The next item is a statement by the Cabinet Secretary for Economy and Infrastructure on the development bank of Wales. I call on the Cabinet Secretary to make a statement. Ken Skates.

Thank you, Llywydd. I am delighted to announce today that we are delivering one of the key pledges contained in our programme for Government by creating the development bank of Wales. I’m particularly pleased that the development bank will address market failure across business finance by focusing support for micro, start-up and innovative businesses across Wales. This means that businesses will have access to the finance they need to become fitter, bigger and stronger. The development bank will be a strategic national asset that is unique in the UK and one that provides a competitive business advantage for Wales over the rest of the country. It will help to provide the growth finance and business support required to attract, build and retain microbusinesses and SMEs in Wales, both today and into the future. It will build on the success of Finance Wales and learn from the very best development banks around the world.

Suzy Davies took the Chair.

The development bank has an ambitious, five-year plan to generate more than £1 billion of investment to support the Welsh economy. It will help businesses to support over 5,500 jobs per annum. The development bank will significantly increase the availability of funding to SMEs to £80 million per annum within five years, compared with £56 million in 2016-17. It will increase the impact on the Welsh economy by over £170 million per annum by 2021-22, taking private sector leverage into account. In recent years, the targeted provision of finance made available to microbusinesses has trebled from £6 million to £18 million. This has enabled businesses with fewer than 10 employees to quickly and efficiently borrow from as little as £1,000 to £50,000. The development bank will continue to prioritise this important market segment in Wales, which is also the lifeblood of our rural economy, and I’ll say more on this later.

The new bank is developing a culture of continuous improvement. Working with Business Wales, it will improve its online customer services, helping more companies to benefit more efficiently. Not only will the bank improve access to existing financial products, it will also identify future business needs and create suitable new products. To help do this, the development bank of Wales is already working with the Office for National Statistics, Cardiff University and other academic institutions so that they can better understand the financial issues that SMEs face, and develop appropriate new solutions.

I am clear that the new bank should not lose sight of its primary function of providing money with management. This includes providing gap finance alongside private sector funders, to enable deals to materialise that wouldn’t otherwise do so, and providing a full range of management support in addition to simple finance. Whilst approving these ambitious plans for the development bank today, I am pleased to see that the bank will have a presence across the whole of Wales. This includes the rural areas across Wales where market failure in the banking sector is most pronounced. Recognising its pan-Wales role, the bank has organised a series of launch events across the country during October.

The development bank is a major component of Welsh Government’s strategy to deliver a more prosperous and secure Wales, as set out in ‘Taking Wales Forward’. It will differ from Finance Wales, not only in terms of the increased scale of funding available to Welsh businesses, but also better business support in collaboration with Business Wales. The organisation already manages significant operations on behalf of other Welsh Government departments, most notably Help to Buy, which falls under the remit of my colleague Carl Sargeant, Assembly Member, Cabinet Secretary for Communities and Children. I also believe there is potential, though, for the development bank to further extend its provision of financial services in the future, to support other Welsh Government departments to develop innovative and cost- effective solutions.

The transition of Finance Wales into the development bank is already well under way on a number of fronts, including delivering a number of new funds and significantly increasing support to SMEs, now and in the future, for example, a management succession fund, new technology seed finance and a working capital fund to support fast-growing businesses. Also, work is taking place on establishing the new intelligence unit; creating an angel co-investment fund with related support; developing new branding for the development bank; and improving online interaction with customers, making it easier for customers to get advice and funding online.

We are also committed to establishing the headquarters of the development bank of Wales in north Wales by the end of this year. The bank will have a regional presence to support the department’s regional footprint. Work is already ongoing to identify suitable premises in and around the Wrexham area, where the bank aims to grow to 50 staff over the next two years.

Today, I am delighted to confirm that I have approved the establishment of the new £100 million Wales flexible investment fund. The fund will be managed by the development bank, and as its name implies it will be fully flexible. It will provide a combination of debt, mezzanine and equity funding options ranging from £25,000 to £5 million. It will offer loans with terms of up to 10 years, in recognition of scenarios where small businesses require patient capital. As I touched on earlier, microbusinesses will also be able to benefit from this fund. This £100 million package of flexible support comes on top of an announcement I made last year to create the £136 million Wales business fund. Today I am pleased to announce that we are putting a further £35 million into that fund, increasing it to £171 million.

