Economy, Trade, and Rural Affairs Committee

Croeso nôl i gyfarfod y Pwyllgor Economi, Masnach a Materion Gwledig. Fe symudwn ni nawr ymlaen at eitem 5 ar ein hagenda. Mae'r sesiwn heddiw yn dilyn ymlaen o ymweliad y pwyllgor â phorthladd Caergybi ym mis Gorffennaf, ac mae'n gyfle i drafod y model gweithredu targed y ffin newydd a datblygu safleoedd rheoli ffiniau, yn ogystal â goblygiadau fframwaith Windsor a'r cynnydd o ran porthladdoedd rhydd Cymru. Yn dilyn y cyhoeddiad diweddar am gytundeb pecyn cymorth Llywodraeth y Deyrnas Unedig gyda Tata Steel a thrafodaethau'r pwyllgor gydag Ysgrifennydd Gwladol Cymru yn ein cyfarfod diwethaf, mae'r sesiwn hefyd yn gyfle i ofyn rhai cwestiynau i'r Gweinidog am ddyfodol dur Cymru. Felly, gaf i groesawu'r Gweinidog a'i swyddogion i'r sesiwn yma? Cyn inni symud yn syth at gwestiynau, gaf i ofyn iddyn nhw gyflwyno eu hunain i'r record? Gweinidog.

Vaughan Gething, Gweinidog, Minister for Economy. To my left—.

Helen John, borders policy.

Dickie Davis, I'm looking after Tata.

Peter Ryland, director, regional investment and borders.

Claire McDonald, deputy director, economic policy.

Thank you for those introductions. Perhaps I can just kick off this session and ask you a few questions about the border target operating model. Obviously, Welsh ports need to be ready for new trade requirements that will be rolled out throughout 2024. Will Wales be ready?

I expect so, but there is always risk in the time frame. Part of the challenge, as you will know from our regular interaction on this, has been the shifting of some of those time frames as well. We've had reviews on some of the facilities we want to construct, most recently the review around Holyhead, and that's pushed the time frame back a bit, when we could have started work earlier. The fact that we have now got an agreement on a model means we can actually have some more certainty to work against.

The biggest risk, really, is a further change in the UK Government approach. I should say, I think that since Lucy Neville-Rolfe—Baroness Neville-Rolfe—has been the Minister for a sustained period of time, it's been helpful to have the same person to talk to. We haven't had our—. There have still been wrinkles along the way, but having a single model to work to—and you'll have seen the summary advice that I published alongside the written statement—means it's now about us keeping going. But there are real risks to our ability to still deliver the construction in Holyhead. We need to make sure that the pre-notification takes place in January, in common. If England go ahead as they're due to in April, with physical checks, that should give all of us more confidence as well. We're due to have a ministerial meeting in the coming weeks with both Lucy Neville-Rolfe and Mairi Gougeon, the Scottish minister, where we hope we can agree how the western seaboard of GB will move in a consistent way for the introduction of physical checks.

Now, we've said in the target operating model that, by the end of October [Correction: 'October 2024'] at the earliest, we need to be clear to try to set that certainty that both Governments and our contractors will need, but also businesses and other interested parties as well.

And what support is the Welsh Government providing to traders to prepare for all this?

Well, we're trying to be clear about the requirements. And, of course, traders are getting used to these requirements on the eastern and southern seaboard of GB because those requirements are coming in. And, one of the challenges from traders has always been around that they want certainty to plan against and they want a time frame far enough in advance for them to understand what they need to do. Because the requirements have changed over time, so, actually, most traders that are coming from the island of Ireland into GB are having to deal with trade issues going into continental Europe. So, there's a significant trade across, as well as those traders who are just coming into GB as well. And it is about us being able to listen to those traders and what's happening. It's part of the reason why there's been some change, but, of course, pre-notification started in English ports some time ago.

So, I think we're in a good place in the sense of wanting to be able to give that certainty, and I said that I wanted to be able to give a year's notice to traders ahead of physical checks, and that should give all businesses the time to prepare. And also, of course, there are ports to get ready for what they're going to need to do, as well.

Now, on publication of the border target operating model, you said you’d developed a model that 'works for Wales'. Could you expand on what you meant by this?

Well, we've still got some points to work through on having a model on charging, for example, which you may be able to get into later on, and actually having a model that means that Welsh ports aren't disadvantaged, and you don't have different levels of competition that exist. For example, Heysham and Liverpool, it could be an option to avoid going to Holyhead and to go to Heysham, if there were different requirements. The reality is that if you're trading, the path of least resistance and least cost is often very attractive. So, actually, that could have been something that could have been really unhelpful. And from a biosecurity point of view, you don't want to have an incoherent regime with a different regime in Cairnryan, to Liverpool, to Holyhead and Pembrokeshire. So, that's actually really important as well.

