Hansard

I am pleased to speak in this debate on the Scottish Fiscal Commission Bill, and I want to highlight some key areas that the Finance Committee considered during its scrutiny of the stage 1 evidence.

The committee has taken a keen interest in the development of the Scottish Fiscal Commission for several years now and published a report on proposals for its creation in February 2014. The committee welcomes the Scottish Government’s willingness to engage with the proposals that we put forward and we support the general principles of the bill. However, based on the extensive evidence that we received—including an excellent piece of research that we commissioned from Ian Lienert, an independent consultant in public financial management—there are some fundamental issues on which we disagree with the Government. The committee also learned a lot from member visits to the Swedish and Irish independent fiscal bodies, and I want to thank everyone who supported us in our important work on the issue.

The most common theme to emerge in evidence from across the board was the importance of the commission’s independence from Government—not only that it is independent but that it is seen to be so; the minister alluded to that just a few moments ago. The current non-statutory commission’s approach has been described as

“one of enquiry and challenge, followed by response, followed by further enquiry and suggested improvements.”

The bill seeks to put that role on a statutory basis and to enable

“the Commission to exert significant influence over the forecasts which underpin the Scottish Draft Budget”.

In evidence, witnesses spoke of the trade-off between exerting influence on forecasts and providing an independent assessment of them. That, in the eyes of the committee, was perhaps the most significant issue to arise during our scrutiny of the bill at stage 1.

The International Monetary Fund, for example, noted that, although early intervention would give the SFC greater influence over the forecasts in the short term, it would

“involve some degree of ownership, which would reduce its independence over the medium term.”

According to Ian Lienert, that position was undesirable as it could change the commission from being an independent assessor of the forecasts to being an adviser to the Government. Questions were also raised in evidence about the timing of the publication of the SFC’s report on the draft budget. The bill requires it to be published on the same day as the draft budget, but concerns were raised that that too could be seen as undermining the SFC’s independence.

In order to address such concerns, the committee recommended that a formal memorandum of understanding between the commission and the Government, setting out agreed processes and timings, should be published. I am pleased that the Government has agreed to consider amending the bill at stage 2 to require both parties to agree and publish such a protocol.

The majority of witnesses from whom we heard expressed their view that the commission should produce its own forecasts, with some suggesting that they should constitute the official ones and others that they should be produced purely for comparative purposes. Yet others were of the view that having more than one set of forecasts would lead to a duplication of effort and add little value to the annual budget process, as the minister mentioned.

The model that is proposed in the bill depends on a high level of behind-the-scenes interaction between the commission and the Government. Indeed, the SFC’s report on the draft budget helpfully provides minutes of the challenge meetings that took place between the commission and Government staff prior to its publication. Those minutes show that provisional forecasts for residential land and buildings transaction tax were considered in a joint meeting on 27 August before an uprated provisional forecast was considered on 23 September. Further provisional forecasts were then considered on 20 November. The minutes from that meeting confirm that the Government revised its forecasts

“following comments made by the Commission in the August 27th challenge meeting.”

The committee believes that the commission needs to demonstrate how its role in exerting significant influence on the Scottish Government’s forecasts can be combined with its role as an independent assessor. In particular, there must be greater clarity regarding how the commission works in practice. For example, the SFC told us that its role was to provide a challenge function early in the process and that it does not look at numbers and outputs. It is not clear how that fits with the SFC considering and commenting on a series of provisional forecasts for residential land and buildings transaction tax between August and November.

The Deputy First Minister also explained to the committee that he would reach agreement with the commission on the forecast methodology prior to the production of the official forecasts. The commission told us that it is up to the Scottish Government whether it takes on board its suggestions or not, and at the end of the day it is the Government’s choice. It is not clear, therefore, whether the commission is being asked to agree the provisional forecasts and the methodology in advance of the production of the official forecasts.

The committee agrees with the OECD that there is a need for full transparency in this work. At present, no information is provided on the extent to which the forecasts were changed following the challenge meetings. The committee recognises that there needs to be some interaction between the commission and the Scottish Government. However, in the other models that we looked at, that is done primarily to share technical information, not to seek agreement on methods or to consider provisional forecasts. It is not clear to the committee how that role can be combined with the commission’s role as an independent assessor. The committee therefore recommends that, to ensure that the commission is seen to be independent, it should produce the official forecasts.

The committee believes that giving the commission ownership of the forecasts in this way addresses many of the concerns raised in relation to the perception of independence. If the commission does not produce the official forecasts, those concerns could remain, even though the committee accepts that the SFC is independent of Government.

The IMF raised concerns about the role of the commission in influencing the forecasts prior to publication. Others disagree. An argument against the proposal, which we have already heard, is that another independent body would have to scrutinise the commission’s official forecasts. It is not clear why, given that the committee heard that the most significant reason for establishing any fiscal commission is to provide reassurance that the forecasts will not be subject to any optimism bias. Full transparency in how the commission arrives at the forecasts is needed, and the Parliament and the Finance Committee in particular will have a role in holding it to account if the forecasts are off the mark.

I have been unable to deal with many of the report’s sections in the short time available; I hope that colleagues will cover some of them in the rest of the debate. In particular, the committee recommends that the bill should be amended to widen the commission’s functions to include assessing the Government’s performance against its fiscal rules and an assessment of the long-term sustainability of the public finances. I look forward to hearing colleagues’ view on that and other issues in our report as the debate progresses.