We now move to questions to the Cabinet Secretary from party spokespeople and, first this week, the Conservative spokesperson, Nick Ramsay.

Diolch. Cabinet Secretary, welcome to you your new role and thank you for your initial discussions with me about some of the challenges that we face over this Assembly term.

Secretary, the last week has certainly seen a seismic change in the political landscape, welcomed by some more than others in this Chamber. We are now faced with a number of key questions about the future funding of Wales. As you develop the new tax regime and the new tax legislation that was mentioned by the First Minister yesterday, can you update us on what progress is being made with the fiscal framework?

I thank Nick Ramsay for his opening remarks and for agreeing to meet me to share some information about the challenges that we are currently facing. He’s absolutely right to say that those are shaped by the post-referendum landscape. I have had a discussion already with the Chief Secretary to the Treasury. We agreed in that telephone conversation that we would meet before the summer recess, and the plan we talked about then was for a series of meetings during the autumn in order to agree the fiscal framework that will be absolutely necessary for us to operate within once tax-raising powers come directly to Wales. The meeting before the summer recess is in the diary and will take place. No doubt we will have to calibrate some of the plans for the autumn against some of the events—a further budget, for example—which we know are now going to take place.

Thank you, Secretary, and, as you know, you have our support in terms of developing an effective fiscal framework. As you will know, I’ve long been concerned about the mechanism for making reductions to the block grant, following tax, particularly income tax, devolution. If we get the wrong mechanism, Wales could be significantly short-changed over time in a way that may almost force tax rises. Scotland got an agreement with the Treasury that variables such as population change should not be a risk borne by the Scottish proportion of income tax and it should be factored into the block grant. Are you seeking the same deal for Wales?

It’s absolutely true to say that Scotland has already been around this track in agreeing a fiscal framework to surround the devolution of tax powers to the Scottish Parliament. In many ways, we are fortunate to be following them around that track, both because the Scottish Government has been generous in sharing their experience with us and providing us with some insights into their discussions with the Treasury. It’ll be no surprise to Members here who followed that story in the press that those discussions were not always plain sailing and had their acrimonious moments. The acrimony revolved around the key ‘no detriment’ principle. It is absolutely essential to us here in Wales that when there are adjustments to the block grant to take account of taxes that we will now raise in Wales, that those adjustments reflect decisions that are in the hands of the National Assembly, for which we must all be willing to take responsibility, and must not be based on decisions over which we have no influence at all. The population dimension, which Nick Ramsay referred to, was at the heart of some of those discussions. The Scottish Government successfully argued that the block grant adjustment should not penalise Scotland for changes in their population, which were more influenced by Westminster decisions than by decisions taken in Edinburgh. I will certainly expect that any deal for Wales would reflect exactly that ‘no detriment’ approach.

Secretary, I don’t have to tell you that this is an extremely complex area, but it is one that is very important to our future fiscal well-being here in Wales. On the Barnett formula itself, clearly, withdrawal from the European Union and the subsequent loss of EU funding will make Barnett reform even more imperative than it was before. What assurances are you seeking, or have you sought, from the Treasury that the Barnett floor that we all agreed to is permanent? And will there be an ongoing review of the Barnett formula over the months and years to come to ensure that it is delivering for Wales and the amount of money we get is not adversely affected by decisions across the UK?

Again, I thank Nick Ramsay for those two important points. Members here will know that my predecessor in this post, Jane Hutt, after a great deal of negotiation, succeeded in obtaining an agreement to a funding floor from the Treasury for the length of the current comprehensive spending review period. In the fiscal framework negotiations we will be arguing hard for making sure that that funding floor is made permanent. It needs to be a permanent part of that framework and the landscape that it provides here in Wales and that is one of the ways in which our negotiations will need to go beyond the position established in Scotland. However, as Nick Ramsay went on to say, the uncertainties created by last week’s vote—not simply in relation to our United Kingdom relationship with Europe but relationships within the United Kingdom as well—mean that the whole Barnett formula has to be revised. The First Minister wrote to the Prime Minister on 27 June and made it very clear in that letter that the time is now to examine and re-examine the Barnett formula. The time is surely right, he, said to introduce a needs-based formula in Wales so that a United Kingdom outside the European Union is seen by its citizens as fairly recognising their needs and circumstances. And I think that is absolutely correct.

