Questions now from the party spokespeople. Plaid Cymru spokesperson, Rhun ap Iorwerth. 

Thank you, Llywydd. Following the cancellation of the black route, will the Minister provide us with an update on the borrowing capacity that was available to the Welsh Government, conditional on it being spent on the M4 relief road? Is that funding still available now that that plan has been scrapped?

Thank you very much for the question. You'll recall that the funding that would have been earmarked for the M4, should the decision have been made to make the Orders, was up to £1 billion. But we have to remember that actually that £1 billion related to £150 million of borrowing that we're able to draw down on an annual basis up to a maximum of £1 billion. You'll have heard the Minister for Economy and Transport's recent statements—and the First Minister's statements—where he said that it will be the task group or the commission that is currently looking at ways in which to alleviate and address the transport and the congestion problems in and around the area of Newport that will have the first call on that funding.  

The question I was asking was about the principle, in fact, of the UK Treasury telling Welsh Government how it should be spending its money. There's no justification for the Treasury dictating to the Assembly or Welsh Government what its priorities should be. I think the command paper, 'Financial Empowerment and Accountability', published alongside the Wales Act 2014, said that

'Within the overall and annual limits, the Welsh Government will be able to borrow for any capital purposes without HM Treasury consent. Welsh Ministers will therefore have the autonomy and flexibility'. 

The fiscal framework also says that

'There remain no restrictions about how the Welsh Government can use its borrowing powers'.

But we did end up with this conditionality. Now, the First Minister, when he was finance Minister, requested additional powers over borrowing, and there was specific reference in the letter to the Chief Secretary to the Treasury to borrowing to help fund the M4. And the result was the UK Government saying, 'Okay, you can have the money, on the condition that you spend it on that'. Does the Government now regret writing the letter in those terms? And if this Minister was in that position, would she have written the letter in the same way?   

Well, what I did do was write to the Treasury last year seeking an increase in our borrowing limit, which, as I said, is currently £150 million a year, sequentially up to £1 billion, to help deliver our investment priorities. And when we talk about borrowing, when we talk about our capital fund, we talk about it in the round. So, we don't borrow against a specific project or a specific scheme. We borrow to increase our available capital in order to deliver our portfolio of priorities and projects for that year and years beyond. 

In the UK Government budget last autumn, the Chancellor said there'd be a review of the Welsh Government's borrowing powers at the spending review and that they would consider whether the limit should be increased up to £300 million. However, that spending review has been delayed by the UK Government, so it's not clear when that will take place. But certainly, a priority in those discussions, which come around the comprehensive spending review, will be about our borrowing capacity.

I still maintain that mistakes were made in Welsh Government setting a trap for itself, which the UK Government then triggered, and I want assurances that such mistakes can't be made again.

Would the Minister agree with me that now is the time, considering the delay, if you like, and the need to spend money on the M4 now, to have a reaffirmation of the general principles of the fiscal framework and other inter-governmental agreements, which allow and secure full flexibility to Ministers in Welsh Government, and will the Minister agree to pursue that as a matter of urgency with the UK Government so that we don't find ourselves in the same position again?

Well, as I say, I've already started these discussions in terms of our borrowing limit. But I'll be issuing a written statement later this week, which talks about the statement of funding policy, and that's a discussion that I started in my first quadrilateral with other finance Ministers, and with the support of the Scottish and Northern Irish administrations, which looks at a much more fair and much more transparent allocation of funding from the UK Government to the nations. But, as I say, I'll be making a further announcement on that later this week, or a further statement, I should say, on that later this week.

With regard to funding that would have been spent this year, it's only in the region of £20 million, which would have been expended on the M4 project should the decision have been made to go ahead with the black route, but, as I say, in future years now, we will look to see how best to spend that money with the first call being to address the issues around Newport.

The Conservative spokesperson, Nick Ramsay.

Diolch, Llywydd. Can the Minister provide an update on the funding allocations being made available across portfolios to progress the decarbonisation of the Welsh economy?

I thank Nick Ramsay very much for that. We're having the start of our discussions now in terms of the preparation for the 2020-21 budget. Obviously, we don't yet have a budget for that. We're having discussions in terms of the priorities that we would wish to see across Government. In each of the discussions that I've had with my colleagues, I've discussed our response to the Well-being of Future Generations (Wales) Act 2015 and the importance of addressing a climate emergency, so this is very much front and centre of the work that we're doing.