And in having a regime that works well is understanding the differing levels of risk that exist. Because our trade, that we're concerned about coming through our ports, is really through the island of Ireland. And so, actually, that's also important for us as well—the relative risk level, too. And what works well is having clear notice on what happens. So, wanting to have that staged process that works for us, that is appropriate for the level of trade we have coming in, and then the rules we'll need to meet. Because, you know, we want to be part of meeting international obligations as opposed to making deliberate choices not to do so, or, frankly, not having the time to do so as well.

And do you have any early insights into the effects of the border target operating model and the Windsor framework’s combined effect on trade diversions away from Welsh ports?

Well, there's been trade diversion already, so this is one of the things we've talked about with colleagues in the Irish Government, but also businesses. You've got this challenge of GB businesses wanting to know that there's a level playing field for them to operate on, and actually that's not really been the case in terms of trade going in both directions with the island of Ireland. But it is also then about our understanding that the significant trade diversion that took place was directly from the island of Ireland, directly to continental Europe. And that's because of the challenges on the land bridge. That's, actually, partly about Welsh ports, but it's really about what happens when you get to the narrow straits from south-east England getting into continental Europe. And that's been the main bugbear for traders. And so they've chosen that, actually, if the land bridge worked and worked well, you probably wouldn't have seen the trade diversion that's taken place, and that matters both for Holyhead and for Pembrokeshire as well. But knowing and seeing the queues for lorries and the challenges that exist there, that's one of the things that have put traders off. So, the certainty of going directly from the island of Ireland has caused trade diversion, and the trade diversion point is also why we need a coherent model for the western seaboard of GB, so there is no particular advantage in moving from one port to another.

It also is why the Windsor framework challenge around what is a qualified Northern Irish good has been important as well, because, again, if you could become a qualifying Northern Ireland good by simply transporting yourself through Northern Ireland, actually, the cost from going from anywhere in the south up through over the border into Northern Ireland and then, actually, that's then a challenge for us about where those goods go, either to Cairnryan, to Liverpool or indeed to Holyhead, as opposed to the natural route from the southern part of the Republic of Ireland, where your natural route would be through Pembrokeshire. So, there's a challenge there, and that's been an honest challenge that we've needed to work through.

We've made some progress on that too, that's why I think it goes partly into, 'Does this work for Wales?' We've managed to find definitions, particularly on food and feedstocks, for Northern Ireland businesses, and that's meant that the incentives aren't there to avoid travelling through Pembrokeshire in particular. So, it's always been in our mind; we're not just interested in Holyhead as the higher volume port. We've been seriously interested in the consequences for all of our ports and the sort of model we could sign up to.

Thanks for that. I'll now bring in Hefin David. Hefin.

Thanks, Chair. It's just bizarre that we voluntarily, as a society, put ourselves in this hugely complicated situation, but there we go. You've confirmed in your written evidence that Holyhead border control posts will administer the new common user charge. Could that affect trade flows?

The common user charge is there to try to make sure that it doesn't, but also that you've got for Government-operated ports, or those ports that the Government are directly responsible for, that actually there is no disincentive and you have a balance, fairness and predictability in the charges that take place. We're still working through and discussing the issues around Pembrokeshire, and issues that exist there also exist in some of the smaller ports in England as well. But I think the constructive path we've taken with DEFRA means that there is less risk of charges being a reason to want to divert from Holyhead to somewhere else.

Okay. The UK Government estimates the costs of the border target operating model to be £330 million annually for businesses spread across EU imports, plus a 0.2 per cent increase in food inflation. How much do you think those costs are going to fall to Wales-based traders?

I think a share of those costs will naturally fall to Wales-based traders. On food inflation, it'll be hard to avoid that, and we've seen in the last year and more that food inflation has actually run significantly ahead for most of the time of wider inflationary costs, and there will be additional costs to Welsh businesses. There's no getting around that. That's an unavoidable consequence of the form of our departure from the European Union and then getting through the different versions until we got to the Windsor framework, which does represent progress on where we were previously.

Have you had dialogue about those costs and the extent of the burden in Wales?

In the dialogue we've had, all traders want some certainty, and they accept that the trading arrangements now mean there will be an extra cost. They're not looking to say that we need to cover that cost. On our conversation with the UK Government, there's always been an understanding there would be more costs, and, actually, some of the kicking the can down the road on getting to having a model for borders that everyone could sign up to was about wanting to avoid some of those costs as well, both for consumers and for traders. But the obligations we have, not just in Wales, but across the UK, meant that, actually, you could not continually avoid the reality of this, and it is just an unavoidable cost that comes with the nature of our changed trading relationships.

And Wales is going to be the only mainland nation to introduce pre-notification in 2024, because it's already in place in the other nations. So, does that present a challenge?

No, when we introduce pre-notification, there'll be an issue for Cairnryan as well. So, it won't just be Wales. And it's the western seaboard, so it should affect Heysham as well, as well as our ports. It'll affect Cairnryan, and it should also matter to what happens on the island of Ireland as well, so for Dublin and Rosslare as well.

Okay. Thank you, Chair.

Thank you, Hefin. I'll now bring in Sam Kurtz. Sam.

