1. Questions to the Cabinet Secretary for Finance – in the Senedd at 1:39 pm on 10 October 2018.
We'll now turn to party spokespeople to question the Cabinet Secretary for Finance, and first today is the Plaid Cymru spokesperson, Steffan Lewis.
Diolch, Dirprwy Lywydd. The regulations repealing the Law Derived from the European Union (Wales) Act 2018 were due to come into force on 3 October. My understanding is that that did not happen because a vote of the Assembly is required. So, in the first instance, can the Cabinet Secretary, putting on his Brexit hat, clarify that the continuity Act wasn't repealed by accident without a vote? That would put my mind at ease. And, secondly, if that did not happen, can he enlighten the Assembly as to why we have not been informed of a new date on the face of the regulations? What is the new date? And when will there be a vote in the National Assembly?
Well, it's very good to have the opportunity to set any Assembly Member's mind at ease, so let me do that to begin with by assuring the Member that our Act has not been repealed by accident. It does, as he said, require a vote on the floor of this Assembly.
Finding time for the many things that have to be dispatched on the floor of the Assembly is a task that falls to my colleague the leader of the house, here. I know that she is endeavouring to find a slot at which that debate and that vote could be held, and, if it can be brought about, the ambition is to hold it this side of the half-term break.
I thank him for putting my mind at rest, at least with the first part of his answer. The second part of his answer, though, does raise questions. Is the Government taking into consideration the Supreme Court case between the UK Government and the Scottish Government on the Scottish continuity legislation? Of course, my argument would be that we shouldn't be repealing our continuity Act under any circumstances at all, but, surely, from the Government's point of view, they would wish to await the outcome of the Supreme Court case between the Scottish and UK Governments, because that would completely change the face of the devolution set-up and approaches to EU withdrawal across these islands if we have one devolved administration that has a protective shield of continuity legislation and we would have voluntarily and needlessly given ours away. So, is he able to clarify that the Government is prepared to delay, if necessary, until we know the outcome of the Supreme Court case?
Well, Dirprwy Lywydd, Welsh interest at the Supreme Court were defended by my colleague the Counsel General, who intervened to make sure that, where there were Welsh interests at stake, the Supreme Court was well informed about them. Of course, I don't agree with the Member that we would be left unprotected were we to repeal the continuity Bill, because we have an inter-governmental agreement that we entered into with the UK Government that, we believe, provided us with an alternative and, indeed, preferable set of protections in the circumstances that the continuity Act was designed to address.
Is the Cabinet Secretary, therefore, saying that even if the courts find in favour of the Scottish Government, it would be acceptable for one devolved administration to have a legal protective shield and that, somehow, the inter-governmental agreement between his Government and the UK Government renders the need for a continuity Act here needless? Because, surely, recent developments around the shared prosperity fund have demonstrated that the inter-governmental agreement has been breached. The Cabinet Secretary himself has said that,
'The UK Government’s “Shared Prosperity Fund” approach, if applied on a UK basis and directed from London, would be an attack on devolution'.
And the Prime Minister of the United Kingdom has said,
'I fully recognise the role that the Welsh Government has played and the role that the Welsh Government has played in decisions for Wales. But obviously as we look at the shared prosperity fund across the whole of the UK we want to ensure that we get the right structure and the right processes involved in that so that the money that is being spent is being spent as effectively as possible because it's about delivering for people on the ground'—
i.e. it will all be run and controlled from Westminster. And I notice with interest that in the inter-governmental agreement, there is no reference to regional policy, and economic development is not listed as one of the 24 items either. So, is the Cabinet Secretary confident that the inter-governmental agreement is better than having continuity legislation, even though the inter-governmental agreement appears to be breaking at the seams already?