The First Minister has asked each member of the Cabinet to lead on addressing a cross-cutting issue within our programme for government, and Vaughan Gething has been asked to lead on the decarbonisation piece of work. So, that is about looking across Government to make sure that we are maximising what we already do and also to see if there are further ways in which we can maximise our contribution to decarbonisation.

I've just come this morning from a meeting of the Cabinet sub-committee on decarbonisation. That's been meeting for around two years now. It's been very much at the forefront of developing our work in terms of cutting our emissions, and our response to the UK's Committee on Climate Change report and so on.

Thank you, Minister, I'm pleased to hear that progress. Ministers across departments have been making the right noises on decarbonising. Lesley Griffiths has said,

'just as Wales played a leading role in the first industrial revolution, I believe Wales can provide an example to others of what it means to achieve environmental growth.'

And she went on to talk about the importance of tackling climate change. That's all great, but, at the same time, you mentioned the future generations commissioner, who has said in a report that we are,

'lagging...behind other countries...in some key areas such as...public transport, active travel'.

In other words, areas, which, over the longer term, can really assist with reducing our carbon footprint as a country. So, I appreciate that this is a budget-setting exercise, probably, but in terms of a strategy for deciding those allocations in advance of that process so that departments know that they're going to get funding specifically to reduce carbonisation, how are you ensuring that that will happen?

That's part of the discussions that I have with individual Ministers in seeking to understand their priorities within their portfolios as to how they would use the funding that they have and their responsibilities and the areas that they have to respond to in order to take forward our responsibilities in terms of the climate emergency.

I'm familiar with the future generations commissioner's discussion paper. I think it's an interesting and useful starting point for a discussion, but I do think that, at the same time, you have to have those discussions about the fact that, if you're identifying £1 billion of funding that is needed, well, where does it come from? Because, as I say week after week in the Assembly, our funding has been constrained and it's much lower than it was even 10 years ago. So, we have to have those discussions about where funding will come from, what activities will stop or what activities we'll divert funding from. And the second point of research that I think has to come from the commissioner in terms of her paper as well is to identify exactly what the carbon savings would be for each of those projects and each of those spending priorities that she's identified within the paper as well. I look forward to continuing those discussions with her at our next meeting.

Minister, the report that I referred to—and you have as well—also highlights that, while the Welsh Government's low-carbon plan contains 100 policies, only around 1 per cent of the Welsh Government's budget can actually be identified as specifically for decarbonisation. Would you agree that, probably, we need to be a bit more ambitious in the future with trying to get that percentage up? If I could just ask you about a couple of specifics, the First Minister, I think at last week's or the week before last's questions, spoke about plans for a new Welsh forest as part of creating a carbon sink so that we're not just looking to reduce our emissions but also looking to try and take some carbon out of the atmosphere as well. Could you outline funding that's been made available for that forest at this early stage and whether you've had any discussions with the environment Minister, as it would be I assume, in terms of where—. I think that forest isn't going to be in one place, so I think that there are going to be aspects of it across Wales—so, just how that's going to be funded.

Thank you for raising that, and this is a particular area of interest for the First Minister. It's another item that was in his First Minister's manifesto. I haven't had a direct conversation about the national forest with the environment Minister, but I have been in contact with her officials who have been advising me on what the potential cost implications could be for that because, obviously, you need the capital investment but, actually, when you do plant woodland, there's a revenue impact and a revenue consequence for that on an ongoing basis as well. So, I've been seeking to better understand the funding implications with the support of the Minister's officials.

The Brexit Party spokesperson, Mark Reckless.

I welcome the Minister's engagement with Assembly Members but also wider civic society, who are interested in this issue, around tax devolution and, in particular, the really significant issues around the yield from the Welsh rates of income tax. I know she's speaking on Tuesday at the Wales Governance Centre, and also thank you for organising your own conference on 19 July, which I'm looking forward to attending.

The Finance Committee had Robert Chote from the Office for Budget Responsibility come in last week. You're paying, I think, £100,000 a year for work from the OBR in response to what was done by Bangor University. I was quite struck to learn at the Finance Committee the extent to which the primary responsibility for the tax forecast, and the numbers and the model that drove that, rest with Welsh Government but then OBR come in and challenge that and give a measure of quality control. But it's a huge responsibility.