Diolch, Cadeirydd. Minister, when we as a committee visited the Holyhead BCP site at Parc Cybi, we saw the facilities—or lack thereof—for hauliers, and we’ve done an inquiry in this committee as well on facilities for hauliers, and I’m just wondering whether that lack of facilities will be addressed as part of the BCP redesign, which was described in your written evidence.

Yes, it is one of the things that we are considering, because part of the challenge is the space, and then the facilities, and it is one of the challenges that actually makes the haulier industry difficult to recruit to. It isn't the wages, which are actually significantly better than the average wage; it is actually the facilities, as well as the reality of the nature of the work, that it takes you away from a particular home base as well. So, we are looking at what we might be able to do in terms of both refreshments and showering and other facilities as well. So, those drivers that need to go through the BCP will look at what facilities we would need and what they would look like, and of course, because it's next to the HMRC site as well.

So, is that looking at Welsh Government operating that, or bringing in a private operator to run facilities, or are these all measures being investigated?

We're considering what the right model would be. There is a challenge, isn't there, for the Welsh Government to directly operate that. We don't currently have a bank of civil servants ready, willing and able to go out and run a facility directly, and all the welfare facilities. So, we are looking at what model would work, and that's a conversation that we're obviously having with both HMRC and the local authority, but we want to make sure that there is a properly run facility there. So, I can't tell you now that we have made a definitive choice on how that would be done, but I'm more than happy to update the committee.

But you're angling towards sort of a private company or a private collaboration, saying that you don't have the civil servants to do it. That would naturally lead me to—

No, but we've got a conversation to have with the local authority and HMRC as well about what's working. So, I don't want to say, 'This is definitely going to be an arm's-length contract'. And of course, we do have contracts with people in the private sector. It's not saying, 'It would be impossible to do, or the wrong thing to do', but we need to talk to the local authority as well. There may be an option there with them. Because we're going to have local-authority-employed staff around all of these, and it's one of the concerns that local authorities have about the people they will need to employ and the line of sight that they need about getting those people in place.

Fab. And in terms of the BCP at Fishguard, I think in your written evidence you've described there being a reuse of rock—excavation and reuse of rock at that location. That, to me, naturally seems like a good idea; it's reducing the amount of imported material that's required. Is the environmental footprint and impact of the BCP's construction part of the deliberation as to how these models will operate and look?

Yes, it's part of the factor about our understanding of the costs, how it's done and where it's done. So, yes, all of those things will be part of our consideration. It also adds a complication because, potentially, the upfront cost could be different to doing something different, but that's why we'll need to see it in the round, so not just the costs on day one, but also the value of it and what it might mean. And it will also mean, if you're looking at extracting and reusing rock, that you're more likely to have a local economic return on that as well, and I'm interested in not just getting the facilities right, but the benefit of the spend on creating those facilities as well.

Excellent. So, you've previously told this committee that you expected inter-governmental discussions on the timetable for introducing physical checks on non-qualifying NI goods to begin around now. Are you able to update us on that?

As I said, in response to the questions from the Chair, I'm expecting us to be able to have a ministerial meeting within days or weeks, both with Lucy Neville-Rolfe and Mairi Gougeon from the Scottish Government.

Fab. Are we entitled to a written update following that, as a committee?

I'm more than happy to write. If there are things that I can say, then I'd like to do that.

Or maybe a written statement to the Senedd itself.

Yes, or if we get agreement and I can issue a written statement, then I'll do that as well, and we give notice to the committee when those go out as well. But I'm keen that we get agreement, and we can agree a date, and that will give certainty not just to Members, but as we've discussed, to business interests, to local authorities, and what we need to do in terms of the contractor that we have in place to actually deliver.

Okay, thank you.

Okay, thanks, Sam. I'll now bring in Carolyn Thomas. Carolyn.

Thank you. Following on from what Sam Kurtz mentioned regarding hauliers, to make it more attractive to come over, the Department for Transport were looking at the mapping of truck stops in England. Is that something we're looking to do in Wales?

Yes, so, it'll be led with colleagues from the climate change and transport divisions, but we are looking at, and taking seriously, the report that this committee provided. So, having some welfare facilities at the BCP for those lorry drivers who will stop there is definitely part of what we're looking at, but there's a wider point and, actually, we'd like to understand the network in England, because that will make a difference for hauliers when they come over, whether through Pembrokeshire or through Holyhead.

The person I spoke to at the DfT said that it would be good to do it all together—just having one person looking at it across the UK, if that's possible. And earlier, in previous discussions, we mentioned possibly using freight from Holyhead, so I just want to lay a marker down here with you if that's something that could be looked at in the future, going forward.

So, both you and the First Minister have spoken of unresolved issues regarding the Windsor framework, including the need to counter avoidance of UK tariffs by using the Northern Ireland-GB routes. So, have these matters been resolved?

Not fully. So, we've made—. From where we started, we have made progress on a definition of qualifying Northern Irish goods. The starting point would have essentially been that anything that travels through Northern Ireland is a qualifying good. So, you'd give an active incentive to travel up from southern Ireland through Northern Ireland to get the benefit of being a qualifying Northern Irish good. So, we've made some progress on the definition, but it's not comprehensive, and relying on people to do the right thing is difficult, because, if the law says you can do it and you're a business and it affects your bottom line, there'll be plenty of people who'll do that.

