Economy, Trade, and Rural Affairs Committee

Thank you. Bore da. Liz Lalley. I'm the director of economic strategy and policy.

Bore da. Rebecca Evans, Cabinet Secretary for Economy, Energy and Planning.

Bore da. Duncan Hamer, director of economy and operations.

Bore da. Good morning. I'm Kate Hearnden, head of industrial decarbonisation, energy and steel.

Thank you. Cabinet Secretary, the committee has undertaken some work around the Global Centre of Rail Excellence. We visited the site and obviously saw what a large development and potential exists on that site, but subject to, obviously, significant moneys coming into it. Are you able to explain to the committee what role your department plays in promoting the site and working to bring it to beneficial use?

Yes. I'm really pleased to hear that the committee had the chance to go and visit GCRE. I think that when you're there you really do get a sense of the potential for the site. So, although GCRE itself sits within the portfolio of the Cabinet Secretary for North Wales and Transport, clearly our teams work together, because, essentially, we see this as not purely a transport project, it's very much an economic development project, and we're particularly keen because its location is so important, bearing in mind the job losses at Tata, and the potential to create prosperity in that particular part of the world is really significant.

My team of officials work closely with GCRE Ltd, so they work closely with the board of directors and the executive to support the marketing, if you like, of GCRE. I understand that more than 200 companies have expressed interest in using the facility once it's been built, and GCRE has already made some strategic partnerships with Hitachi, CAF, Thales, Network Rail and Transport for Wales. So, we take opportunities through officials to make those introductions. But then also in terms of the commercial marketing, it was very much something that we had at the forefront of our international investment summit on the weekend, and there was a specific section that was run twice during the day, which looked at the capital investment propositions here in Wales, and one of those that we were really keen to foreground there was GCRE.

I heard what you said about the 200 companies that have indicated an interest, and that was what we heard in the presentation that was given to us as a committee, but no-one seems to be from the private sector and are prepared to put their hand in their pocket and to actually invest financially in this project—to date, anyway. In your assessment, is the business plan that the Global Centre of Rail Excellence has put forward viable, or will it require substantial modification, and indeed substantial curtailment, given the sums involved? My understanding is that the Global Rail Centre of Excellence is about £360 million of investment, and then on top of that there's an additional £400 million of investment required for the other projects that are identified on the site. So, you can see the scale of what we're talking about here.

So, the other projects that have been identified on the site would include data centres, for example, or renewable energy. Those things can actually go ahead without the actual GCRE track, if you like, so they can be considered as two separate parts of the operation. I understand that the GCRE team intend to reissue a call to invest in 2026. So, clearly, we'll be doing what we can to support that as well. And I know that the Cabinet Secretary for transport is keen to explore ways to de-risk the project as far as possible. So, I know that he's engaging with the UK Government to seek support for a regulatory framework, which would then require all new rolling stock that would be used in the UK to be tested prior to introduction. So, that has the benefit, of course, of reducing the risks around defective stock and the impact that that has on the economy when things are delayed on the main lines, for example, but then also it would cement the requirements for a facility such as GCRE to be used. I will invite Duncan in because I know that he's been very closely involved with this.

I was just going to come back to your valid question. Clearly, global financial markets are moving really quickly, and with that in mind the GCRE executive and board are actually finalising a reworked, up-to-date business plan. It focuses on two key areas. So, the rail track, the GCRE research and development centre, but also, as the Cabinet Secretary has mentioned, the opportunity to use the 700 hectare site around data centres and renewable energy. So, we should have that plan back in with us as a Government in the early part of next year. As the Cabinet Secretary said, that's the precursor, then, for the next call to market, and that would be based on a really refreshed proposition, which has been influenced, for example, through engagement in the investment summit this week. And just to echo the point, this is a genuine cross-Government project. So, I'm heavily involved from the economy perspective, alongside Peter McDonald and colleagues on the transport side. So, when we're preparing advice, it is done on that joint basis as a holistic project, because it's going to need all of our levers to be able to bring that to fruition.

My final point on this particular issue: in the letter you sent to the committee and to me, you indicated that you and the transport Secretary allowed additional moneys to be released—I think that was the terminology in that letter at the end of October—to fund future work. Can you give me an indication, because it didn't talk of the quantum of money that has been released to furnish future development on the site—could you tell me how much money you and the Cabinet Secretary for transport released to the board of the Global Centre of Rail Excellence?

Shall I come in on that, Cabinet Secretary?

Yes.

So, the amount released brought up to the full commitment of £50 million. So, this initial—. So, it does two things, it's the operating cost for 12 months of activity at GCRE—

So, it's all been spent, basically.

It's not all been spent yet. They have had their final allocation of that £50 million allocation. So, in 12 months' time, as part of that whole deployment, it would bring it up to the original commitment, if you like, of the Government of £50 million—. Well, I think it's £49 million, technically.

So, just to clarify, whoever comes in in May will have to refinance this project, because that initial sum that the Welsh Government and UK Government had made available would have, by then, been used up because you've given them permission to use it.

Well, there are a number of key factors that influence that decision. So, GCRE are active in the market, both in the GCRE track and also in the renewables and data centre areas—

Yes, but the point I'm making to you is that the £50 million that was allocated will have been used up in 12 months' time, because they have permission to use it up—irrespective of whether they attract independent funding, they will have used all of their allocation up.

In all likelihood, they will get well into the £50 million by next September. I think that there is about £5 million that is subject to a number of gateway decisions, and I'm happy to confirm that in exact detail following the committee. But they have been allocated the full amount. It will be close to full expenditure by the end of 2026.

Okay. Thank you. If you could clarify that, we'd be grateful.

I will do, yes, because there is a £5 million window that needs to be approved by the Cab Sec to push through to finalise.

Great. Gilestone Farm was purchased by your predecessor, in Powys, obviously to furnish a venue for the Green Man Festival. Ospreys were found on the site. I don't particularly want to focus on past decisions, but what I'm keen to understand is how that sits on the portfolio of the Welsh Government now and what the long-term or medium-term plans are for that particular site. There has already been a property value write-down from £4.2 million, which is what the Welsh Government paid, to £3.8 million in the last Welsh Government valuation. So, what are the plans for Gilestone Farm?

The existing plans for Gilestone Farm are very much around supporting the current tenant on that farm. We're not seeking to release the farm from our assets at the moment.

Its tenancy ended in November. So, you've given them a new tenancy then have you?

There's a short-term tenancy that's about to be finalised for that continued extension, and there are negotiations with Powys County Council in terms of more longer term use of the farm asset that is currently held by the Welsh Government, which are yet to conclude.

So, you're looking to maintain the ownership of the land and develop it out, rather than return it to the market or dispose of it.

I mean, I think those are decisions to be taken as yet. So, basically what I would say is that there is a short-term solution in place to be able to ensure that it's used properly as an agricultural holding. And, in due course, there will be full advice presented to the Cabinet Secretary around its medium to long-term proposition, but that revolves around discussions with Powys County Council at the moment around a farm holding. But it is, as I say, subject to advice and further confirmation.

When will that advice and confirmation be furnished to the Minister?

I mean, I can comment on it. I would say, it doesn't sit in my portfolio, so to be clear I'm aware—

Well, the Cabinet Secretary.

So, I don't know when that advice will come forward, but we will absolutely keep the committee informed. I know that the work that is undertaken as a result of the report that the committee did and our response to those recommendations, which was very much around the processes within Welsh Government—and I know that the director general for economy, environment and transport wrote to the Chair of the Public Accounts and Public Administration Committee in November, confirming the review of our acquisition processes, which was very much what the report was about—is anticipated to be completed by February. So, we'll keep both this committee and PAPAC informed of that.

