Questions now from party spokespeople to the Cabinet Secretary. The Plaid Cymru spokesperson, Steffan Lewis. 

Diolch, Llywydd. Yesterday, we saw the publication of two documents that are significant to Wales's fiscal and economic well-being. The first one was the document from the Office for Budget Responsibility—the fiscal sustainability report. The second was the Welsh Government's paper on reforming UK funding and fiscal arrangements after separation from the European Union.

The OBR's report was a stark warning, a further warning if we needed it, that we can expect unsustainable public finances in the UK for the short to medium term at least, and that that would put significant further pressures on budgets, and that we could expect further fiscal contraction. In the Welsh Government's document, which Plaid Cymru welcomes broadly, particularly those elements that relate to fair funding for Wales, it states that Wales should not lose a single penny as a result of leaving the European Union and that future regional policy should remain devolved fully to the Welsh Government. I wonder, within the context of the OBR's forecast, if the Cabinet Secretary can update the Assembly on whether or not the UK Government has conceded the financial implications of future devolution of regional policy, and the fact of the principle that it should remain devolved. 

Well, thanks, Steffan Lewis, for that. He's absolutely right to say that the OBR's latest forecast is consistent with what they have been saying for many months now. They are part of that economic mainstream that tells us that if we were to leave the European Union on a crash-out 'no deal' basis, then we're facing a contraction of our economy between 8 per cent and 10 per cent, and that is massive. Now, not everybody agrees with it, but mainstream economic forecasters such as the OBR are in exactly that position. 

We don't have the assurances from the UK Government that Steffan Lewis has asked about, although I have discussed this issue directly with the Chief Secretary to the Treasury, directly with the Chancellor of the Duchy of Lancaster, and made our point. We will not sign up to a shared prosperity fund that, for example, might offer us a Barnett share of that fund, which would undoubtedly be well below what we have as a result of the needs assessment that leads to the money that we get from the European Union. Nor will we sign up to a bidding regime for a shared prosperity fund in which UK Government Ministers set the rules, UK Government Ministers make the decisions and UK Government Ministers adjudicate on disputes when those arise. We have given the UK Treasury a solution to a problem, and they're not an organisation short of problems on their hands. The solution is the one we set out in our document: simply put into the baseline of the National Assembly the money that we get as a result of our qualification for that help under the European Union and then allow us to make the decisions that will allow us to align that money with the needs of our regional economic development for the future. 

I thank the Cabinet Secretary for that answer. It's disappointing though and not surprising any more that he is yet to have assurances from the UK Government that regional policy would remain devolved and that Wales wouldn't lose out on a single penny. What I think people might be interested to learn from Welsh Government, however, is its future vision for regional policy, if we continue to retain it at a national level here in Wales as a policy area, and of course continue to receive the equivalent funding too. Is the Cabinet Secretary able to elaborate on his vision for the future of regional policy?

I know that the Welsh Government hasn't had much luck with maps recently, but there will be some across the country who will be concerned that, if we have new regions in Wales to replace west Wales and the Valleys—the traditional convergence funding regions—places like Rhondda, the Heads of the Valleys, Blaenau Gwent and so on, would be in with Cardiff, the most prosperous part of the country, and that that would mask, potentially, the disadvantage and the economic aid that is needed in those communities. 

There are schools of thought, of course, that suggest that there shouldn't be regions within Wales for the sake of regional policy at all and that it should be a community-based project and that's something that Welsh Government has looked at in the past. So, I wonder if he could give an indication of Welsh Government thinking when it comes to how we would administer regional policy and how disadvantaged communities will not lose out in future.

I thank Steffan Lewis for that important question. As he knows, we published a paper in the series of documents we have published since the White Paper of January 2017 on regional policy. That was not an attempt to set out a definitive set of arrangements for the future, but to sum up the state of the debate at that point, and we've had a very lively debate since, with many contributions to a consultation we've carried out on that paper. We've published those consultation responses and I hope to be in a position in the autumn to bring forward a paper that sums that up and does set a more definite set of propositions in place.

