2. What assessment has been made of the risks to public finances as a consequence of the COVID-19 pandemic? OQ55514

Llywydd, the Office for Budget Responsibility's latest assessment shows a very large increase in the fiscal deficit for the UK as a whole during this financial year. The Welsh Government's fiscal framework protects the Welsh budget from the impact on devolved revenues of the UK-wide economic shock arising from the pandemic.

Thank you for that answer, First Minister. Your Government has encouraged local authorities to invest in commercial properties around the country. You've lent them taxpayers' money to do so, and the Development Bank of Wales lends money directly to private companies developing commercial properties. Last financial year, the bank lent £34.1 million of taxpayers' money to property developers, and this year the bank has two funds available to property developers, totalling £97 million. Most of it is in the commercial property fund, and all of the money is provided by the Welsh Government, i.e. the taxpayer. As a result of lockdown, property experts are predicting that commercial property could lose 50 per cent of its value and rent returns will go through the floor as businesses close and downsize offices because more staff are working from home or need rent holidays. Even the Office for Budget Responsibility admits to at least a 14 per cent drop in value over the next year. If the OBR are correct, the Development Bank of Wales could lose £7.7. million in one year if it invests all of its commercial property fund of £55 million. The bank may already have lost £4.7 million on last year's investments. The picture could be just as bad for local authorities. Flintshire County Council, for example, owns 13 business centres and industrial estates. So, how much taxpayers' money invested in commercial property could be lost due to lockdown? How much money have you set aside to bail out councils who lose money because of investments in commercial property reducing? And has the DBW changed its lending criteria towards commercial property developers since the coronavirus came along and changed the way people work and conduct business? 

Well, Llywydd, I think the risk in the Member's question is to conflate short-term and long-term consequences of the pandemic. In the short run, there's absolutely no doubt at all that commercial property values have been affected by coronavirus and that they will continue to be affected as the economic shock of the pandemic unfolds across our economy. But I don't think that we should assume that those short-term impacts are guaranteed to be characteristic of the way the economy will recover. Nor do I think it is fair to criticise any organisation from having made lending decisions in one set of circumstances when something entirely unforeseeable then makes a difference to the way that those investments are now valued. What I expect to see is I expect lending decisions now to be calibrated to the current set of circumstances we see, and I expect us to take a long-term view of some of those investments and not to make decisions in haste that would respond to what we all surely hope is a temporary impact of a global set of circumstances on our economy and that the economy will recover in ways that will protect those investments in the longer term. 

I think Michelle Brown just about covered everything there, didn't she, First Minister? But I'll ask you about the tax situation. Yesterday, in Finance Committee, we had an evidence session with the finance Minister, where she spoke about the impact of the pandemic on house sales and on land transaction tax. What assessment has been made of the ongoing pandemic on not just that tax but on all taxes, including the Welsh rate of income tax? And you just mentioned in response to Michelle Brown that the fiscal framework supports the Welsh budget against shocks such as a pandemic and UK and international shocks. Are you confident that the fiscal framework is operating properly and that it will fully defend the Welsh budget and Welsh tax revenues against the shock of the pandemic? 

Well, Llywydd, if I was to take Nick Ramsay's phrase literally, 'fully defend', then I don't suppose I could guarantee that, because the impact of coronavirus will be felt across the whole of the UK economy as well as the Welsh economy, and across UK Government revenues as well as our own. I am confident that the fiscal framework defends us against shocks that would be experienced in Wales where those shocks are experienced elsewhere. The block grant adjustment will take account of that and will mean that we are protected against those effects.

I'm also pleased to be able to say to the Member, because I know what a close interest he took in it at the time, that the 105 per cent consequential rule that we have as a result of the fiscal framework has already provided £360 million to Wales that would not have come to Wales were it not for the fiscal framework and that part of it that we negotiated at the time. So, we are defended by the fiscal framework. None of us are defended against the global impact that coronavirus has on the whole of the UK economy and more widely. 

First Minister, I am confident that you will agree with me when I say that an innovative use of tax competencies can have a positive effect on our public finances, as well as bringing other positive societal benefits. As you will know, I'm a keen supporter of the vacant land tax, which could not only boost public finances but, more importantly, also transform our communities. So, I was disappointed to read the written statement from the finance Minister last week about the foot dragging from UK Ministers on this. Will the Welsh Government continue to press UK Ministers to respect the devolution settlement so that these proposals can be developed and not let them use responding to the pandemic as an excuse for inaction or rowing back?

Llywydd, I thank Vikki Howells for that, and I very much recognise the interest she has taken in the vacant land tax issue. I well remember the short debate that she held on this topic. Sadly, this is a much less positive aspect of our negotiations with the Treasury. While I was able to speak positively of the fiscal framework, this is a much less satisfactory story.

Let's remember for a moment, Llywydd, that what we have been trying to do is to use a power put into the Conservative Government of Wales Act 2017. This is a power that the then Government put on the statute book, and it allows the Welsh Government to propose new taxes for Wales. Some Members here will remember that we deliberately chose a narrow and specific tax, a vacant land tax, not a controversial tax, in many ways, in principle, in order to test that machinery. More than two and a half years have gone by since that proposal was first put to the Treasury. And, despite what have, at some points, been reasonably productive relationships, in August we received a very disappointing letter from the Exchequer Secretary to the Treasury, reopening a whole series of questions and debates that had already been answered in previous negotiations. I'm afraid what is becoming apparent is that the machinery that we set out to test is not satisfactory; that it is not competent to deal with the issue that the previous Conservative Government itself put on the statute book for Wales. We'll continue to work away at it, as Vikki Howells has said, but I'm afraid what we're learning is that the machinery itself is broken beyond repair.