Okay, thank you. And my final point: the trade deal that was announced with the US Government on Monday around pharmaceutical pricing. I appreciate that the policy of that will sit with the health department for the implementation of it and how it'll be furnished with finance to pay for the 25 per cent uplift in costings of medicines to the NHS, but trade is within your portfolio responsibility—international trade. Can you give the committee a taste, or a view, of how you helped inform the UK Government's thinking on this particular aspect of trade policy, given that, for the Welsh NHS, there are potentially hundreds of millions of pounds worth of costs to be incurred over the next three years?

So, I noted your request for a statement—

You were listening. [Laughter.]

—of course—during Plenary yesterday, and we'll make sure that we respond to that. But the bulk of those discussions were through the health department, so I'll perhaps provide that statement as soon as I can.

With respect, trade is in your portfolio. This was negotiated as part of a trade deal because it entailed tariffs. I'm just trying to ascertain how the Welsh Government engaged with the UK Government, who were on point discussing this, as to the concerns or even the satisfaction that Welsh Government might have had with the direction of travel around this particular aspect of trade policy. So, did you have any discussions on it?

The health team would be considering what the impacts would be, but as I said to committee last week, our officials do have, within the trade team, really good and constant discussions with their UK Government counterparts in relation to discussions around all of the trade deals that are being undertaken at the moment. So, information sharing is very good, but we're always unable to talk about things until trade deals have been completed. But, as I said last week, our officials are in constant contact with their counterparts on these issues.

That's why I'm asking today, because obviously it's been completed, so I'm just trying to understand how Welsh Government engage on it. But I'm getting a sense that they didn't really engage on this particular aspect. And bear in mind that we've got a fair lump of a pharmaceutical sector in Wales as well that was dependent on some of these concessions of tariff-free access to the American market. Are you in a position to give us any indication of the level of discussion that Welsh Government had?

So, as I said last week, we have our inter-ministerial groups on trade, so we have those discussions, and then we have individual bilaterals with Ministers in the UK Government as well. And we're able to set out positions there. But when it comes to the more detailed conversations, officials lead on those across departments. I'm not sure there's much more I can add to what I said.

Okay. Sam Kurtz.

Thank you very much, Chair. Good morning, Cabinet Secretary, and to your colleagues as well. Where are we with the free ports in Wales?

So, in terms of the free ports, progress is being made on both sides, so both are now progressing well, with most of the tax sites already designated and operations under way. The third tax sites in Anglesey came into force in November. Those have been designated so that businesses are able to actually take advantage of those in advance of the signing of the memorandum of understanding, so both free ports, essentially, are open for business. The signing of the MOU is expected to take place in Anglesey later this month, and Celtic Freeport shortly after that as well, and then, of course, once the MOUs are signed, that unlocks up to £25 million seed capital each for the free ports, to help them take forward the key strategic sites and investment.

So, why the delay on the MOU with the Celtic Freeport? Wasn't that due to be signed back in March of this year?

So, we're working with the Celtic Freeport to address some capacity constraints there, and the UK Government has also been funding some additional consultancy support. So, we're working closely with the free port and accountable body to progress things as soon as possible, and if there are gaps in capacity, then we're keen to support the free port there as well.

So, are you content with the speed of how these are progressing?

I'm glad that both have progressed to the point where they're both open for business, and I think that we're keen to support both free ports to move forward as quickly as possible.

Are you happy that things aren't maybe moving to the timetable that was originally set?

So, we've actually made, I think, really good progress in terms of designating those tax sites. I really want to get to the point now where the MOUs are both signed and then the funding will become available for investment and to unlock more opportunities.

Okay, so given what the free ports are advocating for and some of the industries they're advocating for in those specific areas, what discussions are you having with them to facilitate some of the businesses that may have been at the investment summit over the weekend to actually use these free ports, when they are, at the moment with no MOU signed, on a skeletal staff?

So, we had really good discussions at the investment summit. There were particular sectors that will be very, very interested in the free ports, particularly floating offshore wind, hydrogen, advanced manufacturing, all there, all able to have really good conversations with the free ports. And I had a large number of bilateral meetings across the course of the investment summit as well, as did the other Ministers who were there, and in all of those cases, we were able to talk about the benefits in the free port and also make those introductions as well, because there were some businesses—in renewable energy, for example—really, really keen to find out more about the free ports, but hadn't had the opportunity to have introductions. So, all of that was really, really positive, I think.

And you're content that this will be new jobs rather than displacement from other areas in Wales?

Yes, that's absolutely the intention. I do recall when the free ports idea was first floated, some of our Welsh Government concerns were around displacement, so we've been really, really careful when we're considering the Welsh Government's approach to free ports to ensure that these activities aren't going to be displacing other activities. I think the focus, for example, around floating offshore wind means that we're not in that space of displacing jobs from elsewhere. And also our free ports will have formal arrangements to ensure that landowners or businesses reinforce that additionality of investment and avoid displacement as well. But from when the idea of free ports for the UK was first announced, we were very aware of the displacement point and we've done what we can to avoid that.

So, on that point then, do you think free port policy is a good policy?

Yes. So, we worked really closely with the UK Government, previous and this UK Government, around the free ports agenda and it can certainly bring benefits, and we're absolutely focused on maximising those benefits.

The only reason I ask is, obviously, timetables are slipping. Things were due to be signed earlier in March, as I mentioned, and we're not there. Is there a reluctance to see these progress, because it wasn't an initial Welsh Government policy, or is this just a case of actually the wheels of Government just turn a lot slower than the private sector wish them to?

There's absolutely no rowing back from the free ports agenda. We are really, really focused on the benefits that free ports can bring and are excited about what free ports can do for our communities in Wales. Obviously, we would like the MOUs to be signed more quickly. They are imminent now, and we really look forward to that funding being released to support activity.

Fab. I'll move on—and I thank you for those answers—to the UK's industrial strategy. How much influence did the Welsh Government have in helping the UK Government come up with the UK industrial strategy?

So, we worked really, really closely with the UK Government on the industrial strategy, and we provided them with lots of data about our economy, so that we could demonstrate where the strengths were, where the opportunities for growth were, and also made sure that the UK Government fully understood our own economic mission and made sure that we could work to dovetail what the UK Government was doing around the industrial strategy with our own. So, when you look, again, at the investment summit, those key sectors, you'll see them reflected in the UK Government's industrial strategy. So, there's definitely a lot of synergy.

I'm also aware, though, that there are sectors in Wales that are critically important to Wales and Welsh life—agriculture, for example, tourism—that aren't reflected in the industrial strategy, but that doesn't mean that our focus isn't on those sectors as well.

Okay. I spoke at a Net Zero Industry Wales conference in Pembrokeshire a couple of weeks ago, last month, and there was some stark criticism of the UK industrial strategy, as it doesn't do enough for Wales. There's not enough mention of Wales in terms of the administering of some of it. English mayoral sectors and governance structure are defined and mentioned at length, but Wales is sort of missed off. You've said that the Welsh Government worked very closely; the proof isn't in the pudding.

I disagree. We did work really, really closely with the UK Government, and I don't judge how effective work has been by the number of mentions in a document that we get; actually, I judge whether or not work has been effective as to whether what's been provided is useful to us. So, as I said, it doesn't cover all our important sectors, but it does give us really good opportunities to work across the UK on things such as defence, advanced manufacturing, areas where Wales has got really strong potential for growth, and we absolutely intend to maximise everything the UK Government can bring to that as well.

