I call the party spokespeople to question the Minister. The Conservative spokesperson, Nick Ramsay.

Diolch, Llywydd. Finance Minister, the Federation of Small Businesses report on creating a new tax system in Wales has highlighted some concerning facts about the lack of awareness on devolved taxes. Perhaps most shockingly, their August 2018 survey found that 66 per cent of FSB members said that they were not aware of devolved taxes when questioned, with some stating that there'd been little or no information provided by the Welsh Government. Admittedly, that is a few months back. This seems to contradict an answer I received from the Welsh Revenue Authority yesterday, who'd estimated that they'd reached an audience of around 4.5 million through digital and social media campaigns. Can you update us on progress being made with raising the profile of devolved taxation in Wales? And who do you think is right—is it the WRA or is it the FSB?

Thank you for raising this important issue, especially in what is a momentous week for tax in Wales. I was certainly pleased to receive the FSB's report, and I was pleased to invite them to give a presentation at the recent tax advisory group in terms of helping us understand from their perspective and the perspective of their members how they best can work alongside Welsh Government and the Welsh Revenue Authority. In terms of who's right, I think actually they're probably both right, in the sense that the FSB report came out in August, so that was before—or the research was done in August—a lot of the engagement and communication work was undertaken, and, actually, the FSB's research does reflect the kind of research that Welsh Government has done in terms of understanding the level of awareness and understanding that is out there in the Welsh public in terms of taxes. I think that that report does provide us with a really good baseline on which to work now, in terms of driving forward our communication work to help people understand Welsh taxes better. Also, we need to do some further work, I think, on local taxes. But certainly the Welsh Revenue Authority has been doing some absolutely excellent and intensive work in order to communicate.

I resisted the temptation to say it was a momentous week in Welsh taxation because we tend to say that during every set of questions with all the changes that have been happening with devolved taxation over the last months and, indeed, the preparations over longer. When he was the Cabinet Secretary for Finance, the First Minister said that he was sceptical about the extent to which taxation issues had an effect on behaviour, and he said,

'I don't take the economic view of mankind that people are always calculating down to the last penny whether they want to be in one place or another'.

Yet, returning to the FSB's report, which I'm glad you've had sight of, that states that some solicitors dealing with land transaction tax are already saying that their clients are considering buying property close to the border to avoid paying higher property taxes in Wales. In fact, one of their key findings was that concerns continue to be expressed about the potential for the different rates between land transaction tax and UK stamp duty land tax, and the effect of that influencing taxpayer behaviour and the potential for distortion. I appreciate these are still early days and that it was only some solicitors who said that, but nonetheless there's clearly an area here that needs to be monitored by the Welsh Government. Do you think that we are doing enough to monitor potential distortions along the border area, and what preparations are you making to make sure that, going forward, the property market in Wales is stable?

I realise your primary concern here relates to non-residential land transaction tax, and, of course, we have a lower starting rate of tax for the purchase of business premises here in Wales than under stamp duty land tax, and this means that all businesses purchasing premises up to £1.1 million in Wales either pay no tax at all or they pay less than they would under stamp duty land tax. This really does benefit small and medium-sized businesses across the country.

In the first year of land transaction tax it's estimated that around nine out of 10 transactions would pay either no LTT or the amount would be less than it would have been under SDLT for non-residential transactions. So, I think that actions that we've taken certainly are beneficial to small and medium-sized enterprises. I do understand the concern over the additional 1 per cent that there is for the higher rate. However, I think that it is far too early in the day to make a conclusion as to what, if any, impact that had on behaviour, and it's also worth bearing in mind that the year before LTT came in was an exceptional year in terms of tax take or in terms of transactions on those higher properties. So, I think that it's something that we are watching closely. We'll have the outturn figures in June of this year, so we'll have a better understanding of at least the first year's behaviour.

My colleague on the Finance Committee, Mike Hedges, is always keen to point out the cyclical nature of LTT and property transactions, and what you've just said about it being early days and having had exceptional years is certainly something that we've looked at on the Finance Committee.

I welcome what you said, that people buying properties at the lower end should have less of a tax burden. I think we would all agree with that, not just on the issue of taxation, but income tax as well, with the UK Government taking more people out of the tax bracket in terms of the allowance at the lower end. That's to be welcomed. However, going back to the FSB report and LTT, the most recent figures are also starting to sound warning bells about raising the tax thresholds for properties at the higher end, over £1 million, to what are some of the highest levels in the UK.

