[R] signifies the Member has declared an interest. [W] signifies that the question was tabled in Welsh.

I have accepted an urgent question under Standing Order 12.66 and I call on Russell George to ask the urgent question.

Will the Cabinet Secretary make a statement following the Public Accounts Committee’s report into the Swansea-based firm Kancoat? EAQ(5)0121(EI)

Yes. I and my officials have assisted the Public Accounts Committee at every stage of its considerations of this issue. I have received, and very much welcome, the committee’s report and will be fully responding to it.

Can I thank the Cabinet Secretary for his answer? The report produced by the Public Accounts Committee raised some very serious concerns, I would say, Cabinet Secretary, over the conduct of the Welsh Government, as yet another substantial pot of taxpayers’ money—£3 million—has been lost. There are some questions over accountability, and this is sadly not the first time that taxpayers’ money has been wasted by the Welsh Government. We’ve had numerous other questionable decisions, including the regeneration investment fund for Wales, Kukd and Triumph. I certainly do not believe that Governments should not take risks; I certainly believe they should, but they should do so in a balanced way. In relation to Kancoat, time and time again, the expert advice given to the Welsh Government warned that the company had a weak business plan and was a high-risk investment. So, can I ask why, in your opinion, Cabinet Secretary, was the advice ignored—also bearing in mind, of course, that the Government’s investment arm, Finance Wales, rated it as being unacceptably high risk? What is your determination on this, given the changes I know that you’ve made in your department since you’ve come into post, and is it your view that the department you inherited was simply not fit for purpose? Have you mentioned—? You’ve mentioned in recent statements that you’ve now put new procedures in place; what are these new procedures? I think that’s the crucial question here. And finally, where do you think accountability lies? Is it with your predecessor, or is it with officials?

Can I thank the Member for his questions? We are learning at all times and, indeed, my predecessor made changes within the department when she inherited it. Indeed, my predecessor introduced the investment panel procedure to strengthen oversight of investment considerations and to ensure that where risk was being considered an informed decision could be made. The deputy permanent secretary is on record as saying that, in this instance, the investment panel got it wrong and, therefore, provided advice to the Minister that was wrong. But I think, and the Member recognises the fact, that we have to balance risk against opportunity. And it is, as the First Minister has already identified, a case, a fact, indisputable, that in the previous Assembly term, during which time my predecessor oversaw record growth, the success rate of businesses supported by Welsh Government was more than 97 per cent. That compares incredibly favourably to the Welsh average and, indeed, even better to the UK average. So, I think it is actually a very proud story that we have to tell about the business support success of Welsh Government. Nonetheless, not all businesses survive, not all businesses succeed. We will do what we can to help businesses thrive, but there will be cases, especially in the context of the post-financial crash, where businesses were established and where the economic climate was not such that it was stable and enabled the forecast growth to be achieved.

We do have a number—and the Member recognises this—of procedural changes that have been implemented. I’d happily write to all Members with details. In fact, as the leader of the Conservatives, I think, wishes to know what they are, I will offer them now: consideration of commercial loans now forms part of the investment panel procedure; the senior management team must now ratify any recommendation by the investment panel for commercial loans above £1 million; as part of the financial approval process, a standalone appraisal of all projects involving commercial loans must now be undertaken; the monitoring of loans has moved to the central monitoring team—that was an agreed departmental protocol; loan applications are more robustly assessed for their ability to repay by undertaking appropriate financial due diligence; a further change in procedure, which the WAO recognised was a standardised approach to risk assessment, has been introduced to ensure consistency across funding schemes, and where multiple interventions are being considered, they are now considered by a single body, with appropriate advice from the property leadership team. There are other procedures that we have introduced in the fourth Assembly. There are further procedures that I’ll be introducing as well.

In terms of the recommendations that are made by the committee, and I do value the work of the committee and, indeed, the report that’s been produced, I think it would be very difficult to disagree with any of those recommendations that have been made that are relevant to my portfolio. Whilst I will be responding in due course to all of the committee’s recommendations, I can say that I already accept a number of the recommendations and, indeed, I’ve already implemented some.

Of course, one recommendation you can’t respond to, but which must lay on file for the moment, is the wider recommendation on ministerial responsibility, taking decisions that are important to a Minister’s constituents and constituency, but not actually based in the constituency. The Public Accounts Committee says that the perception of a conflict of interest is just as important as an actual conflict of interest. On this occasion, I suggest that the First Minister took his eye off the ball and didn’t realise what procedures should be followed, and another Minister should have taken this decision.