It wasn't just Net Zero Industry Wales who were quite critical; it was industry. They were saying that Wales is not referenced or not included in the industrial strategy enough for the opportunities that exist in especially the south Wales industrial cluster and west Wales, where Net Zero Industry Wales hosted this conference. The Confederation of British Industry have been quite critical of the UK industrial strategy as well: missed sectors, which you've alluded to, and infrastructure bottlenecks, which we're all too familiar with in Wales. What's the benefit to Wales from this UK industrial strategy?

The benefit to Wales from the UK industrial strategy is a real focus on areas where we have potential for growth. So, you'll have seen it in the budget, for example, the additional £10 million for the compound semiconductor cluster, growing that particular area of expertise that we have in Wales. So, I do think that it does—. There's been a lot of interest in the industrial strategy globally, and I think it does give us another way in which we can promote the significant strengths that we have here in Wales across a number of sectors to a global audience, and we saw the benefit of that recently.

So, are those businesses who are critical of the industrial strategy wrong, or are they just in a sector that the industrial strategy is not focusing on?

No, I would say that the industrial strategy, and I've always said this, isn't the only game in town. You can't look at it in isolation, you have to look at it alongside the other things that are happening and that are available, alongside, for example, the Welsh Government's economic mission, our approach to apprenticeships and so on, and our flexible skills programme. All of those things are really important. Business Wales operates right across Wales for all sectors, so I think that there's a much more intricate patchwork of support, focus and investment happening. It's not all about the industrial strategy, but I think that it is an important signal of the areas where we think that growth will come from, and the areas where we think that investment will likely come.

Fab. And then, just on that, obviously important to the Pembrokeshire economy, but the wider Welsh economy, is the oil and gas sector. How's this Government supporting the oil and gas sector?

So, we're working really closely with the oil and gas sector, particularly around their aspirations for carbon capture and storage. We've been making really strong representations to the UK Government around the non-pipeline transfer. We've talked about this, I think, in committee before. Obviously, we want to see more investment there. We've published our approach in Wales through a strategic statement on carbon capture now so that we can demonstrate where we think it will add value, and it is very much about decarbonising those sectors that are otherwise very difficult to decarbonise—cement would be another example of that. So, we work really closely with those companies and we have regular discussions with them, regular visits, all the things that you would expect, and we're keen to explore how we can continue to work with those.

There was a statement from the Welsh Government very recently around the emissions trading scheme, which was received quite critically by the sector. Is that supporting the sector if there's an ETS that puts additional pressure on a sector that's so important to the Welsh economy?

This is a sector that needs to be supported to move towards decarbonisation, and we absolutely intend to work with the sector on that. I will invite Kate in at this point, if that's okay.

As the Cabinet Secretary says, we're working really closely with that sector. It's a complex mix of policies. The carbon capture is the piece that they really need, as the Cabinet Secretary said, to resolve, and the non-pipeline transport. That's what's going to unlock the issues that they're facing right now and allow those really great propositions that have been put together and the investment that's lined up. I think that's really where we sit, and we were discussing that with them at the investment summit. So, that's still the space, it's still what we're trying to push that will really help. I haven't had a conversation with them around the emissions trading scheme, but that wasn't what they were really talking about when I last met with those companies.

CCS is hugely important. The joint project between RWE and Dragon LNG in Pembrokeshire for shipping CCS is hugely important, and the pipeline CCS up in north Wales as well, with key businesses such as Enfinium involved in that. There's a huge opportunity here. Some of your colleagues on the Labour benches have been quite critical of carbon capture and storage. Is there any watering down of Government policy around CCS, given some of the concerns raised from backbenchers?

We've been really clear, I think, in terms of our statement where we set out that we absolutely see this as an important part of the journey towards net zero. The UK Climate Change Committee has said that it sees the road to net zero including carbon capture and storage, so we see it as a critical part of the journey. Our approach is different, because we see the use for it in helping businesses decarbonise; we don't see it as an economic activity in and of itself, which I think is where the previous UK Government was. We see it as something that supports the journey to net zero.

I don't always take what the UK CCC—

Your final point on this section.

Yes. I don't see that what the UK CCC says is always accurate when they want to destock livestock in Wales.

But a final point around ports and the shipping of it. Are our Welsh ports in the right place to be able to capitalise off some of these opportunities that exist in new technologies, new energies or new infrastructure?

You will have seen the announcements in relation to the investment summit around further investments in ports, which is really good. One of the outcomes of the floating offshore wind task and finish group was that we should produce a ports prospectus, so we've done that. That was one of the first outputs following those recommendations. That, I think, has been really well received, both by the ports and by industry who are keen to understand what the capacity of our ports is and where the future journeys of those ports are going. I think that the ports are very positive about that particular piece of work and the work that we're doing to try and promote the ports as well. But the investment, I think, is really welcome.

I'm conscious of the time, Chair. Thank you.

Thank you. Jenny.

Thank you. I want to look at what your strategy is for decarbonising the economy, particularly as the investment summit revealed that there were various companies that are big energy consumers, like this data centre proposed for Bridgend. These are obviously huge consumers of energy. How are we going to make that work, to ensure the successful business there, but also to make this something that enriches the economy of Wales, rather than just getting exported?

I think the fact that we never really talk about data centres without also talking about renewable and clean energy is really important. You'll have seen, of course, the announcements recently in terms of new nuclear in Wylfa, but then also the artificial intelligence growth zone and what that means for data centres as well. I think that we absolutely have to recognise that these are energy hungry, but actually that we also have a really strong position in terms of what we're able to do in the renewable sector. Those things have to move together, don't they? I think we're confident of where we are at the moment. All of the discussions on the weekend were very much about making those conversations happen and linking up data centres with renewables and those who have ambitions in that space in Wales.

Renewables is one thing, but, at the moment, all the benefit goes back to the grid and doesn't stay in Wales. What is the potential for private sector investment to work with public bodies to provide local and regional heat networks?

We published our heat strategy for Wales, and that really recognised the important role that local heat networks will have in Wales, and also their ability to create high-quality jobs during construction, but then also through operation and so on. Several local authorities now in south Wales, including Newport, Swansea and Bridgend, have had funding from the UK Government to look at the feasibility of heat networks. We're also providing support to that work through our own Welsh Government energy service. I've talked to the committee previously about the novel approaches that we're looking to develop through the Mining Remediation Authority as well, to use mine heat for similar purposes.

That's something I've talked about for years. We've never done it. Why not?

It's happening now. We've got one example, the first example in Wales, where it's happening.

Where's that?

If I recall, it's in Rhondda Cynon Taf. I will double-check on that.

I appreciate that that's a detail, but it'd be interesting to know, just so we can see how it's working there. Is that going to be used by the community that that mine is in, or is it going back to the grid?

Yes. I believe it's for the community. I did visit. I don't know if the committee might be interested in a visit, but if individual Members wanted to visit, we could certainly help to facilitate that.

Going back to heat networks, Bristol already has a strategy for the whole of Bristol to be linked up to a heat network, and nobody is allowed to build any new homes unless they commit to being linked up to the heat network. We seem to be well behind them, and obviously they're our nearest competitors for south-east Wales. What interest was there in the investment summit by private investors? What they'll want to know is that local authorities are in it for the long term, so they get their money back.

