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Scottish Fiscal Commission Bill: Stage 1

– in the Scottish Parliament on 14th January 2016.

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Photo of John Scott John Scott Conservative

The next item of business is a debate on motion S4M-15303, in the name of John Swinney, on the Scottish Fiscal Commission Bill.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

The Deputy First Minister is unable to participate in the debate, as he is attending a family funeral. Therefore, I will be representing the Scottish Government in the debate.

The Scottish Fiscal Commission Bill will secure a permanent role for the commission in strengthening the operation of Scotland’s devolved fiscal framework. The bill delivers a long-standing commitment from the Government to give the Scottish Fiscal Commission a basis in statute and further demonstrates our commitment to fiscal discipline.

The non-statutory commission has been in operation since June 2014, with a core function of scrutinising and reporting on the Scottish Government’s forecasts of tax revenues that support the Scottish budget. The bill provides that that should remain the core function of the statutory commission. I will return to that issue later.

The commission’s core purpose should be to maximise the integrity of the forecasts and estimates that are prepared by the Scottish ministers to underpin the Scottish budget. By bringing independent scrutiny to bear on those forecasts, the commission provides Parliament and the public with independent assurances of the robustness of revenue and borrowing estimates, which, together with the block grant, determine the total resources that are available to ministers to deploy in the budget. As such, the commission’s work is central to the integrity of the Scottish budget process.

The bill is a culmination of years of work, which included inquiries that were conducted by the Finance Committee and a Government consultation. We are grateful to all those who have taken the time to contribute evidence, which has helped to shape the development and refinement of our policy. In particular, I thank the committee and all those who provided evidence at stage 1 for their detailed consideration of the bill and the underlying policy issues.

The committee made a number of recommendations in its stage 1 report, and the Deputy First Minister has provided a detailed written response to it on the legislative and Government policy issues that it raised. The committee also made a number of recommendations that pertain to the operation of the commission and how it discharges its functions. Those are matters for the commission, over which the Government rightly has no jurisdiction. My remarks will therefore focus on the issues for which the Scottish Government has responsibility.

The Scottish Government remains of the view that Scottish ministers should be responsible for preparing official tax revenue forecasts. The position that is set out in the bill is that the commission will independently assess and report on those forecasts, maximise the transparency of the forecasting process and ensure that Scottish ministers are properly and democratically accountable to Parliament for those forecasts. The Government believes that the bill, as introduced, reflects the most effective solution in support of the responsible exercise of the modest tax powers devolved to this Parliament.

Under current arrangements, a detailed account of the Scottish Government’s forecasting approach, the findings of an independent evaluation of that approach and the changes that the Government has made in response to those findings are all publicly available. The comprehensive reports that were published by the Scottish Government and the Scottish Fiscal Commission alongside the 2016-17 draft budget are evidence of that. I understand that the committee will have finished its deliberations prior to those documents being available.

The commission rightly challenges the Government to ensure that our forecasting methodologies are as robust as they can be. Any observer of the budget process or reader of the Scottish Fiscal Commission’s report on our forecasts would see that that is exactly what the commission does. We are committed to acting on the commission’s recommendations and Parliament can hold us to account for our response to the issues that the commission raises.

The independent checking function would be lost if the commission were to prepare official forecasts. There would be no formal institutional arrangements to provide timely assurances of the reasonableness of each forecast produced by the commission. It is not clear how Parliament, the Government or the public would be assured about the robustness of forecasts that are critical to determining the level of resource that is available for allocation in the Scottish budget and to the responsible management of Scotland’s public finances.

The committee’s recommendation would lead to duplication of effort and resources—a point recognised by the Institute of Chartered Accountants of Scotland—as the Scottish Government would need to retain in-house forecasting expertise. The resources required by the commission would increase, without any commensurate decrease in the forecasting resource required within the Scottish Government. Our policy position is supported by international evidence, including written evidence that the International Monetary Fund submitted to the committee at stage 1.

Photo of Jackie Baillie Jackie Baillie Labour

I am sure that the minister will be aware of the Organisation for Economic Co-operation and Development principles that apply to financial institutions of this nature. It strikes me that countries that do forecasting outwith Government manage well. Would the minister give us an example of one that does not work, which would support the Government’s position?

