Committee
Finance Committee 27 November 2013
27 Nov 2013 · S4 · Finance Committee
Item of business
Independent Fiscal Body Inquiry
Everybody agrees that the remit of the OBR is quite restricting—I think that the OBR would say that, too—and you have also stated that it would be important in the short term to come to some agreement on Scotland’s figures and forecasts with the OBR. Is it important that the wider remit, or the remit that we would want in an independent Scotland, is the remit that is worked on now, given that the IFI would acknowledge that there is a reputational issue at stake, to do with what Scotland will look like and how it will handle those issues? If we are looking to improve things here and not to pick something off the shelf that is found wanting, how do we square that circle and allow it to happen? We can get excited about the prospect of the new body, which I would be keen to see, but what would happen in the short term?
In the same item of business
The Convener
SNP
Item 2 is an evidence-taking session for our inquiry into proposals for an independent fiscal body. I welcome Dr Jim Cuthbert, Professor Campbell Leith and P...
Dr Jim Cuthbert
When such a body is set up, the remit is critical. What should not be overemphasised is the forecasting role, but what should be emphasised is the role of as...
The Convener
SNP
Yes—that is quite interesting. We have not seen that paper yet, but the clerk will circulate it to committee members. What do other witnesses think? Is the ...
Professor Campbell Leith (University of Glasgow)
The OBR remit is among the tightest of any fiscal council in the world in that it must give a purely positive analysis of the fiscal situation. It cannot loo...
Professor Jeremy Peat (Royal Society of Edinburgh)
I agree. First, Jim Cuthbert is right that the uncertainties around any forecast are inevitable and considerable. I think that it was Eddie George who said: ...
The Convener
SNP
Paragraph 8 of your submission says that the RSE recognises that “concerns have been expressed as to whether the forecasts provided by the UK OBR fully capt...
Professor Peat
We have not gone into depth in looking at the full detail of the OBR forecasts. However, from talking to Robert Chote when he is up here and from listening t...
The Convener
SNP
One issue to do with newly devolved taxes that has been of concern to the committee is the fact that the OBR has, in effect, just been extrapolating UK figur...
Professor Peat
It is difficult to see how the two bodies would interrelate while we were in a period of devolution—and increased devolution, if that was to take place on th...
The Convener
SNP
Professor Leith, you specifically touch on the matter in paragraph 8 of your submission, where you state that a key question about a Scottish IFI and the OBR...
Professor Leith
My view is that the two organisations should work together. As soon as there was a disagreement, the media would focus on that, whereas the job of an indepen...
Dr Cuthbert
It might help the situation if the status of the forecast was made absolutely clear. One of the suggestions that I made in my OBR paper is that, when the bod...
Professor Peat
Can I add one small additional point? I agree entirely with the suggestion that Jim Cuthbert has made, but it is also important that the model that is used i...
The Convener
SNP
Dr Cuthbert, in the third paragraph of the introduction to your paper, you say: “the OBR’s treatment of risk is grossly inadequate”. Your paper explains in...
Dr Cuthbert
As I have already said, part of the problem goes back to the OBR’s remit. Any body will have relatively limited resources, and the OBR clearly commands some ...
The Convener
SNP
Would you be keen for a Scottish IFI to have risk assessment at the heart of its remit?
Dr Cuthbert
Yes, absolutely.
The Convener
SNP
Professor Leith, would you like to comment?
Professor Leith
I am a little bit less negative about the role of the central forecast in the OBR’s work. It is true that it makes a number of assumptions in order to produc...
Professor Peat
I veer more towards what Professor Leith has just been saying than towards Jim Cuthbert’s suggestion, which is to take away the central forecast. We must rem...
Dr Cuthbert
I just want to correct Jeremy Peat. He implied that I said that I want to take away the central forecast, but I was not saying that. There is an important ro...
The Convener
SNP
We are well into the meeting and I have a lot of questions that I want to ask, but my colleagues are also keen to come in, so I will ask one more question. I...
Dr Cuthbert
I cannot give specific examples from the UK context, but an example that I have mentioned before is that when, in America, there was a suggestion that policy...
The Convener
SNP
Therefore, for example, if the OBR said that the economy was going to grow by a spectacular 5 per cent next year, a lot of companies would think that their b...
Professor Leith
For me, the major feedback effect for such policy questions is the monetary policy response to fiscal policy. When an austerity package is implemented, what ...
Professor Peat
The monetary implications are the most important. If we had in the UK a forecast of very rapid growth such as the convener mentioned, manufacturers might ten...
The Convener
SNP
In other words, feedback effects can have an impact, depending on the prediction. My colleagues have been very patient in waiting to come in with their ques...
Jamie Hepburn (Cumbernauld and Kilsyth) (SNP)
SNP
Professor Leith said that the OBR’s main assumptions are around asset prices, but I note that in your paper, Dr Cuthbert—you touched on this in your exchange...
Dr Cuthbert
I certainly agree—indeed, the main part of my paper argues—that that is an almost inherent feature of forecasting in a policy-influenced environment. The res...
Jamie Hepburn
SNP
Thank you for that. Professor Leith, the rationale for establishing what you describe as fiscal councils in the introduction to your paper is very interesti...