Meeting of the Parliament 14 January 2016
There are a lot of good comments and recommendations in the report, and I associate myself completely with the bulk of them.
Clearly one of the main topics that we are discussing this afternoon, and have been discussing in committee, is who should do the forecasting. On that point I dissented from the Finance Committee’s stage 1 report, as can be seen at paragraphs 69 and 136, so I will focus most of my remarks on that topic.
I find this a slightly unusual position to be in: the committee and the Government disagree on a point, and I am the only one who sides with the Government. I hope that members will believe that that comes not out of fear of challenging the Government, but from genuine belief.
The OBR is a relatively unusual model in that the UK Government has outsourced forecasting to it. The model proposed in the bill, in which the Scottish Government forecasts and the commission comments on the forecasts, is much more common. I do not think that we should be fixated on how London does things and I feel that some of the witnesses who came to our committee were slightly overawed by London. Jean Urquhart and I visited the Irish Fiscal Advisory Council in Dublin. Broadly speaking, its model is to check on and challenge Government forecasts. The IFAC is still developing—as is the SFC—and it can do some forecasting along the way, but in essence it looks at and challenges Government forecasts.
That is the model that is used, as I suggested earlier, for audits and for Audit Scotland, and it seems to work pretty well. Audit Scotland is an independent body that examines the Scottish Government, local government, the national health service and so on. It produces very challenging and respected reports, in my opinion, which often attract media attention, and politicians on all sides often refer to and quote them. It seems to me that that is a good model to follow: the Government produces forecasts and the SFC does the checking and challenging.
The need for independence is absolutely essential; however, independence is not linked to who does the forecasts. Rather, I suggest that independence comes, first, from having proper checks and balances in place and, secondly, from having the right people on the commission. It means, in particular, that commission members will have the courage to challenge Government. That is covered in paragraphs 41 and 42.
The ability to challenge forecasts is important. Just last week at the Finance Committee we had the SFC with us as we examined its “Report on Draft Budget 2016-17”. As members might know, the report runs to some 60 pages and is excellent. Some of it is quite technical: for example, in paragraph 3.32 the SFC considers the pros and cons of univariate and multivariate modelling. I suspect that some members might struggle to explain the difference between the two approaches.
If the SFC was to produce the forecasts, who would challenge those forecasts? Government is not independent enough, and the Finance Committee does not have the in-depth skills that would be required, as Mark McDonald said. Would we need another body? I put that question to the SFC last week and to the cabinet secretary yesterday, but neither the SFC nor the cabinet secretary could give me an answer. In my opinion, that is because the OBR model is not a good one. We heard yesterday, as I said, that the OBR is hampered because it cannot exchange information with Government departments.
Cost is a factor here too. Are we saying that a relatively small country such as Scotland, which has pretty limited powers over tax and the economy, needs two organisations to do the forecasting? That would cost us a bit. Are we saying that the Scottish Government should just not do any forecasting? That would seem a bit strange.
The SFC has a potential budget of £850,000, although its members assure us that they will try not to spend it all. The proposed budget compares favourably with the Irish body’s €800,000 and the Swedish body’s €1 million. The SFC is well resourced and we should not be upping the budget to duplicate work.
Although the subject is quite technical, it has been fascinating. I think that we made a pretty thorough study of the issues. I have every respect for the three commission members: Lady Rice, Professor Hughes Hallett and Professor Leith. I am happy to support the main recommendations of the committee.
16:26