Last year, Carl Sargeant AM, Cabinet Secretary for Communities and Children, announced £230 million for the second phase of the Help to Buy scheme. Taken alongside the bank’s direct investment and private sector leverage, this funding underpins the bank’s ambition to generate more than £1 billion of investment support into the Welsh economy over the next five years. The development bank of Wales will increasingly become self-funding. The business model assumes it will no longer need any grant support from the public purse for operational costs from next year onwards. In summary, the development bank of Wales is a cornerstone organisation for investment and business support. Given its increased scale and breadth of expertise, it is well placed to meet the challenges and opportunities we will inevitably face, and make Wales more prosperous and secure.

Thank you, Cabinet Secretary. Russell George.

Diolch, acting Presiding Officer. I have to say, Cabinet Secretary, I am disappointed that we’re yet to see the detail that will allow the National Assembly to scrutinise the development bank’s business plan. Of course, Members must be able to ensure that businesses are fully supported through the proposals and that the failings of Finance Wales are fully addressed. So, I would be grateful, Cabinet Secretary, if you could set out when you intend to publish the long-awaited business plan for the development bank.

In a written question to you in May, you responded that the final business plan would be submitted for approval by the Welsh Government ‘very shortly’. Has that now happened, and, if not, why has this process been subject to such a delay?

You also stated your intention for the development bank to increase direct lending to businesses, compared to what Finance Wales currently lends. Now, last week, in the Economy, Infrastructure and Skills Committee, you said that the development bank

‘will be tasked with increasing investment levels from about £50 million…up to £80 million within five years.’

Can you just provide some clarification on where these additional funds are going to come from?

Also, Finance Wales has been unable to borrow funds as any borrowing would have to appear on the Welsh Government's balance sheet. Now, we know, from the recent experience of Circuit of Wales, that the same is true of guarantees. So, therefore, given the absence of a business plan, which would have no doubt resolved this question, I would appreciate clarification as to whether the development bank will be able to provide guarantees or borrow money itself.

Turning to the commercial function of the bank, can you confirm you expect the bank to support SMEs in Wales with lending rates of between 4 and 12 per cent, and outline why you believe the proposed ratio of public-private financing to support Welsh SMEs is the optimum ratio to promote business growth, manage risk, and ensure taxpayer value? Are you also confident that the proposed hybrid model for the bank will prove adequate in addressing SME market failure and ensuring a significant increase in the provision of new capital to Welsh SMEs and address the funding gap?

Turning to the future of the bank, can you also outline how the Welsh Government’s ongoing work with the industrial strategy has influenced the creation of the bank’s latest plan, and what steps have you taken to date to ensure that the bank will be equipped with the commercial expertise necessary to ensure its proper future development?

Finally, turning to the location of the bank—I’ve heard what you’ve said today—how many members of the bank’s executive team do you expect to be based full time in the north Wales head office? What is your assessment of the number of full-time finance Wales staff who will relocate to north Wales following the launch of the development bank? And are you confident that the bank’s remit consists of a genuine commitment to relocating the administrative functions out of Cardiff and to bring finance close to other regions of Wales?

Can I thank the Member for his questions and begin with that very last point, the importance of ensuring that the development bank of Wales is a bank for the whole of Wales? In terms of the headquarters, the number of staff who will be located at the headquarters will amount to 50 within the next two years. We anticipate starting with 20, which will include senior management figures, but a location strategy is being developed at the moment by Finance Wales. That will be available in August and will provide details of the exact roles that will be offered at the headquarters from the outset and the proposals for increasing staff numbers.

