Diolch yn fawr, Llywydd. Heddiw, rwy’n gosod cyllideb ddrafft Llywodraeth Cymru gerbron y Cynulliad Cenedlaethol. Mae’n gyllideb a gafodd ei llunio mewn cyfnod o gynni, sydd bellach wedi para mwy na saith mlynedd, ac yng nghysgod mwy fyth o doriadau. Heddiw, am y tro cyntaf, wrth ochr y gyllideb rwy’n cyhoeddi adroddiad gan brif economegydd Cymru am gyllid cyhoeddus yn y dyfodol a’n rhagolygon economaidd. Mae’r neges yn glir: os yw Llywodraeth y Deyrnas Unedig yn mynd i barhau ar ei thrywydd presennol, fe fyddwn ni’n wynebu estyniad pellach mewn cyfnod o gynni sydd eisoes yn hirach ac yn ddyfnach nag a welwyd erioed o’r blaen.

Llywydd, this is the bleak background against which today’s Welsh budget has been prepared. As the difficulties deepen, we remain committed to doing everything we can to help our public services meet the very real challenges they face today, while acting now to improve the prospects for the future.

In line with the new procedure this National Assembly has agreed for this year’s budget, the information before Assembly Members today sets out the major building blocks of the budget: where the money comes from and how it will be allocated to the different government departments. Later this month, the Government will publish a greater level of detail than previously provided, explaining how individual portfolio Ministers intend to deploy the resources available to them. Llywydd, I have listened very carefully to the calls from the health service, local authorities and others who provide vital services across Wales about the importance of being able to plan over more than a 12-month horizon. Despite the very real uncertainties that we face, and within which this budget has been drawn up, I have been able to set out revenue plans for the next two years and capital plans for three.

Llywydd, in setting out the building blocks of our budget, I turn first to the important issue of reserves. As I have previously discussed with the Finance Committee, I have taken a particularly stringent approach to reserves during the first two years of this Assembly term. While in-year allocations have been made from reserves for essential purposes, my intention has been to make maximum use of the new Welsh reserve, negotiated as part of the fiscal framework. That agreement means that we are able to take a maximum of £350 million forward into that reserve from April next, and to do so unencumbered by the restrictions we have faced by having to abide by the UK Treasury’s budget exchange mechanism. Thanks to the help of all my Cabinet colleagues, I have been able to plan this budget on the basis of the Welsh reserve being at, or very near, its maximum at the start of the next financial year. I am then able to deploy the benefits of this prudent management to help protect our public services against the worst of the cuts in the more difficult years that lie ahead.

Specifically, Llywydd, I intend to take two actions. I have decided to reduce the level of in-year contingency, which I would otherwise need to retain. As a result, £40 million in revenue in each year has been released to invest in public services. At the same time, the level of the Welsh reserve will be such as to allow me to release, in a managed way, a further £75 million in 2019-20 to support our revenue funding.

Without these decisions, Llywydd, Welsh public services would face further reductions of £115 million in 2019-20. This is almost exactly the sum of money by which the Chancellor intends to reduce our budgets in that year, as a result of the £3.5 billion-worth of unallocated cuts that still hang over our services. I repeat, once again, my call to him this afternoon not to proceed with those unfair and counterproductive reductions. Welsh taxpayers will contribute no less in that year than they do now, but they will be badly short-changed as a result of the actions the Chancellor still intends to pursue.

Llywydd, I turn now to capital expenditure. I repeat the message that I and finance Ministers from Scotland and from Northern Ireland have put to the Treasury team in London: while interest rates remain at a historic low, now is the time to borrow to invest in our collective futures and to create the conditions in which prosperity can be secured.

In his autumn statement last year, the Chancellor went some way to repair the damage done by his predecessor. I urge him to do more this year. As a result of the additional capital and the new needs factor in the Barnett formula, our budget in 2019-20 for vital investment purposes will now be 20 per cent below where it stood in 2009-10, rather than 27 per cent, but, a 20 per cent reduction at a time of urgent need is a very big cut indeed.

We have therefore continued to build on the foundations set in place by my predecessor, Jane Hutt, in developing new and innovative ways in which we can fill that capital gap. The principle that underpins all this is that we will always exhaust the use of the least expensive forms of capital before moving on to other sources. In line with this principle and in this budget, we will deploy £4.8 billion-worth of conventional capital, including grant and financial transactions funding provided through the block grant. We will then borrow £375 million in capital—£125 million annually over the next three years—making the first use of the new borrowing powers directly available to the Welsh Government. Even when we have done that, we will go further and alleviate the budgetary pressures on other public bodies and housing associations to enable them to carry out £400 million-worth of borrowing for essential capital investment.