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

That brings me to my next point. The Scottish Parliament information centre briefing on the bill demonstrates that, of 23 independent fiscal institutions in OECD countries, only three have a role in preparing official forecasts. The remaining 20 assess official forecasts. The United Kingdom Office for Budget Responsibility is clearly in the minority among fiscal institutions throughout the world in producing official forecasts.

Photo of John Mason John Mason Scottish National Party

We heard yesterday at the Finance Committee that, although the OBR speaks to the Department for Work and Pensions and HM Revenue and Customs, they are not allowed to share information. Does the minister share my surprise about that very disjointed process at the UK level?

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

Everyone across the UK should thank the Finance Committee for the light that it has shone on the way in which the OBR deliberates. There are some good quotes from HMRC about how its relationship with the OBR is very similar to its previous relationship. What is clear is that there is a lack of transparency in that process south of the border. Of course, there is no question but that it is possible to arrange the process that way round, but the evidence that is clearly set out in the SPICe document is that countries whose independent fiscal institution produces the official fiscal forecast are very much in the minority.

Nothing in the bill prohibits the commission producing alternative forecasts. It is solely for the commission to decide whether it considers that the production of such forecasts would be desirable to support its ability to assess the reasonableness of the Government’s forecasts, and that is the way it should be. I look forward to hearing members’ points on that matter.

I see that time has flown.

The Scottish Government recognises that it is critical to the effectiveness and credibility of the commission that it is structurally, operationally and visibly independent of Government. We have been explicit in the provisions in the bill that the commission will not be subject to the direction or control of any member of the Scottish Government. However, in his response to the stage 1 report, the Deputy First Minister undertook to take further action to reassure Parliament that he is doing all that he can to promote the independence of the commission. He will consider legislative and administrative changes to strengthen the transparency of the operation of the relationship and interactions between the Government and the commission.

The Government welcomes the committee’s support for the appointment process that is provided for in the bill. The Deputy First Minister has already intimated to the committee that the Government will bring forward amendments to the bill at stage 2 to give effect to recommendations to include term lengths in the bill and to allow members to serve two consecutive terms of appointment of no longer than five years each, as recommended by the committee.

The committee raised the issue of the commission’s remit. We recognise that the process of devolution is on-going, with the Scotland Bill going through Westminster and an associated fiscal framework being negotiated. That is why we have provided that the functions of the commission may be expanded in future by regulations, following consultation with the commission and with the express approval of Parliament.

The committee talked about two areas in particular. It suggested that the commission be given the functions of assessing adherence to fiscal rules and assessing the long-term sustainability of devolved public finances. Those issues would most appropriately be revisited following the devolution of further powers. However, it is very much the view of the Government that assessment of the sustainability of public finances is primarily a role for elected members of the Scottish Parliament, who should hold ministers directly to account for the robustness of our financial judgments.

Taken together, the provisions in the bill and the resourcing proposals in the financial memorandum will create a statutory commission that is well equipped to assure the robustness of the tax forecasts that underpin the Scottish budget.

The Government remains of the view that our approach—whereby the commission independently assesses and reviews official forecasts that are prepared by Scottish ministers—maximises transparency and delivers public value by offering the strongest safeguard over the robustness of the forecasts that underpin the Scottish budget. We are not persuaded by the committee’s case, but we will to listen to all the points that are made today. I look forward to hearing members’ views on those and other issues.

I move,

That the Parliament agrees to the general principles of the Scottish Fiscal Commission Bill.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

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.

Photo of Jackie Baillie Jackie Baillie Labour

I am grateful for the opportunity to speak in the debate on the Scottish Fiscal Commission, and commend the Finance Committee, which I have recently joined, the clerks and SPICe for all their work.

About one year ago, Scottish Labour set out its plans for and thinking on a Scottish office of budget responsibility: a truly independent body, with teeth, to ensure that we have greater transparency and scrutiny of Scotland’s public finances. The Finance Committee undertook a substantial inquiry, which has helped thinking in this area. I commend Kenny Gibson’s speech to the chamber. I am sure that he will not hear me say that that often, but I genuinely mean it.