It’s been very clear that Finance Wales expects, during the process of evolving into the development bank, not only to have existing staff in north Wales but also to make sure that, as it develops new funds and new opportunities, any additional staff resources are allocated to the new headquarters. But I’m keen to ensure, and I know that Finance Wales are with their business plan—and I’ll come on to the business case, rather, in a second—I know that they are very keen to ensure that all of Wales is given easy access, physical access, to development bank advice and support, and so a piece of work is taking place at the moment with Business Wales looking at how they can ensure that they exploit mutual interests and, potentially, how they could co-locate services, because it’s our view that, regardless of whether you’re an individual trying to start a business or whether you’re an existing businessperson trying to grow a business, you should only have one port of call for the advice and support that you need. Therefore, it makes sense to be able to bring together Business Wales activities with the development bank and, likewise, to ensure that Welsh Government economic development functions as well are well aligned with Business Wales and the development bank.

In terms of the business case, as promised, I have asked Finance Wales to share their business case in a briefing publication that is going to be available this month, I am assured. So, that will be available to Members very soon.

In terms of the hybrid model that the Member raised, of course, the model was developed following two committee reports, the last in 2015, when the then Enterprise and Business Committee, very well chaired by your colleague Nick Ramsay, found that Finance Wales made a sound basis for developing into the development bank and that expertise should not be lost. Therefore, this model is one that is robust.

In terms of the ratio of levering in private investment, we believe that it is achievable—the 1.15:1 ratio is achievable and will contribute to that £1 billion target over five years. In terms of the additional resource that will be available, I’ve already announced today additional resource in the form of two funds, and also the development bank, over the course of its first five years, will be recycling much of the investment, and that in turn will ensure that, through the management fees, it will become a nil-cost operation to the public purse.

Russell George made a very important point about ensuring that there are adequate skills within the development bank from the outset. Now, I think we should all recognise that Finance Wales has undergone quite considerable change and, in terms of expanding its own skills base—it’s already got a good track record, a very successful track record, in attracting top-quality personnel to join its forces. During the past two years it’s acquired and attracted a number of highly experienced individuals, including to the posts of chairman, chief executive, and non-executive directors. And I do believe that, whilst we may be some distance from the centre of financial expertise, which is London, we will be able to tap into London financial houses, and I do believe that the development bank will be able to establish strong links that could be utilised to support Welsh micro, small, and medium-sized businesses.

I think another key development for Finance Wales has been the funds that it’s operated for customers across the border. It’s enabled Finance Wales to develop a strong reputation and to also acquire additional skills. So, I have the confidence in Finance Wales, in becoming the development bank of Wales, to have the experience and the skills and also the prestige to attract the best people in the sector and also to grow those skills from within.

In terms of guarantees, I think it’s an important point to make that—and this is a very significant point that the Member raises—our options for the future of the development bank of Wales will remain open and the purpose of the intelligence unit is to assess current and emerging trends to look at every and any barrier that exists that’s preventing micro, small, and medium-sized enterprises from growing and to devise ways of overcoming those barriers. And so, over the coming years, the development bank’s future could well evolve accordingly.

I was wondering if the Cabinet Secretary could just help us in explaining the arc of policy development here, because we had a couple of access to finance reviews—they were both over a period of six months—and many of their key recommendations you haven’t followed, and in fact you’ve done the opposite. You, for example, have allowed Finance Wales currently to operate investment funds in England. That was in direct contravention of the recommendation of the review team, and they specifically said that they didn’t feel Finance Wales was the right structure to take the development bank forward as well.

A particular area, venture capital, they touched on a lot. By its nature, it’s very high risk. Some would say it’s almost, in most cases, driven by greed. It doesn’t actually sit alongside a culture such as you would expect in a publicly owned development bank, which is necessarily rule-bound and somewhat more risk averse. Someone who has worked in the City described it to me today as having a motorcycle repair shop in a maternity ward. And the suggestion of the access to finance review was that, actually, that element—we have a significant problem in Wales in accessing venture capital—was effectively outsourced, so working with existing and new venture capital funds. It would be interesting to see, Cabinet Secretary, whether we are going down that route. He touched—I think that Russell George asked about borrowing. In your statement, you referred to learning from international examples—the Business Development Bank of Canada, Finnvera in Finland—those development banks do have the ability to borrow on their own account, so could you say a little bit more about whether the development bank will have that ability?