And, Llywydd, when all of that has been achieved, we will go further still. We will secure over £1 billion-worth of investment through the mutual investment model schemes, which are so important in our health service, our education service and in transport. Beyond that as well, we will look to draw down as much of the £208 million of EU structural funds available to us for capital projects, and we will press ahead in seeking approval of further key projects in the next period, including the south Wales metro.

Central to all of this is the cumulative revenue impact of the capital financing decisions we are taking. Historic decisions, including PFI, most often made before devolution itself, result in just over £100 million in revenue being required on average in each year of the budget. The decisions made more recently to enable innovative investment in public infrastructure add another £30 million to that sum.

All of that, Llywydd, brings me to our revenue resources. With the devolution of tax powers, the funding arrangements for the Welsh Government have changed. We now have the power to raise revenue directly to fund public services through devolved taxes. Nevertheless, the vast majority of funding for Wales will continue to be through the block grant from the UK, still accounting for almost 80 per cent of the revenue available in 2019-20.

This draft budget is operating for the first time under the fiscal framework agreed between the Welsh and UK Governments last December. These arrangements mean that Wales will receive an additional £47 million over the period of this budget, and all of that money has been put to work to support our public services.

Llywydd, this is an historic moment for us in Wales. This will be first time we, as Members of the National Assembly, have the powers to set the rates for our very own taxes. With those new powers come, of course, increased responsibilities, and as we enter this new phase of devolution, we will provide stability and certainty for taxpayers and the citizens of Wales. That does not mean that we must keep the taxes as they are today; we now have an opportunity to use these new tools to make changes to help take Wales forward.

Llywydd, in this budget, I make decisions in relation to the first two taxes to be devolved to Wales. I’ll begin with the landfill disposals tax. I can announce today that the standard and lower rates will remain consistent with the UK tax for the next two years, providing the stability that businesses have so clearly told us they need. I intend to set the rate for unauthorised disposals at 150 per cent of the standard rate. Wales becomes the first country in the United Kingdom to set a higher rate for unauthorised landfill disposals, creating an additional financial deterrent for people disposing of waste illegally, and this decision will complement the regulations laid today by my colleague, the Cabinet Secretary for Environment and Rural Affairs, which will enable fixed-penalty notices to be issued for small-scale fly-tipping offences. I also reaffirm my commitment this afternoon to allocating £1.5 million a year to the landfill disposables tax community scheme in Wales for each of the next four years. This ensures that our commitment to communities affected by landfill disposals is upheld, and provides a stable funding stream to those communities for the next four years, even as we expect the revenue taken from this tax to decline gradually over that period.

Llywydd, I turn now to land transaction tax. I have decided to introduce a new, higher starting threshold for homebuyers here in Wales. From 1 April 2018, a starting threshold of land transaction tax in Wales will move from £125,000 to £150,000—the highest starting rate anywhere in the United Kingdom. This will mean the average first-time buyer in Wales will pay no tax at all when they buy a home. Indeed, the average homebuyer in Wales will pay nearly £500 less in tax than they would under the existing stamp duty land tax regime. Indeed, nine out of 10 homebuyers will now pay less or the same tax in Wales under land transaction tax. The decision I announce today will mean that those who purchase the most expensive properties in Wales will pay more, but that is inherent in any progressive approach to taxation.

Turning now to businesses, Llywydd, decisions I make today will mean that Wales will now have the lowest starting rate of land transaction tax for businesses anywhere in the United Kingdom. This means that businesses will either pay no tax or less tax than under stamp duty land tax for all property purchases up to £1.1 million. This will benefit small and medium-sized businesses right across our country—the lifeblood of the Welsh economy. As with residential property, I have rebalanced taxation on business premises to improve progressivity.

Llywydd, as well as setting the rates for the new taxes, we have produced revenue forecasts for the first time. I would like to thank Bangor University for providing independent scrutiny and assurances of those forecasts. Landfill disposals tax is forecast to contribute £28 million to the Welsh budget in 2018-19, falling to £26 million in 2019-20. Land transaction tax is forecast to raise £266 million in the next financial year, rising to £291 million in 2019-20.