I know that I keep saying this, but it is an exciting time in Scottish politics. We have substantial new powers coming over taxation and welfare, first from the Scotland Act 2012 and now from the Smith commission, whose recommendations are contained in the Scotland Bill 2015. No longer will we just spend what someone gives us, but we are charged with raising that spend. That brings considerable new responsibility. Taking away from ministers responsibility for being honest with the Scottish people about what the economy’s future holds and placing it in the hands of experts free of political manipulation is the right thing to do. That applies to Governments of all colours.

With the new powers coming, we need to know that a watchdog is holding ministers to account. The need for independent, reliable and impartial economic forecasting and analysis has never been more important.

Photo of John Mason John Mason Scottish National Party

I am interested in the member’s use of the word “watchdog”. A watchdog does not do the work itself; rather, it watches someone else doing it. Does she mean to use the word “watchdog”? Does she not think that there would be a cost involved if we were to have both the Government and the SFC doing the forecasting?

Photo of Jackie Baillie Jackie Baillie Labour

It sounded as though that was Mr Mason’s conversion to the commission doing the forecasting. If that is so, I very much welcome that.

I will look at the context today, because that is important. I heard on the radio this morning that, for the first time in more than a decade, oil is below $30 a barrel, with all the associated negative consequences for our economy, as demonstrated by the gross domestic product figures that were released yesterday. Growth is effectively flat. We are increasingly diverging from the UK, whose growth is better than ours.

Of course, only 18 months ago the Scottish Government’s Oil and Gas Analytical Bulletin estimated oil at $113 a barrel. Perhaps we might not have foreseen what was to come, but an independent body that does our forecasting is likely to enjoy much more confidence than the Government has.

When we called for a Scottish OBR, the existing Fiscal Commission had a limited remit. It had no role in producing forecasts, it was underresourced and the finance secretary appointed all three members to serve not only on it, but on the Council of Economic Advisers. However, one cannot be an adviser and provide independent scrutiny at the same time.

I am pleased to say that much of that position has changed and will change further. I welcome the bill to give the Scottish Fiscal Commission a statutory footing. The Finance Committee’s report gives a considered view on where the bill needs to be strengthened, and I would urge the Government to listen.

I will touch on two areas. First is the question of independence; second is the issue of who should do the forecasting.

Independence from Government is essential for the Fiscal Commission if it is to have any credibility, yet it will interact regularly with Government officials—

Photo of Jackie Baillie Jackie Baillie Labour

Let me make some progress.

The commission will interact regularly with Government officials and ministers in order to do its job. Witnesses who gave evidence to the committee stressed that the way to overcome any perception of bias is to be completely open and transparent. Discussions should be published, disputes should be in the public domain and outcomes should be shared. Where the commission and the Government disagree, we should know about it, and we should know what is being done to resolve the disagreement.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

Has Jackie Baillie read the Fiscal Commission’s report on the draft budget 2016-17?

Photo of Jackie Baillie Jackie Baillie Labour

Indeed I have, and if the minister had read the previous report he would know that the commission keeps asking for information about behavioural forecasting in relation to LBTT and has yet to receive that information. I invite him to read last year’s report and this year’s report, and then come to a conclusion about what is going on.

Forecasting is not an exact science—I wish that it were—so there will be differences in approach, but we should not be afraid to test them to arrive at the best. Governance arrangements also matter for the perceived independence of the Fiscal Commission, so the mechanism for appointment needs to command confidence. There must never be a circumstance in which a commissioner acts as an adviser to the Government, as that would conflict directly with the commissioner’s role as scrutineer. That needs to be made crystal clear.

Forecasting is not separate from the discussion about independence. The Finance Committee took a considerable volume of evidence on that point, both in its original work on Scotland’s fiscal framework and in its scrutiny of the bill. Many witnesses expressed a clear wish that the commission should undertake forecasting. There was a strong level of support for that among experts in the field, including from many notable economists and the Royal Society of Edinburgh.