The point that he made is an important one, because it gets to the heart of a dilemma in it. In those consultation responses there is a great deal of consensus across Wales on the need for greater flexibility in the future. European Union funding, if there is a silver lining in this at all, can come to us with fairly rigid rules attached to it: geographical rigidity and, the sorts of things you can spend the money on, there are rigidities there too. And the consultation said that this is an opportunity for us to be more flexible around some of those things. But then that does give rise to an anxiety on the part of those geographical areas that have benefited from funding so far that this may be to their detriment. The Welsh Government's position is that we have no intention of operating in that way and what we see flexibility as is not absorbing areas of greater need in a wider economy that disguises that need, but to allow, at the margin, a sensible flexibility that means that you are not prevented from making good investments that will be to the benefit of those areas because you have an over-rigid set of rules.

I thank him for that answer, and I'm pleased to hear that we wouldn't have a situation in Wales where—as much as we don't want Wales as a whole to lose out on a single penny of what we could expect in regional aid, we wouldn't want any community to lose a single penny in terms of what it could expect in regional aid as well. 

Another aspect that is touched upon in the latest paper published by the Welsh Government is that of state aid and, of course, this is an area where there will be a requirement for inter-governmental agreement unless, of course, the Westminster Government assumes complete responsibility for the issue and we are forced into a race to the bottom on state aid, which is something that I wouldn't rule out.

The Welsh Government White Paper states that

'Any new arrangements should be drawn up in line with our principles of agreement and consent, working collaboratively with the UK Government and the other devolved nations.'

But I contrast that with the passage in the UK Government White Paper—if it hasn't been changed in the last 24 hours—which relates to state aid, which hails the fact that the UK Government spent just 0.3 per cent of GDP on state aid in 2016, which is less than half the EU average. Had the UK Government spent the EU average on state aid, that would have made an additional £8 billion available for investment and Wales could have expected something in the region of £400 million as a result.

So, it's clear that there's a significant difference of opinion, not just between Welsh Government and the UK Government and not just on the principle of whether state aid is devolved or not, but also on what one would do with it once we leave the European Union. So, can we have an assurance from the Cabinet Secretary that the Welsh Government won't sign up to any future inter-governmental agreement that cedes state aid rules exclusively to the UK Government and that, instead, any future agreement has to be based on shared responsibility and agreement? Because, of course, we will need UK frameworks and rules, and state aid is a good example of where those will be needed, by agreement.

The Member makes two important points, really. First of all, he puts his finger on one of the ways in which those people who advocated Brexit misled the public in the arguments that they put. Because they always portray European Union state aid rules as some sort of straitjacket that prevents us from doing the good things that we would like to do. Germany has eight times the intensity of state aids of the United Kingdom and operates entirely within the European Union rulebook. So, the idea that, somehow, we were trapped into something that forced us to do things that we wouldn't have wanted to do, turns out, on examination, to be nothing like the truth.

I'm happy to provide the assurance that Steffan Lewis looked for in his second question. If there is—and I agree with him that there is very likely to be—the need for a framework operating across the internal market of the United Kingdom, we will not sign up to something imposed on us. We will expect to be at the table, we will expect to be part of those discussions, and we will expect to be in a position where the outcome is agreed between the component parts of the United Kingdom, not the result of one part alone. 

The Conservative spokesperson, Nick Ramsay.

Diolch, Llywydd. Cabinet Secretary, the Wales Centre for Public Policy has recently published its report on the Welsh tax base, which has raised a number of salient points about the impact even small changes to the tax system can have on taxpayer behaviour, migration and inward investment.