What we do need to do is to recognise the very real sensitivities that exist. The Windsor framework represented real progress, but no-one can say that it's perfect. Many agreements aren't perfect. But we'd like to see more progress made and you'll know from the summary evidence that we published that the chief vet, for example, would like to see more progress made on a range of other areas, including commercial pets, for example. So, there are issues for us on which we still want to carry on talking. The fact that we've managed to reach this agreement I think gives us a base to carry on talking about what can be done. We always said it would be more helpful for us to be engaged in those discussions because of the direct impact on Welsh ports. The choice has been made to date for the UK Government not to involve Scotland or Wales. I think there is a pragmatic way forward that would engage us properly in those talks because we have a direct interest in seeing a resolution of some of these issues.

Earlier we heard from Professor Katy Hayward, who told us that the new arrangements could lead to competitive advantages and disadvantages between Northern Ireland and GB, so how might this affect Wales and does it concern Welsh Government? You've mentioned it already. Is there anything else really there regarding the competitiveness and making it a fair and level playing field, really?

This comes back to one of the fundamental challenges about leaving the European Union. If you want a soft border on the island of Ireland, then you've got to have arrangements in place for that to happen. And essentially, where Northern Ireland is, it's both that single market access is much easier, and, at the same time, it's also access to GB. Welsh businesses aren't in that position. So, in that sense, Northern Irish businesses have an advantage. That isn't going to be levelled out by any of these discussions on the border. Qualifying Northern Irish goods and the revised definition takes out some of that competition, so that it's on a more genuine level playing field with businesses here. But the reality of Northern Ireland's position means that it, frankly, has advantages in trading terms.

Over the long run, if that position is maintained, that could help Northern Ireland on attracting investment, so that is part of what we need to carry on trying to discuss and resolve and it's also part of what we need to make attractive about still coming to Wales as well. So, rather than saying that it is unfair that this exists in another part of the UK, we need to be really clear about the positive advantages coming to Wales and what we have to offer. And the good news on that is that I think we do have a number of positives to offer to businesses that are already here or want to start and grow here as well as external investors as well.

Okay. And when the Windsor framework was announced, you hoped that it would improve UK-EU relations. Could you provide your view on this now, and whether improvements have materialised, going forwards? What are your priorities in relation to UK-EU trade?

It definitely has improved matters. Part of it is the tone. I have plenty to disagree about with Prime Minister Sunak, and I'm sure that will carry on, but actually the fact that he was prepared to have a conversation with the EU and not to make headline-grabbing claims saying, 'They will do what we want,' I think has been helpful. That's been a good deal more grown up. I've seen what Lord Frost has been saying, the negotiator of the trade agreement that the UK and the EU struck, and I think it's been really unhelpful that he's, essentially, been saying, 'We never intended to honour the terms of it,' whereas actually having the Windsor framework and the fact that it's gone through, the fact that we're now dealing with the terms of it, I think does build confidence.

One of the things that it definitely did do was unlock the conversation and the decision around Horizon. Horizon, I don't think would have been agreed without progress in Northern Ireland. And, as I said before, if the position were reversed and the UK were in that position, I think the UK would not have agreed an alternative matter, so that's understandable. That means that Welsh and other UK universities can now take part in those research collaborations. That's good news for us.

My priorities on EU trade are wanting to remove as much of the friction as possible. That requires UK-level agreement with the rest of the EU, but what we are doing practically is still encouraging people to trade and trying to help them to understand how they can continue to trade successfully with the EU. The biggest bloc of trade that Wales has is with the EU, so it will continue to remain important for us. Geographically, we are exactly where we are. We're not about to dynamite ourselves and float ourselves off to a different part of the world. So, trade with the European Union will continue to be important, and we need to practically help businesses to work through the rules and requirements that are in place. That's why our exporter programme is important, and we continue to get lots of businesses in north and south Wales engaging in the programme.

Okay, thank you.

Thank you, Carolyn. I'll now bring back Sam Kurtz, then.

Diolch, Cadeirydd. Minister, what progress has been made on developing reliefs for devolved taxes such as business rates and land transaction tax to support the development of free ports in Wales?

Well, we continue to have those discussions with the free-port consortia in both Holyhead and the Celtic free port in south-west Wales. I can't give a running commentary, because we have the full business case that is due to come to both Governments at about the end of November. We'll then need to assess what that looks like. But I'm positive about the conversations that are taking place and I look forward to receiving that for a further decision. The reason why I'm deliberately going to not give you a definitive answer is I'll be a decision-taking Minister.

I understand that. Forgive me, then, for pressing a little bit more on business rates, then. Has that caught the Welsh Government a little bit on the hop, that business rates were included in this and the way that business rates are administered in Wales would mean that potentially there is divergence in local areas? But, given that the idea of a free port is new business, not repatriation of business, what's the Welsh Government's assessment on the business rates element of it?