Can I also ask the Cabinet Secretary and tell him that I wrote to his predecessor, Edwina Hart, on 1 August 2014—several weeks before the company went into administration—raising with her several serious concerns expressed to me by workers at the company who are resident in my region, in Llanelli, because workers from this company are spread over quite an area? They were particularly concerned at the lease that had been taken out by the then Welsh Assembly Government, which I was told was worth £1.25 million and ran for five years without a break clause within those five years. Can I understand, therefore, are you still subject to that lease and what is the ongoing cost of that lease to the Welsh Government? Because that would seem to be in addition to the costs we’ve seen so far in the Public Accounts Committee report and I’d like confirmation of that.

The second element that gave great concern to the workers at the plant was the fact that several directors, at the time they were laying off workers, were employing themselves for a period of time at a cost of up to £7,000 per month, as self-employed consultants or otherwise employed full-time with Kancoat. This was a time when the company was seen to be struggling publicly, and I raised this directly with your predecessor. The answer I got from her was simply one to say that all full and thorough due diligence had been undertaken. We now know that that doesn’t seem to have been the case. What do you say now, two years down the line, to the workers there who were raising these concerns, and are you completely assured that the directors of this company did not take any money for themselves, personally, out of the unfortunate situation that the company found itself in?

Can I thank the Member for his questions as well? I do believe that the question of ministerial responsibilities is one for the First Minister. I would warn against requesting that all perceived conflicts of interest are dealt with in a way that would potentially cause inertia within Government. We are a small country with—particularly in south-east Wales—a very wide travel-to-work zone, and so it’s important, whilst recognising the need to ensure that there are no perceptions of conflicts of interest, that we do enable Ministers to be able to make decisions on a regional basis. However, this, as I say, is a matter for the First Minister to respond to. I’ll happily review all correspondence, with his permission, that the Member sent to my predecessor, which he’s raised in the past, and the concerns that he has expressed in the past. I’ll check against due diligence, but it’s not necessarily the case that due diligence would have failed. It is that a risk assessment was carried out based on the information that had been provided, and then a decision was based on that, further to the investment panel’s considerations.

In terms of the question of the lease, this relates—I believe—to recommendation 11, and the wider question of any ongoing financial costs to the Welsh Government. There is active interest from investors in the site, and once the outcome of the negotiations is known, officials will share any financial implications with Members of this Chamber. I also will undertake to investigate, with regard to the final question the Member has raised, whether the directors of that company stand to benefit at all post the company’s collapse.

Cabinet Secretary, thank you for your earlier answer. Can I firstly welcome the Welsh Government’s commitment to providing a full response to the committee’s report on the Kancoat situation? As you said, your response to the report will be considered in full by the committee, so I don’t want to prejudge that stage of the process, or indeed be repetitive with questioning. I’m pleased to hear that you’ve already said that, in principle, you are prepared to accept a number of the recommendations of that report, and I think you also said that you’ve already taken steps to see that those are put in place, and that’s a really positive step, so thank you for that.

Can I ask you, on a broader issue, do you welcome the intention of the Auditor General for Wales to undertake a broader value-for-money examination of the Welsh Government’s approach to business finance, and will you and your officials co-operate with this examination later this year? It’s obviously, if it goes ahead in the format that the auditor general is considering, going to be a very large piece of work, but I think it will be a useful one, both for the Government and also the public to have confidence that procedures are in place to make sure that the sorts of problems with due diligence, and the rest that we’ve seen with Kancoat, don’t happen again. Can I just say, Cabinet Secretary, that the committee does recognise how vital Welsh Government funding is for business in ensuring the future prosperity of Wales—a point made by Russell George in his opening question—and we want to ensure that it’s administered to best effect? We welcome the planned work in ensuring that taxpayers’ money is well spent in the interests of efficiency, value for money, and with wider economic benefits, and I look forward to your response to the committee, and I’m sure that we can move this situation forward.

I’d like to thank Nick Ramsay for his questions, and also for overseeing this inquiry as Chair of the Public Accounts Committee. Yes, we will be working closely with the auditor general, and I very much welcome his intention to carry out a broader investigation of business support by Welsh Government. One of the additional procedural changes that are being introduced through a wider level of activity for the investment panel is the ability to pause and reflect on the work that’s being carried out by the team of officials that will be the project lead on investment programmes and I think that has enabled us to get some peer review of the work that’s taken forward by one group by a different group in Government. I can tell the Member at this moment that, in terms of the 11 recommendations, I’ve already stated with regard to the final recommendation that there is active interest, and I will provide Members with more information about the outcome of negotiations as they are completed.

Running briefly through each of the recommendations, with regard to recommendation No. 1, we’ve already started to define advanced materials and manufacturing, and I think that the advanced manufacturing research centre in Deeside is a case in point. With regard to recommendation 2, that, I believe, should be accepted, and we’ve already begun incorporating the recommendation into procedures. With regard to recommendations 3, 4 and 5, again, in principle, we accept the recommendations, and it’s entirely appropriate to revisit the guidelines on non-repayable business finance in light of changing business needs and the economic climate. With regard to recommendation 6, again, a recommendation on risk identification and proposed mitigation is accepted I think—should be accepted—and, again, is being implemented.

