4. What action will the Welsh Government take to reduce the risks to public finances in light of the COVID-19 pandemic? OQ56115

I am retaining a fiscal resource reserve of more than £800 million in the draft budget for 2021-22 to deal with the uncertain future path and impact of the pandemic. The fiscal framework protects the budget from the impact on devolved revenues of UK-wide economic shocks that have been caused by the pandemic.

Thank you for that answer, Minister, and happy new year to you. Last year, I raised the point that the Welsh Government, through the Welsh development bank, is lending money to local councils to buy and let out commercial properties to property developers. Last financial year, it was more than £35 million, and this year, it could be as high as £97 million. My main concern was the news that the COVID pandemic has seen commercial property returns and prices collapse, putting the public money that you have invested at huge risk.

The First Minister admitted that all commercial property values where the Welsh Government has invested public money have been affected by the pandemic, and he said that he expected lending decisions now to be calibrated to the current set of circumstances that we see. If no changes have been made yet to the lending criteria, there is £97 million worth of public money at huge risk. Please tell me what discussions you have had, and what firm decisions have been taken that have changed the lending criteria that were in place before the pandemic to criteria that are, in the First Minister's own words, calibrated to the current set of circumstances.   

Thank you for raising the question, and happy new year to you too. I have looked into this, because I was interested in the question that you raised with the First Minister previously. At present, there is only one deal—and that's of the entire £122 million that has been invested—where the repayment of the loan is reliant on the sale of a commercial development within a project. So, I think that we can be confident that this isn't a pressing issue at the moment. Obviously, officials are in regular communication with the DBW. They are confident, and they reassure myself and Ken Skates, whose department the DBW sits in, that the DBW is taking a prudent approach to investment in these uncertain times, particularly in terms of the maximum loan-to-value rate available for investment as well. But, we have received assurances that what has been undertaken is absolutely appropriate.   

I'm particularly concerned about the SME sector, which has been very badly hit by the COVID crisis, which has closed up high streets and imposed—necessarily, of course—very different working methods. For the health of our high streets, for the health of the foundational economy—and much of our economic strategy is on building up the SME sector—can you assure us that it will receive a very high priority in future business support plans and, indeed, the balance of resources that it gets from the Welsh Government budget?  

I'm more than happy to provide those assurances. SMEs are absolutely the backbone of the economy here in Wales. I think that our approach to the pandemic has demonstrated particularly our support for small and medium-sized enterprises. You will recall that there was quite a bit of a furore about the Welsh Government's early decision not to allocate rate relief, in terms of non-domestic rates, to those large businesses over £500,000 rateable value. But now, of course, we are seeing businesses such as Tesco offering money back across the border in England where they had received that funding. We took that decision very early on, and that allowed us then to repurpose lots of that funding—if I recall correctly, in the region of £150 million—back to small and medium-sized enterprises, which we understood needed that finance much more than the larger businesses.  

I was very interested in the question from Michelle Brown. Councils in England have borrowed far in excess of 100 per cent of their annual income in terms of commercial properties, which is certainly a cause for concern for all of us, because it effects the British economy. What I would say to the Minister is: do you agree with me that the best way of dealing with Government debt is to grow the economy, and thus grow the tax received? Tax received in 2018 was almost 50 times that of 50 years previously. The more you grow the economy, the more tax you receive, the less debt actually matters.

Thank you to Mike Hedges for raising this. On the issue of local authorities, we do provide statutory guidance for local authorities when they make their borrowing and investment decisions in a way that is appropriate to their statutory responsibilities. On the second part of the question, I also agree with Mike Hedges that we do need to grow the economy here in Wales and ensure that we do grow our tax base here in Wales. We have some structural issues and challenges in terms of our tax base, but I think that if work very carefully through that we can make some inroads. If we look at what we're doing in terms of housing and planning and in education, for example, I think that all of those things are levers that will help us grow the tax base in future. It's something that I've asked the tax engagement group as well to be thinking about. We had a meeting of the tax engagement group back in November, and we did consider some of those challenges to growing the Welsh tax base, including the deterioration in the labour market conditions associated with the COVID-19 pandemic. So, it's an issue that we're keen to take expert advice on as well. But the logic of what Mike Hedges sets out is very sound.