It was part of the conversation. It was part of why it needed to be a joint initiative that both Governments could live with and agree. You'll recall, at the start of free ports, there were headline and megaphone statements made about, 'Wales will have it whether the Welsh Government like it or not,' and yet actually we're talking about devolved responsibilities here. So, it was always part of our discussion, what will happen with business rates. That's why we are looking at what the model for business rates would be, and the points around how you get an agreed position on what growth looks like. Growth, not diversion, is what we're looking for. When I briefly spoke to Simon Clarke, when he was briefly responsible for this area, he accepted that genuine growth was the yardstick to judge free ports on. That's the work that we're doing and we're looking forward to what comes back in the full business case. It's Claire and the team who will lead that assessment from the Welsh Government side, working with officials in the department for levelling up.

So, will the free-port areas be business rates exempt?

That's a discussion that we're having, about what will happen on business rate relief.

So, there's no guarantee as of yet whether the free-port areas will be business rates exempt.

So, in the response from us, they are liable for tax relief up to 100 per cent. We're waiting for the outline business cases, if I can just correct the Minister there—

Sorry. Outline—sorry.

—for the record. Hopefully, November, December—so, this side of Christmas. Full business cases, then, would be the other side of Christmas, depending on a general election, of course, because that is something we need to manage in this. But it says up to 100 per cent. We need to see those business cases to fully understand what, I suppose, the contribution of the Welsh Government would be. It's easier for the English or UK Government, rather, on the English ports, because they can work that out amongst themselves, but we have to see what exactly our contribution would be. So, hopefully, over the next couple of months, we'd have a bit more information. But the Minister's right: we can't really comment on what is—. We're having some drafts sent to us, which is great, but we need to work with them quite a bit. We've had a number of teach-ins with them around NDR, and that's gone down very well—they've understood—and the guidance as well. But it's for them, really, to explain to us the detail.

Okay. I'm glad there has been—I don't like using the phrase, but—hand-holding. But, as this is a new model for both the free-port consortia—

And it's fair to say as well rates retention is brand-new to Welsh Government. It is new; it's not new to the UK. And it's fairly new in Scotland. We are learning from colleagues in Scotland as well. There's a joint meeting of all of us, where we get together and we share that learning, which is a really good thing.

So, parking—I'm coming back to both of you on this point—a potential general election in May—for what it's worth, I think it'll be October—are we still on track for a final designation in spring 2024?

All other things being equal, then yes.

Okay. That's good. That's positive. Thank you for that positivity on that.

I'm a naturally positive person, Sam.

Good. Likewise—as am I. In terms of the plan to publish guidance for free ports in Wales, do the free ports have sufficient information? I know you've mentioned that you've been working with them closely. Have they had the information required to be able to lean on Welsh Government, where required, and—obviously you can't answer on their behalf, but—UK Government, to ensure that both free ports, north Wales and south-west Wales, have been able to, or will be able to, come at a final point with a really strong case as to the need for these in those two geographical parts of Wales?

I think so, but there is change that takes place in the economy and the picture they're dealing with. So, that's part of what they're dealing with. But the opportunities that exist are still going to be there. I want to talk about change in the economy—not just Tata, which I understand we're going to talk about later—and what impact will that have on where the baseline for growth takes place on the level of business rates that exist beforehand. But also, if you think about the contracts for difference round, the fact that no-one in the UK did a floating offshore wind project go-ahead. Much of the value of the Celtic free port is based around what will happen in floating offshore wind. So, actually, that stutter or that pause is unhelpful for everyone, and that will unlock investment in some of the infrastructure that's needed. So, understanding what happens in those is part of what each of the free ports will need to consider. And it's a point that I know Luke Fletcher has made around firming up the numbers of jobs that are likely to be created, how success is then judged, and the type of jobs. There are a number of other things around that as well. But when they come back with their outline business case towards the end of November, we'll go through that. Like I said, I think we're still on track for spring, because I think they have got—from the Governments, anyway—the information they need.

So, that outline business case will be an opportunity for yourselves to work with the free-port organisations to be able to go, 'Right, this is good, this needs work, this is where it may require strengthening, this is something that we can park', et cetera et cetera. That discussion will be quite fluid, once that outline business case comes in at the—

That's the point of having the outline business case, to get more clarity on what's proposed, how and why it allows you to test things, because you have a better understanding of what to do before you're delivering a significant project like this. If, for example, you wanted to electrify the main line in north Wales, you need to go through the same process.

Thank you, Chair.

Thank you, Sam. I'll now bring in Luke Fletcher. Luke.

Diolch, Gadeirydd. So, I obviously understand that you're waiting for the outline business proposals, so am I right in thinking that there's been no modelling yet of the potential costs of free ports to the Welsh Treasury in terms of some of those tax reliefs that are going to be given out?