And, turning to recommendations 8, 9 and 10, again, we’ve accepted those, and are implementing them.

I accept what the Cabinet Secretary said about the nature of risk. Indeed, the First Minister said earlier on in questions that not all investments, however careful you are, are going to succeed, and it would be unreasonable to be too critical when they fail for reasons that are beyond our control. The deputy secretary said in evidence to the Public Accounts Committee that the Government’s role here is effectively as a lender of last resort, and he said:

‘Financing things that the private sector won’t finance implies taking risks that the private sector won’t take, which implies things are going to fail.’

So, you start out from a position where you have to be hyper critical.

But what we’re dealing with here is a case where the due-diligence advice that was received by the Government’s own advisers was not accepted, and I don’t think the Cabinet Secretary answered Russell George in this respect earlier on. What the due-diligence review said was that the business plan in 2013 was ‘weak and inconsistent’, and the inherent risks of the start-up remained. The replacement of Coilcolor as a major shareholder, and the loss of their guarantee, left the risks identified essentially as unmitigated. And the proposal invited the Welsh Government taking on a significant landlord risk in addition. So, the project was identified as high risk in the initial assessment, and then there was a revised assessment, which actually increased the level of risk rather than mitigated it. So, what we really need to know here, to put this in the context of the Government policy on using taxpayers’ money for these purposes, is why that due-diligence report, which, on the face of it, seems to have red lights flashing and alarm bells ringing in a big way, was not accepted. What was it that the advice given to the Minister contained that overrode all those apparently very obvious warnings?

Can I thank the Member for his questions, and also for recognising that there are inherent risks in meeting market failure insofar as business support is concerned? I do believe that, as a result of implementing 10 procedural changes that have been recognised by the Wales Audit Office, we have improved the system of monitoring and evaluating the risks applied to requests for business support. It’s not the case that due diligence was rejected outright. It was that the due diligence was considered alongside the potential benefits, and therefore the investment panel made a recommendation on this basis to the Minister. But, as I’ve already said, it’s accepted that the advice that was given by the investment panel was wrong. They got it wrong, and this has been recognised from within the civil service.

I think we need to reflect on the context—the economic context—against which the decision was made. There was an appetite to ensure that we had economic growth at a time when we’d just come off the back of severe problems caused by the financial crash, and therefore the appetite for risk was perhaps greater than it might be today, where we have been able to build up economic growth over a number of years, improve employment levels now to near record levels, drive down unemployment rates to below the UK average—indeed, to a record low. And where we can now say with confidence that, as a consequence of business support during the fourth Assembly term—where I do recognise there were some failures—as a result of the support, we ensured that 97.4 per cent of those businesses thrived and succeeded. That is way above the Welsh average across the economy, and, indeed, even better still than the UK average.

Isn’t part of the problem that the investment panel that provides advice to Ministers wholly consists of civil servants, who are accountable to the same Minister? And that doesn’t really therefore constitute independent advice, particularly in cases where the Minister may be thought to have a particular view about a project.

Now, of course, we have the Welsh Industrial Development Advisory Board, which was set up precisely for this reason, is independent—actually, where the Minister goes against their advice, they have to report to the Assembly, so that we can have proper transparency. Surely, every decision on business support should be given over to that independent body, or, actually, if the Minister wants to go even further, he could take it out of Ministers’ and civil servants’ hands completely, and give it to the new development bank, which will probably, it seems, be led by Finance Wales, which, in this particular case, showed themselves to have a better assessment of the risk that this represented than his own officials. And, finally, could I ask him, since the head lease that the Welsh Government entered into represented a contingent liability, was it listed in the Welsh Government’s consolidated accounts?

Can I thank the Member for his questions? I will need to check the details of the final question that the Member has raised, and I’ll write, not only to the Member, but to every Member in the Chamber.

With regard to the WIDAB, that was a sponsored body that’s had statutory status since 1975, or, rather, under the Welsh Development Agency Act of 1975. And, as the Member is aware, it considers decisions where a grant is sought that is in excess of £1 million. There has been a review of the threshold level. That was conducted, indeed, by my predecessor, and that was in January 2013. I think it’s timely for us to review that again, as the Member has suggested, and I’m happy to do so. Consequently, because there was the £1 million threshold, it was not presented with any of the Kancoat cases, as they were not within the remit of the board.

But I do have to say again that my predecessor strengthened procedures. Indeed, she inherited a department where there was no investment panel to consider carefully, as a pause and reflect mechanism. Before my predecessor took charge of the economic portfolio, decisions were largely made by the Ministers, on the basis of advice from officials, without that important pause and reflect mechanism that my predecessor introduced.

I thank the Cabinet Secretary.