Plaid Cymru spokesperson, Adam Price.

Last week shows us to be a politically divided country, but the economic divisions perhaps run even deeper, which may be one of the underlying reasons for the result. The financial Secretary has signalled his determination to win full financial recompense for Wales in the wake of our leaving the EU and he’s just referred to the need to revise the Barnett formula. Can I ask if he or his officials have now made an initial assessment of the financial shortfall that Wales may face? And, given the political vacuum currently, can the Welsh Government turn this to Wales’s advantage, not just in calling for the Barnett formula to be revised, but in setting out in detail the formula that they’d like to replace it with?

I thank Adam Price for those questions. I think he makes an important point in opening about the way that patterns of voting in the referendum follow economic lines right across the United Kingdom. As far as estimating the impact on Wales of last week’s decision, there are two particular ways in which we have to assess that, one of which is easier than the other. There will be the direct loss of European funding that would otherwise have come to Wales, I think, during this current structural funds period. We would’ve been able to draw down funds under this period up until 2023. We will have left the European Union, it seems, before then and at that point our ability to draw down European funding will end. We have committed over £700 million of the current round already. That is 40 per cent of the total that we would be able to draw down during the 2014-2020 round and we will be looking to maximise the potential draw-down of those funds. The First Minister argued in his letter to the Prime Minister that he should be negotiating for us to be able to continue to draw down those funds over the whole of that structural funds period. But, we will have to await the outcome of the negotiations for that. But, on those figures I think we are well placed to make an assessment—and some of the facts of that I’ve just mentioned.

The second way in which Wales will be affected by the economic consequences of leaving the European Union will be through the budget that we now know we face in the autumn of this year: a budget in which we are told there will be tax rises and public expenditure cuts and those expenditure cuts will no doubt feed their way through into the Welsh budget. It’s much harder to make any assessment of that, but in the Welsh Government we will certainly be doing what we can to prepare on a contingency basis for them.

It is right that Wales, of course, should not lose a penny as a result of the loss of the structural funds. But is it also not the case that this level of funding was necessary, but insufficient? Because, I mean, over the course of the last 17 years since we’ve had Objective 1, the prosperity gap got bigger. What Wales needs, surely, is not the equivalent level of regional aid, but more. A Marshall plan for the Welsh economy—not just additional funds, but new tax powers that could give Wales a competitive advantage in the new economic landscape. Now that the European Court of Justice Azores ruling on tax competition is no longer set to apply, will he be making the case for Wales, like Northern Ireland, to set its own corporation tax rates, as well as gaining other powers over research and development tax credits and capital allowances?

Well, people who listened to the claims made by the ‘leave’ campaign during the referendum will have gone away, I believe, not thinking simply that Wales would do as well as we had done under the previous regime, but that there would be a new flow of funds into public services, and into places where it is most needed as a result of that decision. And of course as a Welsh Government we would want to argue exactly that case.

The Wales Bill, if it reaches the statute book, will provide us with some new powers to propose new taxes here in Wales. Whether corporation tax should be amongst them, I think is something that we will no doubt want to debate—personally I’ve always felt the case for it to be very weak, and much more likely to result in a race to the bottom, in which we take less money from corporations to fund public services than we have in the past. It’s a dilemma you will see being actively rehearsed in Northern Ireland at this very time.

Well, the finance Secretary speaks of a race to the bottom—I have to say to him that economically, it’s a race that we in Wales comprehensively won. And that’s the problem that we have to address. Now, asking Westminster for new fiscal levers is an important response to the economic challenges we’ll undoubtedly face, but so is using the ones we have now more effectively. Currently, the Welsh Government has committed to financing three programmes using the non-profit distributing model of financing investment, totalling £1.9 billion.

Figures we produced during the recent election campaign showed the Welsh Government had the capacity to more than treble that figure to £7.3 billion—three times the structural funds programme that he referred to. While we wait for others to act for us, isn’t it time that we, in this Chamber, started to demonstrate that when the circumstances demand it, we too can be bold? Or is the Welsh Government going to demonstrate the same absence of proper planning and true leadership that is currently turning Westminster into a Parliament of clowns?

Well, we certainly don’t need to wait, because as the Member said in his question, we have already begun to do just this. There are three schemes already under development, and a range of other potential schemes that could follow down the same route. So, the non-profit distribution model is a means of trying to draw into the Welsh economy ways of financing capital investment in particular, at a time when public capital is diminishing so very rapidly.