In July, Llywydd, we began a national debate asking people to put forward ideas for potential new Welsh taxes. A significant number of responses has been received, and I would like to thank everyone who has become involved and helped shape future Welsh taxes. Today, I can announce the four new tax ideas on which further work will be carried out before we propose one idea to the UK Government early next year.

The growing demands for social care place significant pressures on the Welsh budget. I therefore want to explore potential financial levers, including taxation, to support social care provision in Wales, building on the work of Professor Gerry Holtham. We will explore the efficiency of a possible tax to end land banking and a disposal of plastics tax in Wales, and we will work with local government to explore how a tax on tourist accommodation could be used to support the local industry and encourage jobs and growth in Wales.

Llywydd, I will now set out how our combined capital, revenue and reserves resources are to be applied across Government. This announcement takes account of our two-year budget agreement with Plaid Cymru, which sees a number of the measures we agreed in last year’s agreement being made recurrent, and which sees other important investments in agreed areas across the budget. I want to take this opportunity to put on record my gratitude to Adam Price and his team for all of the time they took with us to reach this agreement over the summer period.

As a result of all of that, the total health, well-being and sport main expenditure group will now stand at £7.5 billion in 2018, rising to £7.8 billion in 2019-20. That MEG will include an additional £450 million over two years for the NHS in Wales. It will include an extra £16 million in each of the two years to support the new treatment fund, and I am able to provide an additional £90 million for the NHS Wales capital programme over the next three years.

The total local government MEG, including non-domestic rates, will now stand at £4.5 billion in 2018-19, and will remain at £4.5 billion in 2019-20. That will include protecting the front-line schools budget and social care, and it will provide an extra £12 million over the next two years for homelessness services through the revenue support grant. All of this means that local government in Wales will once again enjoy a far more favourable settlement than its counterparts across our border in England.

Llywydd, the total communities and children MEG now stands at £874 million in 2018-19, and £777 million in 2019-20, to include extra investment amounting to £70 million over two years to expand our flagship childcare offer, to guarantee that there will be no cuts to the Supporting People grant, and to release an extra £340 million in capital over the three years to build 20,000 affordable homes. It will invest an additional £14.9 million in capital over that period to support the regeneration of our community facilities, and I am able to allocate an additional £1 million in both years for the discretionary assistance fund, directly to help some of the poorest families in our land.

The total economy and infrastructure MEG will now stand at £1.2 billion in 2018-19 and rise to £1.3 billion in the following year. That will provide £220 million over two years to support our determination to create 100,000 all-age apprenticeships over this Assembly term. It will include £50 million over three years to develop a new rail station and park-and-ride facility in Llanwern, and I intend to earmark money in the reserves to buy new rolling stock for the new Wales and borders franchise, subject to the outcome of the ongoing procurement process.

In education, the total MEG will now stand at £1.6 billion in both 2018-19 and the following year. That will allow us to invest £50.5 million to raise school standards over the two years, to maintain our level of investment in the pupil deprivation grant and to invest a new £40 million-sum over two years to accelerate the twenty-first century schools programme, bringing band A of that programme to an end even faster than we would otherwise have been able to achieve.

The total environment and rural affairs MEG now stands at £344 million in 2018-19 and £322 million in 2019-20, including delivering £150 million-worth of investment through our innovative flood and coastal risk management programme and an extra £7.5 million in capital in 2018-19 for targeted flood prevention measures. I intend to provide a further sum of £5.4 million over the three years to support the rural development programme to ensure that we can maximise match funding opportunities to support our rural communities as we prepare to leave the European Union.

The total central services and administration MEG now stands at £297 million in 2018-19 and will fall to £286 million in 2019-20.

To conclude, Llywydd, I want to put on record my commitment to public services in Wales by saying that if the Government of the United Kingdom decides not to go ahead with the £3.5 billion-worth of unallocated cuts, then I will aim to make the maximum use of the resources that would then be available to this National Assembly between the draft budget and when I have to lay the final budget at the end of December this year. As a result, the budget in front of the National Assembly today sets out a bold and balanced set of proposals that deliver the priorities of this Welsh Government and the priorities of the people here in Wales. We will use our powers to invest in our health service, provide 20,000 new affordable homes, create the most generous childcare offer anywhere in the United Kingdom and set out on our new tax responsibilities in a way that provides the most help to those who need it the most. I commend the budget to the National Assembly.