I was interested in what he said just at the end of his remarks there in terms of being open to future structures, because there are some interesting suggestions. If it’s a self-financing institution that we’re talking about, why not actually create, effectively, an independent public-purpose institution, which either through—I hesitate to suggest a guarantee, Cabinet Secretary, at this stage, or, as Gerry Holtham has suggested, possibly endowing the institution, which is then able to have the freedom to go on and work with possibly a greater sense of agility than would be the case currently?

Finally, just on the headquarters, I’m a little bit worried, Cabinet Secretary—. I loved the front page of ‘The Leader’ today, and it’s great to see new national institutions being created across the length and breadth of Wales, but it has to be real. You know, didn’t RBS pull this trick when they said their headquarters was in Edinburgh but, actually, most of the key decision makers were in London? Can he say more about the number of senior directors who will be based in the headquarters, if it’s not to be just a headquarters in name?

Can I thank the Member for his question? Again, I agree entirely, it can’t just be a brass plaque on a building in Wrexham, it must have a fully-functioning operation there, with senior managers, and this point has been made repeatedly to Finance Wales and it will be reflected in August, when the location strategy is published. I’ve been assured that there will be senior management there and that board meetings will also be held at the headquarters. I think it’s absolutely essential that all parts of Wales are given good, smooth, easy access to the support and facilities of the development bank, and the headquarters will be a key component of that, but, in addition, as I’ve already said, I think it’s important that we look at other ways of enabling customers to access the development bank support, and that could be through co-location with Welsh Government or Business Wales support units.

In terms of venture capital funds, this is a really interesting area of work, but I can say to the Member—and it was an interesting quote from his colleague in the City—when we sought competitive bids from fund management services there were actually instances where there were no other bidders except for Finance Wales. Now, the development bank of Wales business case states that investment management and support services for Welsh Government would be agreed on a case-by-case basis, depending on individual project requirements. So, this piece of work is ongoing. We will be able to review it.

And in terms of the question of borrowing, there are many queries that we have examined, many considerations that we’ve looked into—considered whether loan guarantees that are being offered through the Scottish growth fund and export guarantees could be opened up, crucial for post-Brexit Wales. We’ve looked at whether there’s an ability for the development bank to develop fractional-reserve banking, to become a deposit-taking institution. But, as I’ve said, the options for the bank are open and will be based on regular evaluations, annual remit letters, and, crucially, the work of the intelligence unit, which, as I said earlier, will examine exactly what those barriers are that micro, small and medium-sized enterprises face and how we can address them.

First of all, can I congratulate the Cabinet Secretary and the Welsh Government on their success in attracting both CAF and the world technology cluster to Newport? It is not only good news for Newport, but also for the whole of South Wales East. Unfortunately, of course, there has to be a ‘but’ somewhere along the way, and, in this instance, it is this: as laudable as it is to attract new industry into Wales, it is also equally important that all businesses already established in Wales have access to funding as and when and where necessary. Would the Cabinet Secretary inform the Chamber as to how he believes the development bank of Wales will better provide this service than the outgoing Finance Wales? And, as the Cabinet Secretary knows, I have several times raised concerns with regard to access to funding, particularly with regard to SMEs in the R&D sector. Can he promise us that the application processes for such funding will be simple and transparent, especially given the Welsh Government’s oft-stated emphasis on creating a robust, innovative sector in Wales?

Can I thank the Member for his questions, and also for congratulating us on the work undertaken to secure significant investment from CAF in my friend and colleague John Griffiths’s constituency? It’s going to be an important addition to our manufacturing base in Wales. For the first time, we’ll be building trains. It’s a very exciting project, and it’s also one that has enormous expansion potential. Also, the development of a world first, the compound semiconductor cluster, is something, again, that south-east Wales can be rightly proud of, and it’s based on the economy of the future, an element of the economy that will be at the forefront of the fourth industrial revolution—again, an exciting, proud achievement.

In terms of support for start-up companies, it’s going to be essential that Business Wales and the development bank work closely together in ensuring that the appropriate and accurate advice and support are available at every stage of the journey for a businessperson starting up or for a businessperson who’s already operating a micro, small or medium-sized enterprise. For that reason, there will have to be alignment and I’ve asked senior officials from both Business Wales and Finance Wales to conduct a rapid piece of work looking at how best we can align the work and functions of both.