With regard to land transaction tax, the report highlights that, although there were only 45 LTT and non-residential property transactions over £5 million in 2015-16, they accounted for 43 per cent of total transaction value of Welsh LTT. The report also notes that just 10 fewer freehold transactions over £5 million in one year could reduce revenue by £7 million. Taking all that into account, we've asked you previously, and I ask you again: will you, at the very least, monitor the top rate of LTT in this regard within Wales and consider bringing it in line with England or Scotland if the economy does show signs of suffering?

Well, I'm happy to repeat the assurances that I gave the Member the last time that he asked me that question, and of course we monitor the impact of policy on transactions, and that where there is evidence that leads us to reach different conclusions, then that's what we will do. But LTT is now just over three months old, so, the evidence base at the moment is preliminary at best, and we will continue to see what the actual results of this on the ground look like, rather than speculating on what they might be.

Cabinet Secretary, the report also showed the inextricable link between the Welsh economy and the ability of the Welsh Government to raise tax revenue in general. In particular, differences between the UK's economy and the Welsh economy have been starkly laid out: lower income, lack of high-skilled, high-paid jobs, lower productivity, and higher exposure to automation. All these things, I know, your Government is aware of.

I've raised this with you before, especially the apparent divergence between the economy Secretary's stance and yours. The economic action plan, on the one hand, mentions tax in passing just once, and yet we've repeatedly, on these benches, raised concerns about the 6 per cent supertax on commercial land transactions that could keenly affect further inward investment. You mentioned Brexit in response to Steffan Lewis earlier. Do you think at this time, with Brexit getting closer and being much more of a reality to us all, that now is not the time to be looking to have taxes like this on those very people in Wales that we're going to be looking to over the months and years to come to make sure that Wales's economy is stronger?

Well, it is a paradox, Llywydd, isn't it? It is the Conservative Party that argued the most strongly for fiscal powers to be devolved to Wales, and now the argument of the Conservative Party is that, having devolved them, we mustn't use them—that all we can do is to make sure that we don't diverge from what is going on across our border. You can't have it both ways. You either believe, as your party has preached, that powers should be devolved to Wales so that we can make decisions here, or you believe that no difference is possible across the border. We were prepared to sign up to your first proposition.

If the powers are here, the powers must be exercised here. The decisions about which the Member complains are the decisions that this National Assembly made, endorsed in the budget-making process, passing the regulations in January to give rise to them. I'll do what I said in my answer to his first question: having made the decision, we will monitor its effect. If there are lessons to learn, and if there are changes that need to be made, then that's what we will do, but we won't operate on the basis of a series of hypotheticals, where the actual evidence is barely a quarter old.

That's a very interesting answer, Cabinet Secretary, because you're right: we did, on this side of the Chamber, as did the majority of AMs, support the devolution of tax powers to this place, and we fully believe in accountability. I'm pleased that the Conservative Government—the previous UK coalition Government—did actually go in that direction.

It sounds to me that what you're saying there is that you fully intend to raise taxes where you possibly can. Of course, having taxes devolved to this place doesn't simply mean that you put them up; it also means that you can keep them the same or lower them, but, of course, you will be getting the revenue here from those taxes.

You told the Finance Committee only last week that you're sceptical that a modest tax would have an impact on inward migration. That may be the case, but if there is a 1p increase to income tax to help the Welsh NHS, for instance, as an example; a 1 per cent to 3 per cent contribution of income towards social care on top; and a continued rise in council tax and other tax increases in Wales, I repeat what I said before: as we are running up to Brexit and there are economic uncertainties, even if you believe in the future that modest tax rises may actually be beneficial to the economy and improve public services, is this really the time not to be ruling out those rises? People need stability and businesses need stability. Surely, as finance Secretary, you want to work for the good of Wales and make sure that, in the future, any tax rises are done when you have that evidence base, which you believe in so strongly.

Well, Llywydd, I said no such thing, in answer to Nick Ramsay's second question. I made no observations whatsoever about the direction in which tax changes might happen. I simply responded to his suggestion that we had to stay in line with the tax regime on the other side of our border. That is not what tax devolution is all about. 