I think the work that's being funded in Swansea, Newport and Bridgend by the UK Government will help in terms of creating that local strategy, if you like, as to how these will be taken forward. Of course, Bridgend is going to be a really important place for data centres. When we have had those discussions with potential data centre investors, those discussions around the options to use the waste heat to develop heat networks absolutely are part of those conversations. As we've talked about before, you have to have those conversations at the start of the planning stage to maximise the viability of these things.

Totally. But the local one we've got in Cardiff has managed to link up three public buildings, including this one, and that's as far as it's managed to get so far. There seems to be a lack of capital, which is needed for the pipes to get to people's houses on the other side of the road in Butetown.

Lack of capital has been one of the biggest challenges for Government in recent years. We did see improvements in our settlement following the incoming new Government. They did recognise the importance of capital, so we have seen improvements there. But I think there are so many opportunities that have been missed over a decade because of the lack of capital. We saw the value of our budget decreasing on the capital side.

Okay, but I'm talking about private capital, like pension funds that are looking for long-term investment.

This is a rapidly evolving piece of work. You've highlighted that there is very significant investment going into data centres over the next decade. We are starting to see a real mobilisation of local supply of the energy that's required. Therefore, the offtake of that heat is absolutely critical.

As the Cabinet Secretary referenced, at this stage, we're in pretty active negotiations, and the critical stage is getting that in pre the planning being approved so you can invest. We're already seeing private investment in the energy provision, and we think that will quickly transfer into the heat provision, and there is an upside benefit for private investors in doing that.

I think you're right to highlight that it's a critical phase in that development. We are beginning to see—referenced on numerous occasions on Monday in the investment summit—that acceleration, that thinking and that whole holistic picture, if you like, of energy going into the centre, the heat being reused, recycling and the carbon benefits that come from that. But you're right to point that it does require that capital to deploy, and it's our ability to then point to the commercial returns that will come from that for all parties.

And the planning system. In Bristol, you won't get planning permission unless you're committed to locking into the heat networks. How much consideration are you giving to that, or is it just too early at the moment, until you have the heat? It's a chicken-and-egg scenario, really, isn't it? But surely you've got to, at some stage, ensure that you're not having to retrofit new projects.

I have asked officials from across economy, energy and planning to come together to look at this, because this is an absolutely perfect example of why the First Minister put these three things in one portfolio, because they're all so interlinked. We'll await the outcome of those discussions, but, definitely, just to reassure you that we recognise the importance of planning in this piece as well.

Apart from heat networks, are there other things you're considering? Things like energy boxes can heat communities of 200 homes, I'm told.

Again, reflecting back on questions that we had in the Chamber a few weeks ago, when the energy box idea was raised, I have again asked officials to make contact with the particular company that was referenced to explore what more we can be doing.

Looking at the local growth fund, it's less money than the shared prosperity fund, and it isn't just decarbonising industry we need to do, we need to decarbonise homes, because otherwise the money is all going into energy bills that people can't spend elsewhere in the local economy. What proportion of the fund do you think is likely to be allocated to industrial activity, strengthening the economy, as opposed to tackling the one in four households who are in fuel poverty?

At the moment, we're out to consultation in relation to the local growth fund; it closes on 19 December. We've suggested that our focus for the local growth fund would be around raising productivity, and then also addressing economic inequalities. Those are the two things that we would focus the investment on. Again, this is part of our consultation. We've been holding events online, but also holding, I think, physical events as well.

Obviously, improving people's heat would do both of those—raising productivity, less illness, tackling inequality, giving people more money for other things.

That's been one of the early themes that's come through from our consultation: that we should think broadly about productivity and tackling economic inequalities. But, as I say, it's way too early at the moment to start defining exactly which schemes we would support.

If I could just add, I think it's fair to say that our consultation events have recognised the interconnectedness. The aim of those events and seeking people's views is to understand where we can maximise the benefits of that funding that's available to us and focus on that and, hopefully, ensure that the interconnectedness then plays through and we get the wider benefits.

Okay. So, once you've mapped the proportion of spending going into different regional or local activities, which organisation's going to be the driver behind these projects? Is it going to be the Welsh Government or the corporate joint committees, or—? How is it going to work?

So, again, there's so much out to consultation at the moment. We're proposing that there would be a framework, but the CJCs and regional and local delivery will be really, really important. We see the local growth fund as being very much as close to the ground as possible. We also recognise in the consultation that there might be a case for national schemes if there are areas where expertise is limited and so on. But, again, in terms of the delivery, we would expect that to be done as locally as possible. But, again, these are themes within our consultation.

Okay. And then, just lastly from me, obviously this is less money than the shared prosperity fund, so how do you envisage—? The projects currently funded by the shared prosperity fund, what's going to happen to them? Are they going to be mainstreamed or are people going to be made redundant?

So, we were really pleased that, if you include the Pride in Place funding, we did get 22 per cent of the overall pot, which was the same percentage as that which we had previously. So that, I think, was to be welcomed and is very positive. We also recognise that local authorities have been asking for a further transitional year because of the number of people employed through the previous funding streams, the shared prosperity fund and so on. We've been working with all local authorities to map out where those jobs are and also to map them against potential fit with the future programme as well, because local authorities don't want to be in a position where they're issuing redundancy notices unnecessarily and those kinds of things. So, the additional transitional year is really, really important, and we've been working with local authorities to support them in that space as well.

Okay. Well, you've got a challenge to try and incorporate the Pride in Place funding into the local growth fund, given that it's an extremely rigid initiative that local authorities are not being able to use as they think best.

So, Pride in Place is an entirely separate programme, which is a UK Government programme.

Okay.

Okay, Jenny? Luke.

Diolch, Cadeirydd. Just to pick up on the local growth fund issue that Jenny's raised, because I think it's important we get clarity on that, we're in a situation now where that's to replace SPF funding. That local growth fund is 70 per cent capital, 30 per cent revenue. If it's going to replace SPF, SPF focuses quite heavily on some of those revenue-intensive interventions, stuff like business support, employability and so on, so there's a genuine, real risk here that, with replacing SPF with the local growth fund as it currently stands, we're going to be in a very difficult situation. The Industrial Communities Alliance have pointed to the local growth fund essentially putting a sledgehammer to some of those policies. We face potentially a collapse, then, in those revenue-funded projects that the SPF has funded, and the loss of hundreds of local authority jobs—66 in Bridgend, 100 in Neath Port Talbot, 18 in Caerphilly. I haven't heard anything from you in answer to Jenny that gives me confidence that we're not going to face that situation.

I'm really glad you raised this, because this is a particular concern at the moment in terms of that capital/revenue split. Previously, the SPF was heavily weighted towards revenue, but the new local growth fund is heavily weighted towards capital. The split currently is 70 per cent capital to 30 per cent revenue, and obviously we know that capital schemes will require revenue in order to deliver them as well. But I think the thing that is of greatest concern to me is actually that the papers that were published alongside the budget last week were very, very much providing clarity that, actually, the offer in England for mayoral authorities is different to that in Wales. So, they have a greater percentage of revenue as compared to capital. Yes, they have less funding overall, but I think it's really important that we press the case now with the UK Government. So, I'm taking it up with Steve Reed, the Secretary of State in the Ministry of Housing, Communities and Local Government, and I know the First Minister intends to raise this directly with the Prime Minister when she speaks to him later this week as well.

Okay, but how do avoid a situation where we could see those job losses as a result of this switch to the local growth fund? The Industrial Communities Alliance recently released a report specifically on this, citing serious concerns.

We absolutely share the concern at the very heavy weighting towards capital, and we are taking it up with the UK Government.