Well, Dirprwy Lywydd, the Member answered his own question, didn't he? Because, as he pointed out in his closing remarks, the inter-governmental agreement is not engaged in relation to the shared prosperity fund. The inter-governmental agreement covers those items set out in the withdrawal Bill that potentially, and in the future—because, remember, not a single power has left Wales as a result of the agreement—. There was a list of powers that were engaged by it that did not include, as the Member himself said, this area. So, he's brought two things together that do not have, in my mind, the connection he seeks to draw between them.
The asymmetrical nature of protective shields has already been introduced by the Scottish Government's decision not to be a party to the inter-governmental agreement. Our view was that it provided, in relation to those matters covered by it, sufficient protections for us to be able to proceed in the way that we did. The Scottish Government took a different view. Consistent with the inter-governmental agreement, we are looking for an opportunity to bring forward a vote to the floor of the Assembly in the way that I described in answer to an earlier question.
Thank you. I turn to the Conservatives' spokesperson, Nick Ramsay.
Diolch. Cabinet Secretary, I'd like to ask you about procurement. When the National Procurement Service was first created back in 2013, your predecessor, the Minister Jane Hutt, described the NPS as a
'very Welsh way to meet Welsh business needs but also value for money for the Welsh pound'.
Since then, however, the NPS has made significant losses and has had to be bailed out by Ministers, ultimately leading to the decision by the Welsh Government to scrap the NPS altogether.
Can I ask you to outline what you believe to be the core factors that have contributed to the failure of the NPS? Does this not constitute a serious and significant blow to the Welsh Government's overall programme for policy, given the importance of procurement and the NPS within the economic action plan?
Of course, I don't accept for a moment the proposition of the question because NPS has not been a failure. Since it was introduced, the proportion of Welsh public procurement spend going to Welsh-based companies has gone up from 35 to 50 per cent. Of the 22,000 contracts that have been let through Sell2Wales, two thirds of those go to Welsh suppliers and three quarters of those are Welsh small and medium-sized enterprises, and that is as a result of the work that NPS has done in all parts of Wales. There are many other things that we could identify that rebound to the credit of NPS, in particular what it has done in driving up community benefits from contracts that are now let to Welsh suppliers.
What has happened, Dirprwy Lywydd, is that circumstances have changed. The needs of our users of NPS have changed. They have come to us as a Welsh Government to say that they believe that there is more that they could do if a service were more regionally and locally based, and they've made a convincing case on that. And Brexit casts a new set of possibilities for public procurement in the future, and it was in that context that I asked for a review of NPS to be undertaken and that is what led to the decisions that I announced to this Assembly in September.
Thank you, Cabinet Secretary. You clearly knew there were problems because you did order that review, and of course it's not just me who's being critical, it's the auditor general as well, who found that public bodies only spent £150 million with NPS in 2015-16 and £234 million the year after that. In addition, although the NPS made savings for the councils and other organisations that use its services, they lost millions of pounds on their own budget and had to be bailed out—I use that term again, not lightly—by your Government. Further still, they've been criticised by a report from the Assembly's Climate Change, Environment and Rural Affairs Committee for overestimating the value of food contracts to suppliers.
So, can I ask you, what emergency management procedures and best practice measures have you now put in place in relation to Welsh Government public procurement operations to ensure that lessons have been learnt from these failings and that procurement practices in Wales from this autumn going forward see drastic improvement? Because it's not good enough to simply say to the public that all is fine and as it should be when it clearly isn't.
Well, Dirprwy Lywydd, if the case for change wasn't there, I wouldn't have asked for the review to be undertaken and we wouldn't have set out a new prospectus for public procurement here in Wales as a result of the review. When the Member says that millions of pounds have had to be found from Welsh Government budgets to support NPS, the figure last year was £1.5 million, so I think we need a bit of perspective on the additional help that the Welsh Government has had to provide. In the end, the important point that I think was in Nick Ramsay's question is this: if you have an organisation like NPS, it has to be valued by its customers and its customers need to be willing to use that service. And if that service is one that customers say they would rather secure in a different way, then you have to listen carefully to what those users have to say. It was as a result of that conversation, where users said that they felt that a collective approach to public procurement in Wales was better secured through a strengthened regional tier, rather than discharging things at a national level—we've listened carefully to that. NPS will not continue in its current format, and it will migrate to being an organisation with a stronger regional and local presence, and an organisation that is better placed to make sure that those organisations across Wales that spend public money are well equipped to respond to the new opportunities that may be coming their way.