Well, that depends on the model of business rates relief that then goes forward, and it also depends on the ability to meet the growth targets and the growth aspirations that will be set out. So, while I don't want to say, 'No, we have no idea, there's no kind of modelling, no understanding of that', I just think it would be unhelpful to try to give a running commentary before we get to OBC. And obviously, once we get the outline business case, we won't just be going through the process that Samuel—he's a Samuel not a Sam, compared to the other Sam—has set out. So, that process of wanting to test and work around those will allow us not just to say we've received them, but then what we say afterwards as well. It will be inevitable that there'll be a statement from the Government about where we've got to on the OBCs, and then, apart from anything else, confirm that they can go forward to the final business case.

In what way would it be unhelpful then to publish costs of free ports? I'd be genuinely interested to know.

I think we need to get to the OBC point, and then I think we will publish, saying—

But modelling has been done, though, hasn't it, on the costs of free ports, whatever the proposal would be.

The reason I think that would be unhelpful is you get into a running commentary, and you can set lots of hares running that may not be what then happens when you get the OBC. So getting the OBC I think will provide more certainty and clarity. And on your point on wanting to scrutinise whether this is really going to work, how much certainty we're going to have, I think that's when we'll get something real to look at, rather than modelling that will have lots of variables in it as well. So, when we get to OBC, we will be publishing things following the conversations. We'll be clear, if things are going forward to a final business case stage, about what assessment has been done, and why we think that has happened or hasn't happened. And I think that will give you some of the information that you're looking for—and others too; others will be interested. So, for those that are positive about free ports, they'll want to see that there's something to it, and for those that are a bit more sceptical as well.

We look forward to receiving some of that—

I can't promise you the joy of regulations that Eluned was promising the Senedd yesterday, but there'll definitely be some commentary about the OBC to go through.

I'm sure we'll come back to it at some point in the future. Sticking on the theme of costs, then, has any work been done around how we might be able to compensate for the potential displacement of investment because of free ports?

That all depends on whether free ports are successful in generating additional growth or displacing economic activity, which was one of our concerns at the start. That's why we went through a process in wanting to understand what the offer was. It also depends on the other interventions we have—so, the work we're doing with each of the deal areas, the work that we want to do in some of the sectors as well. A compound semiconductor sector is where it is; it's not going to get uplifted and put into a site in Milford or Port Talbot or Holyhead. So, the investment will vary depending on the nature of the sector and the nature of the opportunity. And again, I think, when you get to OBC, there'll be a bit more that will be certain about is this looking at displacement not growth, and, if it looks at displacement, then we in the Government will have concerns about that, because that's not what we're looking to invest in.

There's a lot hinging on the OBC, then, in terms of understanding where things are going. The reason I ask around the displacement point is because of the analysis done by the IFS, saying that, whether there's new genuine growth or whether there's displacement of economic activity, displacement is going to happen—you can't fully mitigate it. It feels to me that we might already know what, potentially, is going to happen, and so having some of that preparatory work in terms of what we do then in terms of investing outside the free-port zones is going to be quite important.

We're not giving up on investing outside the free-port zones. That isn't the agenda we have. It isn't that the only Welsh Government investment into the economy will take place in the free-port zones—far from it. Each of the city and growth deals have strategies for investing in sectors and in places as well. So, I do think you'll see a number of areas where the economy will grow in Wales in different sectors, and you'll see areas that will be difficult because of the broad challenging picture we face. Part of the difficulty and the job is both managing and dealing with areas of very real difficulty, and still being able to promote areas where real growth should take place. To use fintech and cybertech as examples, I don't think we'll see the displacement of those sectors because of what's happening, and yet, actually, when you look at the businesses that we think could grow, advanced manufacturing that could take place, potentially, around free ports, well, they'll actually have needs and cybertech and fintech may well be interested in what happens. So, there's always a link across different sectors, but the displacement potential is more real in some sectors than others, and that is one of the things we will definitely be looking at.

Finally, Chair, just at this stage now, how involved have the trade unions been?

I've had a conversation with trade unions in the last few days. Some of them were in Liverpool, as you might have expected. But the trade union side are engaging around that. It's a matter for the free-port consortia to make sure they're working through the criteria that we have set for them. And that is important, that is real. It will be a factor in any assessment of whether I am prepared to support bids going forward—the outline on the interests of people working in those free-port areas, and how that's to be addressed. The trade unions with the biggest likely footprint are obviously interested. They were actually advocates for wanting to see some of those opportunities go ahead, and, at the same time, concerned about making sure they are part of what takes place—so, the governance about having a trade union person on the board. I'm looking for trade unions to collectively agree how that can work, and then the works council that isn't called a works council—I forget, Claire, what it was called in the end, even though it is a works council—

It's a forum. We wanted to call it something else, but we couldn't.

That workers forum, which is, in terms that both businesses and trade unions understand the works council, is to understand about the chair and secretary of that side, and how those things relate. What I'd like is agreement from the trade union side about how they see those things operating, so you don't get different views from different trade unions. I think that wouldn't be helpful. And the good thing is that there's plenty of parts of the economy where there are multi trade union agreements. So, I think we should get something that I can endorse, that gives me confidence, that also gives trade unions and their members confidence, and they're definitely going to be plugged into the governance structure around the free ports as well.