With the provisions around capital, then, are you happy with how they're set out?

So, again, we think that the fund should have a greater component of revenue. That's our main concern that we're raising with the UK Government at the moment to try and get some movement on that, especially now that the figures have been provided for England. We think that we should have parity with what's been offered in England. We can't see any logical reason why we wouldn't.

What about the timescales for delivery?

So, again, this is why we've agreed that there will be the further transitional year that we're working with the local authorities on. I met with local authorities through the WLGA and their economy spokespeople yesterday. So, we meet regularly to talk about the progress and to explore particular challenges. Particular areas that we wanted to discuss were around that capital/revenue split, but then also how we mitigate against any problems as we move towards the new programme. So, that is about that additional transitional year. They were really keen as well that we use the existing architecture within the next financial year in order to get the funding through to local authorities. So, we're trying to minimise disruption as best we can from our end, whilst we seek to resolve that critical issue around capital and revenue.

Could I just add, if that's all right? We're very conscious of the transition and getting that right. At official level, we're having very detailed conversations about the consequences of the capital/revenue split to support the Cab Sec in her conversations, but also to help us try and mitigate as much as we can, build in flexibilities as much as we can around the accounting rules. So, we are working very closely, recognising the challenges that it poses, to try and minimise the consequences.

So, it's trying to find some of that flexibility, then. Is that happening when it comes to the three-year timescale for delivery of those capital projects? Because if we think of the levelling-up fund, for example, one of the hard-learned lessons in that was that you need time to be able to get capital projects off the ground, through planning and so on. Currently, if we're setting three years as the timescale for delivery of projects, that's simply not enough. Why would we advocate for a system that we know doesn't work?

So, other UK Government programmes, or, sorry, UK Government-funded programmes, in Wales are more long term. When you think about the investment zones, for example, even though they have a weighting towards capital, they do provide that longer-term outlook again. So, again, this is one of the challenges around having such a capital-heavy programme. Investment zones are over a 10-year investment period, whereas this is less.

So, we would want to move to longer term timescales for the growth fund—that's what I'm trying to get at here.

We've always said that the longer the horizon you can have for these kinds of funds the better. So, we continue to press that, but, as I say, the capital/revenue issue is No. 1 on the agenda at the moment.

Okay. Moving on to steel for a second, the Circular Steel Sub-committee released a report this month—actually, not this month, November; I keep forgetting we're in December already—around circular steel in particular. We know the challenges around steel in Port Talbot—delivery of the electric arc furnace. What conversations are you having with UK Government around the steel strategy? What are the key things that you're pushing for in that steel strategy?

So, we've just provided the UK Government with a written submission now, looking at the steel strategy and where, actually, we think that there need to be areas within it that are strengthened to recognise devolved issues, such as skills, for example. They're very clear now on the amendments that we would wish to see to it, but Kate has been heavily involved in it.

Yes, absolutely. We've put in a submission to make sure that devolved competence is properly reflected in the strategy as it develops and also then the wider issues that the sector faces. A circular economy is just one of those. It's a really important issue for the sector that we're engaged with stakeholders around, and we would hope to see that fully reflected as an opportunity in the steel strategy.

So, where are conversations when it comes to actually getting the scrap steel that we would need for the electric arc furnace? Obviously, we have that project in the pipeline, set for delivery in 2027. We have then scrap steel furnaces here in Cardiff Bay. The pressure on the current supply chain is going to be huge. So, how are we going to, essentially, source the required scrap that we'll need for Port Talbot?

So, that's something that the company, Tata itself, are taking the lead on in their discussions with suppliers, and we're engaged with that. But that is very much their lead at the moment, and they are comfortable with that in terms of our engagement with them.

Shall I add as well that I attend the Steel Council? We have had specific Steel Council meetings looking at the issue of scrap and ensuring that there is a supply that meets the demand.

We've had very different conversations with Tata, because they've been very clear that the UK Government and the Welsh Government need to work together to work out that scrap steel supply issue. They also have highlighted as well energy costs as being a substantial barrier to the sector, in particular when we look at the electric arc furnace. So, has that featured in the conversations around the UK steel strategy? I have a lot of sympathy with the Welsh Government on this, actually, because it must be incredibly frustrating to have the announcement of a steel strategy and for it then to be postponed, when we're facing such a serious crisis within the steel sector here in Wales.

So, absolutely, energy prices are a critical factor for the steel sector, as they are for other industries in the economy. So, yes, that's another issue that we continually push and press that case on—really critical. Steel companies raise it with us all the time, and have done over numerous years. So, yes.

The infrastructure element is linked to the port-readiness questions, actually, that Sam was asking earlier. Sam was right in saying that we are in a situation now where other ports within the UK—notably Bristol, as our closest competitor—are miles ahead of us on infrastructure investment. Thinking towards floating offshore wind, in particular, we had the task and finish group that the Cabinet Secretary set up, which was very welcome. Where are we at now in moving from those conversations to delivery, to be able to get into a position where we're catching up with some of these ports? I've had very interesting conversations with the sector, including the Crown Estate, who have, I think, given a fair challenge around, actually, the timing of announcements, as well as then the convening power of, again, both the Welsh Government and the UK Government, which hasn't been fully utilised. Is that a fair reflection?

I would say the convening power is being used. We spend an awful lot of time at the ports and talking to the ports and making sure that those conversations are happening across all of the partners who need to be involved. But, if that's not something that is felt by the ports themselves, or by strategically important businesses, I'm happy to take that up and see what more we can do to bring those partners together.

The task and finish group itself was, I think, really, really important in bringing together all of those partners—the Crown Estate, the ports, the supply chain and so on—to understand where the road map needs to be to make the investment in the Celtic sea happen, but also then to make sure that we maintain the benefits here in Wales. But, if partners feel that there needs to be more done in that space, I'm happy to pursue that with them.

Okay. What's taken so long, then, to get these things off the ground? If you think the convening power has been used in the way that it should be used, what's taken so long?

Well, we've literally only just had the announcement of the third option for the Celtic sea. We had the other two just months ago. So—

We do know, though, that this has been something coming down the line for a number of years. I accept that we now have the detail around those announcements from the Crown Estate, but surely we would have been preparing years in advance of those announcements being made so that we could hit the ground running once those announcements had been made, if that was what we were waiting for.

So, the work that we did was to map out what was going to happen and when. We were able to explore, with developers, when things would be coming online, when we would expect things to be brought through to the port, when they would need the supply chain to be up and running. The work that the Crown Estate has been doing in relation to its supply chain fund has been really important. So, businesses in Wales have been able to benefit from that to be able to adapt their processes and so on, to be able to become part of that supply chain. So, I think that work is already happening, and that's critical as well.

So, why have other ports been able to make those infrastructure investments then, even though they had the same amount of knowledge as Welsh Government?

So, I think they already are beginning to. So, examples: as the Cabinet Secretary said, if we think about Stena in Anglesey, for example, at Holyhead, they already have provision in place to redo the breakwater in readiness. I met with Stena on Monday at the investment summit and, clearly, surety of that supply chain is key for the FLOW and other opportunities. Combined with the AI growth zone, they certainly have a longevity for investment in their Fishguard and Holyhead ports. So, you're right to point out, but, actually, many pieces have been put in place for a number of years—the breakwater being a classic example of that. I think that acceleration you'll see with the culmination of free ports and the AI growth zones will help to accelerate that, alongside, as the Cabinet Secretary said, the surety of the Celtic sea investment, and once that clarity comes on what's needed and where.