In addition, as I outlined—and I will follow up today’s oral statement with a letter to Members detailing each of the funds—additional resource has been made available to microbusinesses. It’s tripled in value in recent years. It will continue to provide opportunities that, prior to Finance Wales operating the microbusiness support functions, were difficult to obtain from commercial banks. I do also believe that the development bank, with a digital strategy, will ensure that the gateway services that it operates vis-à-vis Business Wales will be clear, transparent and simple in their function. Business Wales already have a very strong, well-established platform that the development bank of Wales will be able to utilise.

Cabinet Secretary, it’s good to see progress being made on the establishment of the development bank for Wales, and it comes as no surprise to colleagues here that I wholeheartedly welcome the location of the bank in north Wales. As my colleague over there said, it has fanfare on the front page of ‘Wrexham Leader’ today, but it also features prominently in the ‘Flintshire Leader’, I think showing the significance of it cross-county and to the region as a whole. Whilst I obviously recognise the need for this bank to support, as it should, businesses the length and breadth of the country, I just want to focus briefly on what you say in your statement about the bank’s aim to grow 50 jobs. On that, whilst I recognise that people being recruited into those roles need to have the right skills for the bank to be successful, I’d be keen to see how that could actually offer opportunities for people in the region itself, as I’m keen to see that the jobs brought by devolution, particularly the institutions of devolution as we progress, actually offer opportunity across Wales. So, if the skills aren’t there in the region already, is there any opportunity in the future to look at how apprenticeships could be offered as well?

My final point is that, in your evidence to a recent Economy, Infrastructure and Skills Committee session, I think you touched on the potential opportunities for co-location for Business Wales with Finance Wales in the development bank. I was wondering if you are able to expand on this—how, actually, it could be not just co-location but co-working, which wouldn’t only help people to access the support out there in terms of financial support but actually increase awareness of the opportunity for advice and guidance that’s there. It was really brought home to me, particularly in a recent visit with you to Hafod brewery in my constituency, that people on the ground aren’t really aware of what support is out there for them and I think that perhaps better co-working might help us to reach that aim of making sure that more people are able to benefit effectively from the services.

I think the Member is absolutely right that a lot of small businesses are either unaware of the support that is available and has been available for some years or, alternatively, see so many offerings of support that it’s difficult to see the wood for the trees. The aim with bringing Business Wales and the development bank closer together is to ensure that there is clarity of direction for any businessperson to go in order to access funding and support of any kind and that both would be able to signpost to each other and, indeed, to other services in the public, private or third sectors accordingly. My view is that we should, whenever and wherever possible, decentralise and de-concentrate investment and, for that reason, I wish to see the development bank have a strong presence not just in north Wales but right across Wales. Indeed, rural communities often have a high concentration of microbusinesses that struggle to access finance from high-street banks. So, if anything, the development bank of Wales will be more relevant to some rural communities than some of our urban communities, and for that reason, I think it’s absolutely essential that the development bank is accessible to businesspeople in our more rural areas.

And in terms of the skills base that already exists in north Wales, I’m confident that based on a strong and growing financial and professional services sector in the Wrexham area, and, indeed, in other parts of north Wales—. There is also a very strong digital sector that is flourishing. I was recently in Janet Finch-Saunders’s constituency visiting a small business unit concentrating on fintech, and it was based out of a church. A fascinating place—a number of small businesses growing fast, all needing access to this sort of support. And, so, in places like Aberconwy, I’m in no doubt that the development bank will prove very popular. But the skills base is already there. What I’m keen to ensure is that, as those additional jobs are developed for the headquarters, the right people are available. Many people who live in Wales at the moment travel across the border to access work in the financial services sector, and the presence of the development bank headquarters in Wales may offer them an opportunity to stay in Wales. But, equally, it will be important for further and higher education to work with the regional skills partnership officers in identifying all opportunities within the development bank across the region.

And in terms of the regional approach, I’m particularly pleased that the development bank and the existing functions of Business Wales will enable each region to develop quite a distinctive approach in terms of how the services respond to customers.

Thank you, Cabinet Secretary.