Just for clarity more than anything else, you won't know entirely how involved trade unions have been in the process until we see that at least initial business proposal.

But I haven't had flags raised with me by the trade union side. That hasn't taken place. I know that some trade unions are doing some joint work on opportunities around that as well with some of the players in free ports. I think that's quite helpful, actually, that they're wanting to engage in, 'If this happens and you're a key player in this, we want to talk to you about how that could happen, we want to talk to you about local onshore content about what social value will be delivered, we want to talk to you about making sure these are genuinely good jobs with good terms and conditions'. So, that's really constructive. And, of course, a number of people that we're talking about in those businesses are used to working with trade unions; large-scale manufacturers are used to working with trade unions, Associated British Ports and the port of Milford Haven are used to working with trade unions. It's not an alien world to them, so I think that is helpful in where we should get.

But, as I say, I've not had any trade union come to me and say, 'We're desperately concerned about what will happen'. What I have had is the Trades Union Congress and the Wales TUC are broadly more positive about the way we have discussed this and agreed this in Wales than what they are seeing happen in some of the models in England, and, actually, they'd like to be able to take what we've agreed and transport that into models of free ports in England.

Great. I'm looking forward to those business proposals.

Excellent.

Thank you, Luke. I'll now bring in Vikki Howells.

Diolch, Chair, and good morning, Minister. I've got some questions for you on Tata Steel this morning. Last week, the Secretary of State for Wales told the committee that the Welsh Government had 'kind of ruled themselves out' of discussions around the Tata agreement, as it wasn’t prepared to enter discussions that involved closure of the plant or the blast furnace. How would you respond to those comments?

Those are not factual comments. At official level and ministerial level, no such statements were made. I've been on record saying that we wanted to be engaged in the conversation and were disappointed we weren't. Whether it's a good or a bad outcome, we would rather be involved in conversations that understand what is taking place, and also how devolved responsibilities and levers could be used to try to get the best outcome economically and, indeed, for the working people directly affected. So I’m not entirely sure where the Secretary of State for Wales got that information, but it’s not factually correct.

Thank you, Minister. I know that you've been really clear that you wanted to see Tata invest in hydrogen as well as looking at the potential for electric arc furnace steel making. What conversations have you had with Tata around hydrogen, and did these indicate that it was an option that they seriously considered?

Because we weren't part of the conversations when they went through the detail, we didn't have the preferred technology conversation in those talks. Hydrogen is something for the future, and so the challenge is how you transition to get there. Some of that goes into how long are you prepared to maintain your blast furnace assets, what’s the role of DRI—and Dickie can come in and talk to you about what DRI is—and does that allow you to do something different that reduces your footprint on that transition. And we understand that electric arc is certainly part of the technology answer for the future.

In terms of some of the detail in that work, the company, Tata, engaged in a conversation with the trade union side. They’re looking to have more detail in their proposals over the coming weeks and months. That conversation isn’t complete, and it’s not a secret that the trade union side are engaging Syndex, who are expert consultants in this area, who Tata always were aware of and have worked with in the past, to come up with the trade union side’s view on what might be possible as well. So, that negotiation is still taking place over the coming weeks, and I look forward very much to hearing more about what those options might mean, how they could engage devolved levers, and what that might look like.

I think the point about hydrogen is, if you want it to be an answer for the future, the UK Government has to be prepared to invest in the research required for that. Some of that research is taking place in London, some of it is taking place in south Wales, actually, with a view on it. Then, indicating that you’re interested in that, and that’s part of what you want the conversation to look like, helps you on the transition, even if it isn’t the immediate answer. I think we’ve got to be clear that there is not an off-the-shelf hydrogen answer now, but it’s part of what the future could look like. But if all that research and all the practical engagement takes place with another Government within Europe, then that’s likely to be the first site for it to take place.

Dickie, do you want to explain about the—? I don’t want to go into it technically about how steel is made, but just the point about DRI and the broader points on technology choices.

It's very interesting, Chair, if I may. I was in a meeting last week when the Minister asked exactly that question to the chair of Tata Steel UK, and they have gone for electric arc because it is a known technology. We were reassured that, in terms of DRI, direct reduced iron—. I won’t get technical, but in terms of other alternatives, they used the phrase ‘bolt on’. So, we go for electric arc now, and then we have the ability, as the technology comes in at scale, to improve the output of the electric arc using modern technologies.

Thank you very much, Minister. The Secretary of State also said to us that he doesn't see a possibility for any changes, any flexibility at all, in relation to the agreement the UK Government has made with Tata. That was something that struck alarm bells with me, because I know that Tata have yet to engage in consultation with the unions. So what implications do you think this statement has for Tata's consultation with the unions on the agreement?