Likewise, I'd add to that, the announcement on Anglesey last week—the week before—around small modular reactors. Again, getting that surety of what's needed and where will really help those private owners of the ports underpin the investment they are increasingly committed to making.

Okay. I'm conscious that I'm coming close to the end of my allocated time, so if I could just move to the investment summit. What's going to be different this time around, when it comes to foreign direct investment? I think it's fair to say, over the years, we haven't been the best at utilising foreign direct investment to augment a lot of the things that we have in Wales already, to really build those supply chains up. So, what's going to be different this time around?

I think, actually, we have a good record on foreign direct investment—

It might be a good record on attracting it in, but what I'm talking about here is: how do we maximise the benefits of that investment to retain the benefits of that investment once, for example, some of these sectors might want to move off? Because it's fair to say—and I don't put this at your door, Cabinet Secretary; a number of your predecessors have been responsible, I think, for some of this—we've seen examples where we've secured investment and then companies have, after a few years, gone. Ford in Bridgend as an example, and Zimmer Biomet in Bridgend.

And we've also got examples where businesses have been here for decades. Panasonic, for example, in—. Panasonic, last year, they celebrated their fiftieth anniversary of operating in Wales, and they're not showing any signs of going anywhere soon, and the reason they stay is because of the good relationship they have with Government, but also the skilled workforce that we provide. I think that that's critical to keeping businesses here: understanding what their skills needs are and being able to respond to those. Those are things that we've been able to be very clear on, in the investment summit and otherwise, that we want to work with businesses to understand their skills needs and make sure they have the people that they need. But then also making sure that we are properly linked up as an ecosystem in terms of innovation and research. So, we've got great capacity in our universities and colleges, and, again, I think that's really important.

I think what's probably different is the focus that we're putting on these specific sectors that we showcased at the investment summit. We showcased life sciences, advanced manufacturing, creative industries and so on, and these are areas where we've already got strengths, and businesses are attracted to areas where there's already strength. So, I think that that approach is going to be really important in terms of making sure that the businesses that do come actually find that we've got something really special here, and that probably you can't find it elsewhere—I'm thinking of compound semiconductors again, for example—and they will stay. So, I think the specific focus that we've put on sectors is going to help with that ability to attract, but also keep those businesses.

And when we've realised the full extent of the investments that have come from the summit, how transparent will Welsh Government be around allowing the Senedd to scrutinise some of those deals that would've been made?

Final point on this.

Yes. Sorry.

So, we support businesses all year round. So, you know, the investments that we see as a result of the investment summit are just part of it. I'll bring Duncan in in a second on some of this.

No, we've run out time. So, if you could just respond yourself. [Laughter.]

Okay. So, the normal ways in which the Senedd scrutinises are available, of course, for these, as they are for all other investments as well.

Thank you, Cabinet Secretary. Alun Davies.

Thank you very much. I've been reading the economic mission published by Welsh Government back in 2021, and also the transcript of your appearance in front of this committee last year, and I'm interested—. You know, 2021 seems like a different age. There's a mention of President Biden's new direction for America in it. It seems like ancient history now, doesn't it? And when you appeared in front of the committee, Cabinet Secretary, last year, you were very clear about certain priorities that you had; I think you referenced AI, green transition and a few other things, and you were establishing some task and finish groups and all the rest of it to look at those areas. So, I'm interested to understand now, as we come to the end of this Senedd, how far you believe that the Government has actually delivered on those commitments and those ambitions.

So, you mentioned AI, and I think we've probably gone even further than I would have even imagined when I gave evidence to the committee a year ago, and I think that really speaks to just how rapidly that particular field is moving. Clearly, this is partly working in close partnership with the UK Government around the AI growth zones. But the AI growth zone in north Wales, that was a private-sector-led bid, but actually the one in south Wales was led by the Welsh Government, bringing together partners. So, we were really clear that this is an area where we can see particular growth. And there has been a whole range of things—I don't know if you want me to go into them—on the office of AI and the AI—

Do you know what I'd really like to know—and it might be better dealt with through correspondence, actually—is a series of numbers? Because what all these documents lack, of course, from Welsh Government, is numbers, targets, objectives, where we can actually hold Government to account. And I'm very interested, therefore, in—. You talked about safeguarding jobs in your appearance last year and I'm interested to know how many jobs you have actually safeguarded. Where are they? What are they? And I'm interested to know, then, to what extent you believe that the Welsh Government has, therefore, delivered, not simply on the approach you defined last year, but also from the beginning of this Senedd.

Well, happily, I've also been interested in the same thing. So, we've been doing some work collating the number of jobs that have been created and safeguarded through Welsh Government support, so particularly through Business Wales. So, it's our direct work, rather than things that happen in the economy anyway. And we've counted so far 46,000 jobs that have been safeguarded or created through support that we've provided through Business Wales or the economy futures fund.

It would be useful if we could have some of that in writing. I don't expect you to—. It's not a test of memory. So, I'd be interested if you could write to us with an analysis of that for the committee to review.

So, in terms of your personal approach to decision making, I've been interested in the way you've responded to colleagues, but also in some of the decisions you've taken since taking office. The investment zones, mainly around Cardiff and Newport and Flintshire; the AI zone in terms of south Wales, certainly around Cardiff and Newport. You talk in the document—the Welsh Government talks in the document—about fairness and equality. Why is it, then, that the Welsh Government is prioritising the parts of Wales where the market is already delivering jobs and investment and not the parts of Wales where the market is failing?

So, I would say that a lot of the work that we do isn't necessarily through the big announcements around AI zones and all the rest of it, it's actually through the work of Business Wales. And when we look—again, looking at the jobs that have been created through the support from Business Wales—22 per cent of those go to people who are economically inactive. And I think that really, you know, demonstrates significant success.

It does.

The flexible skills programme, again, is about supporting people into work right across Wales. So, although the things that attract a lot of attention are around strategically important sectors, investment summits and all the rest of it, actually the day-to-day work is about creating prosperity everywhere.

But can you understand the frustration of my constituents, for example, when they see another investment zone around the M4?

So, in terms of the investment zones themselves, that's a UK Government programme—

It's a Welsh Government programme as well. I thought it was a joint programme with the Welsh and UK Governments.

So, we're working with the UK Government, but when we think about the aims of that programme, the investment programme itself, it was to supercharge growth where things are already growing. So, that in and of itself was not the kind of scheme that we do through other parts of our work.

And you see, this is why I wanted to come back to your decision making, because I do find this genuinely interesting. A Labour Government would, I would have anticipated—and you've said it yourself and through the documentation from Welsh Government—say that it believes that a part of its economic mission is fairness. Now, that implies to me equality as well, and that implies to me greater investment in poorer parts of Wales, where there is market failure.

Let me give you just a little more on the investment zones and the methodology for them. That was about strategic fits around existing economic strengths, capacity for private sector leverage, which essentially spoke to the importance of universities and so on, and being around those places—

I understand all of that. I've read all of this. I would just prefer it if you simply answered the question, because we are limited on time. I understand the criteria and the rationale, and I don't necessarily disagree with it, actually—it's economic orthodoxy, isn't it? So, I don't underestimate that or misunderstand it. But I'm interested in you and your decision making, because, for example, the biggest infrastructure project, I think, that Welsh Government has ever delivered is the A465 dualling, and I think it's been a fantastic achievement of Welsh Government, and I'm really, really genuinely surprised, therefore, that the Welsh Government has not sought to maximise the economic impact of it.