We are where we are now, Cabinet Secretary. If I can just pick up on the last part of your comments there, and looking to the future, and turning to the immediate future arrangements for procurement, you stated, and you've reiterated again, that following the announcement that the NPS would be wound down over time, a smaller operation would then be set up to manage a reduced portfolio of national contracts. Can you give us some more details as to when NPS will formally cease to operate fully? What are the projected costs of winding down and disbanding the NPS? Also, what arrangements are in place to manage the ending of NPS operations? And what resources and business plans are in place to support the setting up of the new smaller operation that you envisage?
The Member accurately describes what will happen to NPS. There still are some national procurement frameworks that local authorities and others tell us they value and would want to continue to see at an all-Wales level. There are some contracts that users of NPS say they would rather use through the Crown Commercial Service, so that is at a UK level of procurement, and we will probably make some additional use of the Crown Commercial Service as well.
The transition from where NPS is today to where it will be in the future will be conducted according to the timetable that we are advised of by stakeholders through the arrangements that we have set up with those who rely on its services. We will want to make sure that there are adequate alternatives in place before NPS ceases to provide the things that it does today. The timetable that we will use, Dirprwy Lywydd, will be guided by what the users of that service tell us is right for them, rather than by a plan simply devised in Cardiff Bay.
Thank you. UKIP spokesperson, Neil Hamilton.
Thank you, Deputy Presiding Officer. The Cabinet Secretary is well aware that I'm keen to explore the possibility that by cutting tax rates in Wales we can create a tax advantage compared with England and grow the Welsh economy, and, therefore, increase the size of the tax base. We had a productive exchange, I thought, in the Finance Committee a few days ago, where I was pleased to see that the Cabinet Secretary was open-minded to this possibility.
The head of the Welsh Treasury advised me to look at the Welsh tax policy report of 2018, where numerous international studies on this topic are listed, and I've had the chance to look at a few of them—they all give support, broadly speaking, to my hypothesis. I'd like to draw his attention to one in particular by Isabel Martinez from the Luxembourg Institute of Socio-economic Research, which looks at what happened in Switzerland when this was tried by one Swiss canton: Obwalden. That did have the effect of attracting people on higher incomes to the canton in order to afford an overall lower level of taxation for everybody. The share of rich taxpayers living in the canton increased by 25 to 30 per cent in the first five years after the tax change, and the bottom 99 per cent of taxpayers weren't affected at all by this change, so it seems as though it was a win-win situation.
I know international comparisons are difficult in these areas, because behavioural effects are going to be different in different countries, but I'd like to ask him if he will instruct his officials to conduct a formal inquiry into the possibilities of this so we can inform decisions in future budgets.
Well, Dirprwy Lywydd, the Member knows that I don't share his starting hypothesis. I'm not, myself, convinced at all that tax competition, in which we drive down Welsh tax rates in the hope that that will somehow lead to people coming into Wales to take advantage of it, is something that would be very likely to happen. But in answering his questions at the Finance Committee, I said to him that in Welsh Government we believe in evidence-based policy making, and therefore we are always open to evidence from other parts of the world. I'm familiar with the Swiss canton study that he mentioned, and the fact that it's there cited in Welsh Government information shows that we are willing to look at things that happen elsewhere, and see if there are lessons to be learnt.
There are many countervailing examples that would demonstrate the opposite to you. When I put this question to the tax Minister in the Basque Country, which has significantly higher tax rates than those parts of Spain that are immediately adjacent to his border, I asked him: didn't he have tax leakage and didn't he have people leaving the Basque Country to take advantage of lower tax rates immediately adjacent to them? He assured me that that was absolutely not a feature of the way that people behaved in that tax regime.