Although we are yet to see the full year's collection for land transaction tax, CoStar's UK commercial property investment review for quarter 3 in 2018 shows that Wales is one of the weakest UK regions for property investment—down 70 per cent, or £54 million against a five-year quarterly average. Now, whilst I accept that taxation might not be the be-all and end-all in terms of what's causing that, will you undertake to keep this situation under very close review? And if you are receiving warning signs from CoStar and other organisations that the statistics are pointing to the Welsh Government's taxation policy in this area being detrimental to the economy, will you change course pretty speedily and make sure that we are not discouraging investment by taxing those at the higher end too much?

Thank you, and I can confirm that officials are in regular contact with property industry experts, and that engagement is ongoing. We'll certainly be monitoring any perceivable impact that the differential rate that we have here, in terms of the higher rate of LTT, might have on those high-value transactions. As I say, we're just a year in, so we don't actually have a full picture yet, but it is absolutely something that I am keeping a keen eye on.

Plaid Cymru spokesperson, Rhun ap Iorwerth.

Thank you, Llywydd. The world is changing, the economy is changing with it, and one change is that the information economy is becoming more and more important, and in that regard expenditure on research and development will become more and more important. That’s how you generate new ideas and new devices that will be the basis for a new generation of businesses. So, can the Minister give an update on expenditure on R&D within the Welsh Government’s budget?

Certainly. I will seek to provide you with some concrete figures as to our expenditure on R&D,FootnoteLink but one of the concerns that we have had in recent times is, of course, the impact of leaving the European Union on our capacity in R&D. We've been looking very closely at the Reid report in order to ensure that we do have the maximum profile, if you like, in terms of ensuring that Wales is seen as a great destination for R&D, an environment where Welsh Government is supportive, but also an environment where academics are enabled to thrive in an environment that very much promotes the work that they do.

Information further to Plenary

I'm grateful for that response, and I certainly also share the concern about the effects of leaving the European Union on future R&D funding in Wales. R&D funding comes from many different sources, of course, and business is by far the biggest source of funding, but let me look at higher education. Recent figures show UK higher education R&D spend in total of around £6.5 billion. Break that down and we see spend per person in Wales to be £86. In London and the home counties of England, it's £275 per head—almost 60 per cent of the total R&D spend in higher education is spent in the south-east of England. Universities themselves, of course, draw in that R&D funding themselves, but it would be wrong to suggest that Welsh Government couldn't be influential in seeing how much more money we could draw into Wales. Much of the current UK pool of R&D funding is drawn into what's known as the 'golden triangle', between Oxford and Cambridge and the London universities, and because of their track record in R&D they're able to beat off much of the competition and claim a lion's share of funding. But does the Minister agree with me that it's time now that Welsh Government really started to make the case for creating a Welsh pool—a protected Welsh pool—of R&D funding, into which our universities could apply for funding in order to increase expenditure in this sector in Wales?

Well, you clearly raise an extremely important point. Around £0.75 billion was spent on R&D in Wales in 2017—that's the latest year for which we have figures—and that's an increase of 4.6 per cent compared to the previous year. That effectively now matches the increase in R&D spending across the UK.

We've accepted the first recommendation of the Reid review, which is to strengthen our position in London through the office that we have there, and that's something that is currently being undertaken. We've both referred to the EU structural funds programme period. During that, we've invested £340 million, and that represents 20 per cent of all EU structural funds allocated to Wales and it continues to play a vital role in growing the Welsh economy and growing Welsh expertise.

So, certainly, I would be keen to explore what we would do were the UK Government to come through on its guarantee for EU funding. Clearly, there are discussions ongoing there that are causing some concern, not least about the exchange rate to which the UK Government intends to pass on funding to us. There will be discussions, I think, for me to have alongside my colleague—

Referring back to your first words, I admire your positivity in saying that the increase in R&D spending in Wales is matching the increase in other parts of the UK. Let me try to illustrate it. Wales has increased that much from that point, whereas the rest of the UK has increased that much from a point up there. We need to be aiming for parity with other parts of the UK. Let's look elsewhere. Let's look at direct Government R&D spend in Wales. In 2016, of the £2.2 billion spent on research and development by UK Government, £54 per person was spent in London and the home counties, just £5 per person was spent in Wales. And you, as finance Minister, aren't jumping up and down about this every single day. Isn't this just a further example, yes, of the Conservative Government at a UK level not investing in Wales, as we believe on these benches that they should, but also your Government consistently again failing to make the case for Wales's share of R&D funding? And that's to the detriment of Wales and to jobs in Wales.

