Diolch yn fawr, Lywydd. Before this Assembly debates the legislative consent motion the Wales Bill later this afternoon, I’d like to make a statement about the fiscal framework agreed between the Welsh Government and the UK Government last month.

As the Wales Bill has progressed through the UK Parliament, the First Minister has been clear that it would be a significant barrier to the Welsh Government’s support for the Wales Bill if we were not able to reach an agreement with the UK Government on a fair, long-term funding arrangement for Wales. I believe that the fiscal framework agreed with the Chief Secretary to the Treasury addresses that concern. It provides a step forward in the way Wales is funded, taking account of the new tax powers that will be devolved in 2018, and paves the way for the devolution of Welsh rates of income tax in 2019. I shall set out my own judgement categorically at the start of this statement, Llywydd: it’s my belief that this is a fiscal framework that is fair to Wales and fair to the rest of the United Kingdom. It means that fiscal arrangements are no longer a barrier to supporting the Wales Bill, if that is the intention of this National Assembly.

The framework was agreed following an intense period of negotiations with HM Treasury. The result is a complex package of interrelated arrangements. At their heart is the reform of the Barnett formula, as applied to Wales. For the first time we have reached agreement with the UK Government on a funding mechanism that will reflect the relative needs of our population. The reform of the Barnett formula represents the culmination of many years of representations by successive Welsh Governments. I pay particular tribute to the work of my predecessor, Jane Hutt, who achieved a major breakthrough in securing the first ever agreement to a funding floor for Wales. I also want to acknowledge the support of other parties in this Chamber, who have shown their commitment to securing a fair deal for Wales and I have no doubt that that strong cross-party agreement has been genuinely influential in delivering this funding settlement.

The framework will see the implementation of the funding floor recommended by the Holtham commission and it is set within the Holtham range at 115 per cent of comparable spend in England. While relative funding in Wales remains above this level, all funding through the Barnett formula will be multiplied by a transitional factor of 105 per cent. This will both slow down Barnett convergence and deliver extra resources for public services in Wales. Taken together, our estimates are that the agreement as a whole will provide up to £1 billion in additional revenue for Wales over its first 10 years.

The fiscal framework sets out the block grant adjustment for devolved taxes. Land transaction tax and landfill disposals tax will be devolved in April 2018. The framework was explicitly negotiated to agree the arrangements that would be required were the Wales Bill to be passed, should that be the will of the National Assembly and of Parliament, including removal of the requirement for a referendum on income tax. The framework as agreed takes into account Wales’s circumstances, particularly our income tax base, which is different to that in England. This will protect the Welsh budget from the impact of significant potential policy changes by the UK Government.

It is on that basis that I am today setting out the Welsh Government’s intention to introduce Welsh rates of income tax from April 2019, subject to the passage of the Wales Bill. Welsh rates of income tax, together with land transaction tax, landfill disposals tax and existing local taxes—non-domestic rates and council tax—will give the Welsh Government a new set of tax levers to support public spending and to underpin the success of the Welsh economy.

Llywydd, in other aspects of the agreement, greater tax devolution will provide an increased source of capital as well as of revenue spending for Wales. In the fiscal framework, our capital borrowing limit will double from £500 million to £1 billion. This will give us the tools to better manage the infrastructure investment needed to support the economy and wider public services in Wales. That higher borrowing ceiling will be introduced when Welsh rates of income tax are implemented.

To give us greater flexibility to manage our resources in a more efficient and transparent way, the framework allows for a new single Welsh reserve to be introduced from April 2018. This will operate as a sort of savings account, allowing us to deal effectively with any volatility from tax revenues by retaining unspent revenues for use in the future. The reserve will also allow us to manage the end-of-year position without the need for annual negotiations with the Treasury.

Llywydd, we have also secured independent oversight as part of the fiscal framework. For too long, the Treasury has been able to act as judge and jury in funding negotiations. Both the Holtham and Silk commissions recommended a role for independent bodies to oversee financial matters between the Welsh and UK Governments, and this has now been agreed in the fiscal framework. In future, this will apply to the operation of the framework and will include a role for bodies independent of Government to provide input into any disagreements between the Welsh and UK Governments about the implementation of the framework itself. Taken together, this package of arrangements will deliver funding that reflects the relative needs of Wales, it will protect our budget from undue risks that could follow tax devolution, and it will strengthen the ability of the Welsh Government to manage our own resources.

Llywydd, I said at the outset that the agreement is sufficient to enable the Wales Bill to be considered on its own merits. As we move towards the LCM debate, however, I must also, for the avoidance of doubt, confirm that the interrelated nature of the provisions in the framework means that if the Wales Bill is not passed, the fiscal framework as I have outlined it this afternoon will not be implemented. In those circumstances, we would have to renegotiate the adjustment to our block grant to allow for the devolution of stamp duty land tax and landfill tax in April 2018. Which of the other measures could be secured and at what cost could only become clear as a result of the renegotiations themselves. In the meantime, Llywydd, I commend this framework, designed to meet the unique circumstances of Wales, to the National Assembly.