So, to answer the question directly, in terms of all the many things that I have to ask my officials to attend to as we take on new fiscal responsibilities, as we face the challenge of Brexit and so on, I don't have an intention at this time to divert their energies into an exploration of the sort the Member suggests.
Perhaps I can help the Cabinet Secretary by instructing my officials to do that, and sending him the results of their labours in due course.
But I would like to draw the Cabinet Secretary's attention to the statement on page 56 of the Welsh tax policy report, which summarises the effects of the numerous studies that are mentioned in the footnotes, which says that
'These have tended to show taxpayers with higher incomes have larger responses to income tax changes. The main explanation for this is that higher income earners tend to be more active tax planners and are potentially more mobile than those on lower incomes.'
So, we start from a position, I think, where the ground soil is fertile, and although I appreciate that the Basque Country may be different from the experience in Switzerland—you can't take one single survey as indicating, as a form of genius, behavioural effect across Europe, or in the United Kingdom, or in Wales—but, nevertheless, there is here I think advantage in looking at the possibilities, given the tax-varying powers that we've got are limited, but the room for manoeuvre that the Cabinet Secretary has in any budget is limited by the system of block grant from the Treasury et cetera. The amount of discretion that we've got depends, crucially, now upon whether the Welsh economy can grow faster than it has done in the last 20 or so years.
And I would like to draw his attention to something else. The Wales Centre for Public Policy published a report called 'The Welsh Tax Base: Risks and Opportunities after Fiscal Devolution', and there's a table in there that shows that if we attracted only 1,600 higher rate taxpayers to Wales by a 5p additional tax rate cut, that would produce a £16 million benefit for the Welsh Government. If we attracted 10,000, then that would add £230 million to the Welsh Government's budget. So, these surely are risks that are worth looking at, with a view to taking them if you're convinced that these are going to be reflected in reality.
Well, Dirprwy Lywydd, let me try and find some common ground with Mr Hamilton because, like him, I agree that growing the Welsh tax base is a very important ambition for the Welsh Government. The only difference is in the best way to do that. He would do it by reducing the rate of taxation on high earners in Wales, in the hope that we would attract some people to come to live in Wales on that basis. I think there are many preferable reasons why people would want to come and live in Wales, not simply because it's cheap for them to do so. And the Welsh Governance Centre report on growing the Welsh tax base set out a series of other ways in which that could be achieved; for example, by greater graduate retention.
So, while I share the ambition behind his question, which is to make sure that we grow the tax base here in Wales, I think there are preferable ways to doing so from the one that he prefers, and where I think the evidence in favour of those alternative measures is stronger.
These are not zero-sum games; it's not one or the other—we can have both, in my opinion, and that's what I'm interested in exploring further. The Bangor study suggests that taxpayer growth in Wales is going to decline from an increase of 0.007 per cent in 2019-20 to -0.11 per cent in 2023, so the prospects for the future under things as they are now—even bearing in mind all forecasts are necessarily provisional and may not turn out as we predict, nevertheless, things are going to get tighter rather than less tight for him. And therefore it makes it all the more urgent to see what we can do to get more wealthy people into Wales, not just because as individual taxpayers they could add to the Welsh tax base but because that might also bring other businesses that they're involved in into Wales as well and Wales could do successfully what the Irish Republic has done, although we don't have control of corporation tax yet, and this is the way forward for Wales.
Well, Dirprwy Lywydd, the Bangor projections are rooted in demographics rather than behavioural changes, and I don't think that the proposition that the Member has put forward this afternoon would do much to alter those fundamental demographic drivers. He promised in an earlier answer that he would provide evidence of his own to underscore the case that he has made, and, in the way that I said in front of the Finance Committee, while I don't think I'm easily persuaded of his case, I'm always open to reading new evidence.
Thank you. We turn to questions on the order paper. Question 3—Janet Finch-Saunders.