We are absolutely seeking to maximise the economic impact of what is a huge, huge investment. We've talked before about the importance of commercial premises to maximise the A465, so businesses have places to set up and develop. So, through the Tech Valleys programme, we've created 298,000 sq ft of new and refurbished floor space. But alongside that, recently, I agreed that we would go into a joint venture with Merthyr and the Cardiff capital region to develop new industrial units at Goat Mill Road. So, that's the latest example of the approach we're taking.

I know that. But that's very piecemeal, isn't it? And you haven't actually managed to spend all the money through Tech Valleys either. There's been an underspend from the commitments that were made in 2017 by Ken Skates. I think you've spent about 40 per cent of the money you were due to spend on that project. So, you haven't actually delivered the totality of the ambition that was outlined when it was launched. So, I think there are areas there that could do with improvement.

But the fact that you're pointing to individual investments and individual sites really underpins my point, I think, because there is no overarching, strategic thinking taking place. The purpose of it—I've been campaigning on this; a bit of self-interest possibly—was to drive forward economic growth in the poorest parts of the country. That was the purpose that we outlined. So, why, therefore, has a Welsh Government not sought to create that overarching, strategic approach to economic development?

We are doing that at the moment, following conversations that we had about the need to have that strategic approach to maximising the benefits of the A465. We met with Cardiff capital region to discuss how we better bring together Tech Valleys and the northern Valleys initiative. So, as a result of that, the CCR has undertaken or commissioned a report, and it's currently considering that report in terms of what—

But this takes us back—. I'm sorry because we're running short of time all the time, but this takes us back to the thinking within Welsh Government, and this is at the heart of what I'm trying to say. The decision to complete the dualling of the A465, I think, was taken by Brian Gibbons, when the Chair and I were fresh-faced youngsters here. Right?

You were in short trousers. [Laughter.]

So, this isn't a surprising development that it's been completed. It's been planned for years, and only now are you looking at taking this strategic approach. I've asked you this question numerous times in Plenary: how has the Welsh Government not taken the planning of this seriously? And how has the Welsh Government not delivered this strategic approach that I'm trying to advocate for?

I think there were a range of initiatives, all operating. I mentioned the northern Valleys and Tech Valleys, and so on. And now is the time, I think, to bring things more together and in a more coherent way.

Four years ago was the time to bring that together, surely.

There has been an awful lot happening. The way it's described is as if there's nothing happening on the Heads of the Valleys. There is an awful lot happening in that particular space.

I'm not saying there's nothing happening. What I'm saying is there's no strategic approach from you, as the Welsh Government, taking a lead, acting as a catalyst for change.

Can I just comment on that? It's a really fair point.The A465 is the biggest investment. But, actually, if you think about strategic investments the Cab Sec's made, we've mentioned one today—the Global Centre for Rail Excellence is bang on the A465. I'd also add the Baglan site right at the other end, which is the biggest site in Welsh Government ownership—a big strategic investment we're seeking to make. Property is a big part of the play around the A465—quick access out. So, continuing that joint venture work with local government to provide speculative build, which is done at risk, that we're able to put into the market, is absolutely part of it. And I'd add that, in the weighting of things like the economies futures fund, we absolutely apply a weighting for areas of economic deprivation in our consideration.

I understand that.

So, it is absolutely part of—. What the Cab Sec asks us to deliver, strategically, is that broader consideration.

I understand all of that, but none of that answers the fundamental question about the lack of planning, the lack of economic foresight, I'm afraid, Duncan. So, what I'm interested in then is, from your point of view, Cabinet Secretary, on corporate joint committees, are they succeeding? What are the criteria for success that you use? And how will my constituents see the difference?

I know that the Cabinet Secretary for Housing and Local Government has given evidence on this because they sit in her portfolio.

I'm talking about the economic side.

Obviously, from the economic side, we work closely. So, we meet jointly—transport, economy, and housing and local government—with CJCs on a regular basis. I think the approaches are starting to bear fruit. So, all of the CJCs now have their transport plans approved. Those are five-year transport plans, making sure that what's happening locally is aligned to our 'Llwybrau Newydd' approach. So, again, I think that that's been successful, in terms of setting up that approach.

And then the strategic development plans, the progress is also under way. South-east Wales and north Wales are moving more quickly than elsewhere, and they've developed their delivery agreements now and are moving into the development stage soon.

On the economy side, we really welcomed the approach that Cardiff capital region and north Wales took. So, essentially, they lifted and shifted their city and growth deals into the CJC mechanism. So, I think there's a lot of benefit to be had from the approaches that they've taken there.

So, it is a phased approach. Progress is happening. And I think that they're in a reasonable place.

Okay. I want to ask one final question.

Briefly, please.

It would be useful if you could write to the committee again with your expectations by the end of the Senedd, by dissolution, for the delivery of economic development by CJCs.

In terms of defence, you and I have spoken a number of times on the importance of defence, and especially with the current geopolitical situation. How is the Welsh Government planning to deliver specific sectoral support to companies in the defence sector and to strengthen the way, in a more holistic approach, of supporting and sustaining investment from the defence sector in Wales?

We have a lot of engagement with the defence sector. We had ADS in Cathays Park, actually, just last week, hosting a round-table for businesses within that sector, including Airbus and other primes, but also, critically, their supply chain, to make sure that they are better linked up. I speak to them all the time, so it came as a surprise to me that, actually, lots of people were meeting for the first time. So, again, that power of bringing people together, understanding where their capacities and capabilities lie, is really important. This is another area where we've been working closely with the UK Government in terms of developing the defence strategy and the strategic areas. I'm really pleased that Wales has been identified as one of those. So, again, part of this now is about working to release the funding that the UK Government has to spend on defence. It's talked about £250 million across the five different zones it's identified. We've worked hard, I think, to develop a proper understanding of where our capacity and capabilities are. So, we understand, in Wales, actually, that we've got real strengths that they don't have elsewhere. We've got the special airspace, and so on, and we've got lots of training facilities. Those, I think, will be critical to the future. What I'm really keen on, though, is that we don't find ourselves being in a place where there's lots of testing, for example, of drones going on in Wales, but then the manufacturing takes place elsewhere. That's where our eye is at the moment—making sure that we link up that innovation to manufacturing and the benefits or the jobs that will come from that.

Thank you, Cabinet Secretary. Hannah.

Thanks, Chair. Cabinet Secretary, in an earlier answer to Alun, you mentioned the progress that's been made in the area of AI, and we've had the recent announcements about the two AI growth zones, and I understand the AI sector was represented at the recent successful inward international investment summit. I think it's something we talk about a lot, and there are a lot of headlines, but I think there's still a lack of understanding about what exactly that means in practice. So, if I can, with my first question, I want to try and take it back a little bit, just in terms of what is an AI growth zone. What does that mean, and what does the Welsh Government want it to do in practice?

I think that one of the most important things around the AI growth zone is, actually, the designation itself, because it sets out clearly, internationally, that these are particular areas where the Government—both the UK Government and the Welsh Government—is going to be supporting growth. So, in the first instance, it is about these being places where data centres will be developed, but, critically, the UK Government has provided £5 million for each of the growth zones, and it says it's around skills and innovation and research, but at the moment we don't have a great deal more detail as to what that will mean. But what we are doing is making sure that we work closely, recognising, of course, that skills are devolved, so there will be a role for the Welsh Government in that space as well. More than anything, it acts as a magnet, to ensure that other businesses within that space recognise the opportunities. They know there's an ecosystem of data centres, but also expertise within universities and so on, and colleges that are focused on giving young people the skills. So, that designation, I think, has much more value than just the £5 million that is being provided.