We have this £1 billion so-called 'black hole' with Scottish income tax revenues and, although we haven't changed that—the Welsh rates of income tax is an area where the Government has stuck by its manifesto pledge to keep those the same—that doesn't mean that the tax yield can't change very significantly for matters potentially outside our control. You had Mark Drakeford negotiate the fiscal compact, which I think other parties and Members were complimentary about, but there are still huge uncertainties about how these revenues will develop. I just wonder what lessons the Minister is learning from what's going on in Scotland with this £1 billion so-called 'black hole' and, in particular, whether she thinks there's a case for needing a greater level of contingency and reserve in the spending estimates going forward, given those uncertainties and what we're seeing with Scotland.

Thank you for raising the issue of, as it's called, the '£1 billion black hole' in Scotland as a result of their moving to the Scottish rates of income tax. Obviously, it takes a number of years for that reconciliation in tax to be undertaken. So, it's only now that they're understanding really the impact. I think part of the reason why I can take some heart from the way in which we're doing things differently in Wales is because we do have the OBR scrutinising our figures and advising us there, whereas in Scotland it was the Scottish Fiscal Commission. So, we have the same organisation as the UK Government has scrutinising their figures. So, I think that they use, obviously, the same methodology and are able to consider the same impacts. So, I think that that does give us some protection rather than using two different organisations with two different methodologies to understand and analyse the data.

As I said, I met with the Office for Budget Responsibility. It's something, obviously, we will take a very close interest in. We're less exposed, again, than Scotland because we only have the 10p rate of income tax devolved to us, whereas the situation in Scotland is quite different because they have different powers devolved to them in respect of income tax. But, obviously, reconciliation and the importance of accurate and good data is something that we're, obviously, as you would imagine, holding as a high priority because we don't want to be in a situation in years to come where we find that we are having to pay back money that we had factored into our budgets over a number of years.

I don't suggest that the Minister is complacent and, clearly, the OBR has a reputation that it has developed, but I'm a little cautious of thinking just because we have the OBR rather than our own commission that necessarily its performance will be better, because we're only funding it to the tune of £100,000 a year and they do not have the specific experience of the Welsh economy and thinking carefully about how Welsh revenue might diverge because it hasn't been necessary to think about that to the same degree before because the issue has not been of the significance that it now will be. So, I just caution the Minister to the extent that her department is primarily driving this and the OBR is coming in and giving its view and giving some views, but that must be a relatively limited given the £100,000 budget compared to the £1.6 million to the Scottish Fiscal Commission.

I ask, going forward, as to the sensitivity of this issue in terms of what the forecast is but also if the tax rates were to be changed, what the impact of that would be, and, in particular, the sensitivities along the border as to whether people might move either physically themselves or the reported income on which they would be paying tax. I know that it's an issue of great significance to Welsh Government and I'm sure you have a number of officials who are working very carefully on this, but it's also of huge significance to other parties in the Assembly, and as we get closer to the upcoming Assembly election, a little under two years, parties will want to think very carefully about what their policies are going to be for their manifesto, and a big input into that will be what those sensitivities are, what the risks around them are, and I just wonder what more the Minister and Welsh Government can do to share and open up the expertise they have in-house to the input of others, but also, perhaps, to give some common assessment on which political parties can talk about the impacts of their proposed tax policies.

Well, we have developed a very good relationship, I think, with the OBR, and they've certainly been keen to support us as we develop our new taxes, for example, in terms of modelling what they might be for us when we do get to the point at which we are able to provide them with some parameters for the research work.

But I think that, as the Member says, as we move towards the next Assembly elections, it will be for all of our individual parties to set out what we will seek to do with income tax. So, if we were to raise it, what would we spend the additional funding on, and if we were to reduce it, where would the cuts fall? Because, of course, for every penny that we increase or decrease the rate of income tax by, that would have a £200 million impact on the Welsh budget. So, I think that we all need to be very mindful of that. But I don't have concerns about the service that we are receiving from the OBR. I think that we're working very well with them, but, were there concerns, I would certainly raise them directly.