Welsh Government itself, through parts of local government, parts of the NHS, arms-length Government bodies, right down to some of our town and community councils. Those come at a financial cost, in terms of settlement payments when there's dispute and so forth. Those are significant, but, for me, the damage is not really financial, so much as damaging the trust and the confidence that the public have in the whole system.

To your question really, Peredur, earlier, about the public's willingness to accept some of the transformation that might be necessary, if that transformation is painful, we need to find a way to bring everybody with us as best we can. Each time the auditor general publishes a report on something that's gone wrong in an organisation because of poor governance or poor behaviour by senior leaders, that chips away at that trust and confidence. I'm conscious, when I speak on this, that I sound a bit holier than thou, but I really do feel it's a really important aspect of the system that we need to maintain a constant focus on.

And lastly—again, we've touched on this through the course of the session—I think next year, with the election, is a real watershed moment. There's going to be a very different Senedd elected. To take forward much of what we've talked about today will require political leadership from all parties and a degree of consensus building, I would suggest, if we're to take the country through the change that's needed. So, the onus is on yourselves as well, I would suggest, to provide that leadership.

Thank you very much.

Thank you very much for this morning.

There will be a transcript available for you for this session and the previous session, just to check for accuracy. A fascinating session with you today. We really appreciate you making the time to come and talk to us.

We'll now, under Standing Order 17.42(ix), ask the committee to resolve to exclude the public from the remainder of the meeting. I see nods, nodding of heads, so we'll go into private now. Thank you very much. Diolch yn fawr iawn.