Obviously, I would disagree. I'm always interested that whenever you seek to make a comparison it's always with London and the home counties, which isn't necessarily a well-recognised comparison with Wales. Spending on R&D is low in Wales, as it is across the UK in Organisation for Economic Co-operation and Development terms. It's a challenge that we are facing right across the UK. The level of R&D funding in any relatively small economy, such as Wales, is influenced greatly by a small number of major projects commencing or ending, and that means that any one year's results should be interpreted cautiously.

UKIP spokesperson, David Rowlands. 

Diolch, Llywydd. Minister, I'd like to raise the subject of public procurement. Post Brexit we should be able to re-examine the rules governing public procurement, and this should make it easier for the public sector in Wales to award contracts to small companies and SMEs. However, even discarding Brexit, there are opportunities for the public sector to make it easier for small firms to bid for contracts. For instance, if we should look at the health sector, the problem here is that local firms can't realistically bid for many contracts, for instance to supply food to a particular hospital, because these contracts tend to be awarded by an NHS health board to provide food across the whole of the health board's estate, which of course means most of these contracts end up going to only the larger firms, some of which are not necessarily Welsh. Has the Welsh Government considered how this situation might be changed, for instance by NHS boards breaking up the provision of food into smaller contracts?

Thank you for raising the important issue of procurement. Of course, our strategy is having a positive impact on the economy in Wales and on businesses in Wales, with Wales-based suppliers now winning over half of the annual £6.2 billion procurement expenditure. However, I am very much ambitious to do more, and I'm ambitious for our SMEs to be able to play their full part in that. We're certainly using our policies to lower the barriers to small businesses and to enable them to secure places in supply chains in Wales. The outcomes that we are achieving far exceed the targets that the UK Government is working towards for engaging with SMEs. So, such policies include community benefits, the supplier qualification information database, project bank accounts, the code of practice for ethical employment and our joint bidding guidance. And we're continuing to open up opportunities for smaller firms, and our encouragement for public bodies to advertise all contracts below £25,000 on Sell2Wales is driving some really positive change. 

We do, on these benches, acknowledge the fact that the National Procurement Service is making a difference, but we also know that the Welsh Government will need to change its approach after Brexit, and this was recognised by the First Minister, who stated in the Chamber recently that the Welsh Government would, after Brexit, look at using procurement on a more local or regional level. And we also know that a template for public procurement policy was drawn up when Jane Hutt was finance Minister and it covered the construction industry in Wales. Has the Government made any analysis of how well this policy has worked in the construction sector?

Certainly, we're working to ensure that small and medium-sized enterprises are able to bid into contracts in the construction sector, and that's one of our key target sectors, actually, in terms of our approach to procurement. Of course, we had the review of the National Procurement Service and Value Wales, and we're currently working together with stakeholders to transition those teams to a new service with a reduced portfolio of national contracts, but with very much a stronger focus on the development and delivery of procurement policy on that local and regional basis, which I think would provide smaller construction companies with a much greater opportunity to engage with the contracts that are available.

Of course I thank, again, the Minister for her answer, but one of the obstacles to tendering for contracts is, of course, the tendering process itself, which involves completing lots of complex forms, and then the process takes up lots of resources, which will often be beyond the capability of small or medium-sized companies. So, to sum up, Minister, I really do think this is an area that the Welsh Government needs to take very seriously, as it can have a very substantial impact on the foundational economy. If contracts are awarded to local companies, the money generated tends to remain in the local community, and this is not necessarily the case when contracts are awarded to very large firms, particularly if they are headquartered outside Wales. 

We recognise that small companies can often struggle to bid for large contracts, and that's why I'm really pleased that, as of March, 31 per cent of contracts that were published on Sell2Wales this year were advertised as being suitable for joint bidding, and I think that's a really important way of supporting small local companies to bid into those contracts. And we are seeing some of those positive impacts in the construction sector, where 78 per cent of contracts or frameworks over £750,000 advertised via Sell2Wales have been awarded to Welsh contractors this year.