Thanks. I'll come back to the data centres question in a minute. I recognise what you're saying in terms of the role of the UK Government and the role of the Welsh Government, but would you anticipate that it needs to be a balance of attracting inward investment and how that can then support the supply chain in Wales, how it can upskill and support small and medium enterprises with the benefits that they may get to grow and then to give back into the economy, with the help and some support of AI?

Yes, definitely. We've got some really good examples already happening in terms of what's happening at Cardiff University, for example, and also through the Hartree centre. They're there very much to support SMEs to explore what AI could mean for their businesses and to unlock those potential benefits. So, that's actually why we chose, alongside the UK Government, to launch the south Wales AI growth zone, so that we could show that, actually, this is about research and innovation and also about supporting SMEs to understand what it can mean for them.

Could I just add, as well, on SMEs all across Wales, outside the growth zones, what we're finding is that there's a bit of a fear factor of 'what AI means to my business', a bit like online retailing 10 years ago? So, we're trying to really focus on the practical implication of how you use AI in kind of co-pilot terms. So, it is really about increasing productivity and changing the way a business operates. We are in the middle of delivering that through the Business Wales service, and we're out there doing those real practical steps of actions for everyday businesses that are at the core of our economy in all parts. That's actually starting to deliver some really effective ways of operation for the smaller sized businesses.

Great. Thanks. I'm aware of time this morning, but, Cabinet Secretary, if you're able to perhaps share some of those examples and perhaps the role of Business Wales in this space, I think that would be helpful for the committee.

We've actually got some good examples around the Heads of the Valleys, which we'll share with you.

I'm very pleased about that.

Just going back to, perhaps, a data centre question that Jenny touched on in her questions about decarbonisation, obviously, there's a level of scepticism about AI and what it means as well, and not just in terms of how we use it and the ethics around it, but also the potential environmental impact. I recognise what you said in terms of there being over 4,000 data centres in the USA, only 3,500 in Europe and just under 500 in the UK at the moment. I recognise that it does go hand in hand with the powering of this technology, but if you could expand a little bit more in terms of what that means in terms of not just renewable energy—because you need the energy to power it, but also there's the impact of needing water to cool—but also in terms of—. A lot of the tech you imagine is going quicker than we could—. You said that you couldn't see where it would be back in 2021, so the tech will become very quickly obsolete as well. So, is there scope, perhaps, from a devolved perspective in Wales to look at how it fits with the circular economy to ensure that any tech brings some value and that we actually reduce our carbon footprint in that way as well?

Yes. In the race for AI and data centres and so on, we have to be doing it in a way that remains true to our Welsh Government values, which are set through the Well-being of Future Generations (Wales) Act 2015, our approach to net zero and so on. We can't take those decisions in relation to data centres in isolation from our wider responsibilities and principles, which is why I think that conversation where renewable energy is part of the conversation always around data centres is critical.

I've read the 'AI Cymru' plan. There's some really good information there, and I think, as to the four core pillars, it's reassuring to see 'ethical' as one of them, with the emphasis on taking that different approach in Wales, because in the committee work and the report we did around AI and the workforce, I think there were concerns around what that means for worker displacement, and one of the things that the committee asked the Welsh Government to do was to look at some more data, some information about those sectors that are going to be most impacted. I hesitate to make assumptions, because you should never make assumption in politics, but if you look at, perhaps, the foundational sector and things—. So, I wondered what work Welsh Government has done to actually start to look at where that displacement might happen and how that can be best mitigated, perhaps working with partners.

I'm really glad that you've looked at the plan, and I was pleased to read it referred to as a blueprint for the responsible use of AI, which I think is really, really positive. We've been working through the workforce partnership council to provide some guidance for the ethical deployment of AI and which recognises that the introduction of AI should be done with the workforce and workforce should be involved. There should always be human oversight and we should remain steadfast in our approach to fair work and so on. So, all of that has been really clear in terms of the ethical approach that we're taking to AI.

There's been lots of work done beyond the Welsh Government in terms of mapping out the jobs that might be most vulnerable to AI. We can share a bit more of that with the committee. But then, it's also to say that AI can actually make jobs more fulfilling and free up time to do the things, within your own job, or the bits of the job you love. We’re already seeing it happen in Neath Port Talbot, where they're using it in social care and that's having really a good impact on the staff themselves who are working alongside vulnerable people, and they're actually able to give more attention, more time to supporting individuals rather than some of the other, what you'd call in the old days, paperwork type stuff.

Thanks. That's really helpful. If I may, Chair, ask one more question.

You've got plenty of time.

I attended a responsible AI conference last week. I don't profess to be an expert by any means from just going to a three-day conference, but it has developed my understanding, which I think is really important given that it is such a prevalent topic now. There is also talk globally about what regulation means, and I think that that's outwith—a lot of it—the Welsh Government, and it could be outwith the UK Government, because you're probably looking at global action and an approach to it. One of the things that did come up where there is, perhaps, scope for us in Wales was around the power of procurement in this space—so, how procurement could be used to set guardrails around the ethical use of AI in terms of systems and investment. Is this something that the Welsh Government, perhaps, could give consideration to? Obviously, there is legislation that I'm familiar with in Wales around socially responsible procurement. Is that something that, perhaps, the social partnership council and others might be considering?

Yes, there is already a lot happening in this particular space. So, we set up the office for AI within Welsh Government. And we actually agree that everybody should have the opportunity to have a bit of a grounding in AI, because it's going to be important to all of us. So, we're rolling out the 'One Big Thing' AI training to all Welsh Government staff. And we think it would be useful, actually, to have a conversation with the Llywydd about making it available to the Senedd, to Commission staff as well, because it does provide a basic grounding that I think everybody is going to need with AI and the responsible use of it.

So, absolutely, we can explore further with the workforce partnership council those points around procurement as well. I think that AI has to feature now in all aspects, really, of the work that we're doing because it's becoming so integral to everyday life.

Actually, if I've got time—

Yes, plenty of time.

—I'll ask one more quick question. I think you touched on it earlier, Cabinet Secretary, around the importance of skills and the role for Welsh Government in terms of the AI growth zone and how that connects to skilling and upskilling. One of the concerns that we've heard around AI is: who controls the data, who's inputting it and is it inputted with a bias? So, it's about what the Welsh Government is considering in terms of, not just skills in terms of further education and workplace skills, but in terms of the education sector as a whole and the school system, and perhaps making sure that there's a diversity of people involved with that process and learning about AI, to negate those concerns around biases that might be inputted in the future. Because it comes down to what we would colloquially say, 'It's about who's in the room', isn't it, as well? It's actually how we shape AI in an ethical way in Wales by actually making sure that the next generation are there in the room, having that say.

Yes, I think that's absolutely critical, and I think that goes back to that kind of basic training that we're looking to explore. Because AI is such a useful tool that I think people need to consider also the information that they input into it. It could be very easy to put commercially sensitive data into it. Obviously, when we're rolling out within Welsh Government, people have to think carefully about the information that they're providing as well. And when a tool is so easy to use, it can almost lull you into a false sense of security. So, I always think, if you're not going to leave your papers on the train, then think again about copying and pasting them into AI. So, I think that there's a lot to do in that particular space as well.

Thank you, Cabinet Secretary and officials. A record will be sent to you of today's meeting. If you have any concerns or observations you want to make, please raise them with the clerking team. Otherwise, that will be the official record of your evidence on general scrutiny of your department. Thank you again.

Thank you.