I don't think it was a terribly helpful statement from the Secretary of State for Wales, but the Secretary of State for Wales isn’t the decision-taking lead department in the UK Government either, so I think people need to take a step back from the comments that were made to this committee. I’m trying not to be unhelpful, because we need to have a pragmatic relationship between the Welsh Government and the UK Government, both Governments and the company, and, indeed, the trade union side as well. So the negotiations and conversations that are taking place between the trade union side and Tata I don’t think are materially affected by the statements made by the Secretary of State for Wales, but I understand why it would have generated some extra concern. We’re all going to find out in the coming weeks and months about the nature of the detailed proposal and the detailed response from the trade union side, and there are potential alternative proposals as well, so—. And we continue to engage directly, as you've heard, with both Tata and, indeed, the trade unions themselves.

Thank you, Minister, that's quite reassuring. And talking about that pragmatic working relationship that you said you want to see, what discussions have you had with the UK Government around the transition board that will be established? Is there potential for a Welsh Government representative to maybe co-chair the board, as has been suggested by the Secretary of State? And do you anticipate adding any further funds to the £100 million announced by the UK Government?

So, our officials have spoken between the two Governments about the transition board. We understand the offer is there for the Welsh Government to co-chair; I think that would be very sensible. It's not just a project in Wales, but much of what the transition board has set itself out to do is directly relevant to and unavoidably interacts with—or if not, just is—a devolved area of responsibility. We're talking about economic development; we're talking about investment in skills; how we help people who potentially are not in employment in their current employment role—that's both directly with the company as well as the supply chain.

We haven't been asked to put an extra sum of money on the table. What we have done is made clear that, in addition to what the transition board do with the £100 million that has been set out for it to try to use and allocate, we, of course, have all the devolved Government responsibilities and levers. So, that's the ReAct+ programme, for when people are at risk of losing their work or are out of work, but we also have a range of other skills programmes that we provide—there may be reskilling that's required. So, we will look to deploy devolved levers and responsibilities to support workers, as we would do with any other significant employment event.

You're seeing that now, in the work we're doing in the Rhondda, where there's going to be work with the local authority on a jobs fair that they're leading on. That will take place next week, where both the Welsh Government is engaged in supporting that and working with it, not looking to set up something separate, and, indeed, the Department for Work and Pensions as well. And we had that same approach in working with the local authority and the DWP—which the Secretary of State is aware of—in the conversations we had around Monmouth and Avara Foods. So, there's a way that we work to try to add our interventions together and to make them as coherent as possible, and that's certainly what we do, and that would obviously involve devolved Government resources from us here in Wales.

Diolch, Minister. Thank you, Chair.

Thank you, Vikki. Are there any other questions for the Minister and his officials at all?

Can I just come in on something?

Carolyn.

When I went on a visit to Ireland—[Inaudible.]—I met with the Irish Maritime Development Office over there, and they're looking at developing wind turbine technology offshore. So, I was just wondering—. You said earlier that the free port in west Wales is about developing renewable technology as well. So, if they're part of Europe and under different regulations, would there be issues there? Are we working closely together as well on development in the Irish sea? Is it competitive, or are we working in partnership? Just a little bit more about that, please.

Well, actually, the potential for the Celtic sea on our side, as it were, but there's also the reality that Ireland have not just one long, windy coastline and one seaboard, but, actually, they've got east and west as well, so they've got real opportunities as well. It's been part of the conversations we've had at a number of the Wales-Ireland ministerial fora that have taken place, and I'm sure it will be part of the conversation that we have—I think, next week—when there's another one of those meetings. So, we're talking practically about some of the lessons we've learnt, about trying to share those, and, obviously, the potential amount of work and the scale of the opportunity is one where there is opportunity for investment from Wales into Ireland and from Ireland into Wales as well. So, we're definitely looking at how to share some of those opportunities, and there's only a limited number of deep-sea ports around, so we do think there are opportunities for Wales in working constructively with Ireland.

A massive opportunity for employment as well in this new skills sector.

Absolutely. And it's a part of what we're looking to do with the net-zero skills plan we have, about trying to have greater certainty in the areas. And actually, it's one of those areas where having an agreed perspective will help us in understanding not just where our budgets are, but who's doing what as well. So, you want to get away from the UK Government and the Welsh Government competing in an area like this. And, you know, Paul will know this—having been here longer than anyone else in the room as an active Member—it's a devolved area, being held to account by this Parliament on what we're doing, so there is accountability in what we do, whereas if there's a skills programme that is run through the UK Government, then this Parliament doesn't have a line of sight on that and it, potentially, either duplicates what happens or cuts across it and does something that is contradictory.

So, actually, there's a genuine opportunity for us to get this wrong by doing difficult things that cut across each other, or in getting things right by deliberately adding to what we're doing and having clarity in the way in which we work. That's one of the things we are definitely talking to, and you know, the world of businesses, they want some clarity on who's doing what and some certainty, and that's what's going to happen as well.

Thank you.

Thank you, Carolyn. Our session has therefore come to an end, Minister. Thank you very much for your time today and for your officials being in attendance as well. It's been very informative. A copy of today's transcript will be sent to you in due course, so if there are any issues with that, then please let us know. But, once again, thank you very much indeed.

Dim problem. Thank you very much.

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