We will look carefully at the evidence. We will make decisions in the light of the circumstances at the time. The report to which he made reference in his first question, of course, suggests that there would be very little movement at the border if tax rates in Wales were to be higher than those in England, quite unlike the advice I'm sometimes offered by the Conservative benches here.

UKIP spokesperson, Michelle Brown.

Thank you, Presiding Officer. Good afternoon, Cabinet Secretary. Does the Cabinet Secretary agree that if the Westminster Government delivers on the Welsh Government's justifiable demand that Wales should not lose a single penny following Brexit, it should be the Welsh Government that decides which projects receive that support rather than the EU?

I entirely agree with the Member that if the UK Government does what those who advocated leaving the European Union said would happen—that's a guarantee that Wales would not lose out by a penny—then the decisions that would be made as to how that money is best used are best made here in Wales. The First Minister has already given an undertaking that if money comes to Wales for the purposes of regional economic development, we will use it for those purposes. If money comes to Wales to sustain our rural economy, it will be used for those purposes. But, the specifics of that are best made here, rather than in London.

Thank you for that answer, Cabinet Secretary, and I agree with you that those decisions are best made here rather than elsewhere. Obviously, the Welsh Government and we in Wales have a much clearer idea of what Wales needs and what the Welsh people want, rather than a distant EU and the committees on which we only have three out of 350 members, such as the Committee of the Regions, yet your Government continues to advocate involvement in the EU, even if we have to enter into reciprocal agreements and obligations with, and therefore the priorities of, the EU as a condition.

So, as the Cabinet Secretary for Finance, aren't you obliged to work out the best way of funding the priorities of the democratically elected Welsh Government, which should reflect the priorities of the Welsh people, as opposed to the priorities of the democratically deficient EU? To continue to advocate involvement in so much of the EU following Brexit goes against what you said to my colleague Neil Hamilton yesterday, when you claimed that you respect and will deliver on the Brexit vote.

Well, the fundamental difficulty with the Member's question is this, is that she blurs the line between the fundamental decision, which is to say that we are leaving the European Union, we will not be members of the European Union after the end of March next year, and the form in which we leave the European Union. It is possible to leave the European Union in a way that does maximum damage to our economy; that is well advocated by people in this Chamber whose prescriptions for Wales would leave us, as I say, with an economy between 10 per cent and 8 per cent lower than it is today, or we can leave it in a way set out in the White Paper that the Welsh Government and Plaid Cymru jointly published in January of last year. That policy offers a way of leaving the European Union that does not, as she suggests, turn our back on the decision of the referendum, but which mitigates to the greatest possible extent the damage that would otherwise be done. 

Thank you for that answer, Cabinet Secretary. I'd remind you that you and the other remainers spent the entirety of the EU referendum campaign telling voters about the doom that would supposedly hit us if they voted to leave, and if we severed control of the EU over our affairs, yet they still voted to leave. They either didn't believe you or they considered that independence would be worth the scenarios you said would take place. Since then you've been treating the electorate, as other remainers have, as if you're thinking, 'Bless them, they didn't know what they were doing'. Well, I've got more faith in the intelligence and understanding of the Welsh voters and, therefore, I ask you: don't you agree that ending the control of the EU over the affairs of Wales and the wider UK is what the electorate want, and this is what you should be advocating and working to achieve? 

Well, I'll just repeat, really, that the Welsh Government from the day of the referendum accepted the decision that was set out in the referendum. We have never quarrelled with the fact of Brexit; that was determined by people in a vote. Our focus is on the form of Brexit always, and I can tell her this—that when I knock doors in parts of my own constituency, where people undoubtedly voted in large numbers to leave, they will tell you that they did not vote for the sort of chaotic, self-harming form of Brexit that she and other people in this Chamber advocate.