We will learn a lot, and need to learn a lot, from the three schemes that we have already started to develop, if they can be made to succeed. There is a great deal of work to be done to find out whether they can succeed, and Scottish colleagues who’ve been round this course already have found that classification decisions that they weren’t anticipating, by Eurostat and by the Office for National Statistics, have meant that they’ve had to re-draw the schemes that they began with. So it’s not a matter of being able to take something off the shelf that you can simply apply. Eurostat may not be a problem for them in the future, but ONS will be. So there is no model that you can simply pluck off the shelf and apply, and say, ‘hurry up and do it’. There is a lot to learn to make sure that we develop a model that is right for Wales. We have three schemes in the pipeline; there’s more we would like to do, or we will need to learn it as we make it happen.

UKIP spokesperson, Gareth Bennett.

I would like to congratulate the Minister on his latest appointment. I slightly regret to remind him that he was once my local councillor on the old South Glamorgan County Council. There may be more regret on his part when I recall that this was some 30 years ago; I was, of course, myself a mere boy at the time. My first question relates to local government reorganisation. I see that Sian Gwenllian has a question on this point tabled, but it’s number nine and we may not get there, so I hope she won’t mind if I pinch her question—[Interruption.]

Excuse me. Can I just say—? You listened to the spokespeople from other parties with some silence and dignity, and I expect the same for Gareth Bennett. Diolch.

Thanks, Llywydd. I’m sure Sian won’t mind if I pinch her question, which is: what is the timetable for local government reorganisation?

I thank Mr Bennett for his opening remarks and for reminding me of my own lengthy political history from 30 years ago. Local government reorganisation the last time happened while I was a councillor, just to show how far back that happened. The timetable that I’m hoping to pursue is as follows: there is a necessary period over this summer in which I want to spend my time listening and learning from those who have a view of this matter. I met with trade unions this morning from local government to hear what they had to say, and I’ll be meeting with local authorities and others. I want to see whether it is possible to create some sort of consensus about the way forward. I recognise the corrosive effect of delay on the lives of people who work in local authorities, and I’d like to be able to bring that to a conclusion as soon as I can. But, that does depend on creating a sense of shared purpose in the future of local government organisation here in Wales. If that matures quickly, I hope to be able to come forward early in the autumn with a statement. If it takes a bit longer, it will be a bit later in the autumn, but that’s the timetable that I’m working to at the moment.

Thanks for your comments. I’m glad to see that you will be pursuing a consensus and hopefully there will be a better outcome than the last proposals we had from your predecessor. But on that subject, what will your thoughts be regarding voluntary merger proposals such as we had between the Vale of Glamorgan and Bridgend a year ago, which were rather cavalierly rejected by Leighton Andrews?

I don’t think it would be right for me to reach conclusions this afternoon having just said that I wanted to spend a period of time listening and learning. I’ve met about half of local authorities in Wales, Llywydd, so far, so I’ve got half still to go. I’m meeting Pembrokeshire, Carmarthenshire and Ceredigion tomorrow, and I want to make it clear to them that I’m just as open to what they have to say as anybody I’ve spoken to so far. The merits of voluntary mergers have been advocated by a number of people that I’ve met in the first half of my visits around local authorities in Wales, and I’m very open minded to hearing what other people have to say. I’m not in any way ruling them out of the future way that we do business in local authorities in Wales. But I’m not coming to a conclusion until everybody who has a right to be part of this conversation has had a chance to make their views known.

Thanks, Minister, for that; that sounds hopeful. Another issue we have at the moment in many areas, particularly Cardiff, is proposed major housing developments, which are often opposed by local residents. Concreting over the green fields is a fairly apt description of the current proposals for Cardiff, which have been alluded to several times by the new Plaid Cymru regional Member. Now, the UKIP Assembly manifesto included a proposal for local referenda on controversial major housing developments. Would the Minister be minded to consider such legislation, and would he be likely to look favourably upon that kind of proposal?

A draft Bill was put forward by my predecessor, which included a great deal more than simply changing boundaries on a map. It included proposals for altering local referenda. They would not have done it in the way that the Member proposed, and I don’t have any current intention to move in the direction that he advocated.