Photo of Jackie Baillie Jackie Baillie Labour

No—I really am running out of time.

We—including the minister—would be wise to listen to the views of those experts. They believe that the Scottish Fiscal Commission should be able to develop its own framework of analysis, data sources and methodology and to originate its own independent forecasts. The Finance Committee agrees, but regrettably the Scottish Government does not yet agree. I respectfully ask the Government to think again.

Frankly, the question of who challenges the commission is complete nonsense. Parliament, Government and external experts will all fulfil that role, so I respectfully ask the Government to think again. When we look at the OECD’s recommended principles for financial institutions and at examples around the world, we see that the Scottish Government is much too limited in its approach to the Fiscal Commission. We should seek to be the best.

Scotland is on the verge of gaining substantial new powers over taxation and welfare, and with new powers come new responsibilities. We should be open and transparent so that the people of Scotland have confidence in the stewardship of the nation’s finances. To do that, we need a truly independent body to provide economic analysis and forecasting that will scrutinise Government, whatever colour that Government might be.

Photo of Gavin Brown Gavin Brown Conservative

I, too, thank the clerks, witnesses, experts and SPICe for all their efforts in helping us to scrutinise the bill. I express personal gratitude—at the risk of hindering his career—to the convener, Kenneth Gibson, who in my opinion has shown personal leadership on this particular issue.

We welcome the formation of the Scottish Fiscal Commission. It is critical that we have such a commission, and it will become more critical with each year that passes, which is why it is so vital that we get it right first time round. The bill as it stands is inadequate and does little but put into statute the Fiscal Commission that we currently have. That will not be enough for next year and will be nowhere near adequate for future years.

I will focus on the most glaring weaknesses in the bill. First, the Fiscal Commission has been given the job of simply assessing the reasonableness of the Scottish ministers’ forecasts. That is all: it must assess the reasonableness and, ultimately, decide whether the forecasts are reasonable or not. Most of the experts who were asked about that made it very clear that being reasonable is an extremely low threshold, and it is difficult to find examples of circumstances in which forecasts would be unreasonable.

Indeed, that was confirmed last week when we spoke to the Fiscal Commission. I asked it whether, given that the prediction for the amount from the devolved taxes next year is £671 million, it could tell me approximately what sort of number below and above that figure would mean that a forecast could be classed as being unreasonable. The Fiscal Commission told me that it was impossible to do that. So, in the current format, it is impossible for the Fiscal Commission, which consists of extremely gifted and experienced individuals, to tell me what would be an unreasonable number in that regard.

Photo of Gavin Brown Gavin Brown Conservative

Perhaps Mr Fitzpatrick will tell me what is an unreasonable number—we live in hope.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

In the Fiscal Commission’s reports on last year’s budget, it made it clear to the Deputy First Minister that it thought that his predictions for non-domestic rates income were buoyant, and the Government then changed those predictions, so the member can see how reasonableness works in real life.

Photo of Gavin Brown Gavin Brown Conservative

The minister would have been better to stay away from that example, because it contradicts what he said in his opening speech and what the Deputy First Minister said to us. We were told by the Deputy First Minister that changes to the forecasts would be publicly available, but that simply is not true. There was a dispute last year, but we do not know what the initial forecast for non-domestic rates was and, a year later, we do not know the magnitude of the change as a consequence of that disagreement; we were presented only with the final forecast. So, the minister’s own words make it clear that the changes to the forecasts are not made publicly available. Again, that is one of our problems with the bill as it stands.

On reasonableness, there is a low threshold. The Fiscal Commission also made it clear in writing to the committee that it looks not at the final numbers—the outputs—but purely at the methodology.

The second problem is that the minister has tried to suggest that the committee’s position of wanting the Fiscal Commission to do the forecasting is the outlier. However, that is not correct either, because the true outlier is the commission proposed by the bill.

Some fiscal institutes do official forecasts, some prepare their own unofficial forecasts and some rely on a number of different forecasts in order to reach their view. We would have the only fiscal commission on the planet that would rely solely on the official Government forecasts when looking at what we are likely to bring in. I could not find another example of such a fiscal commission. When I asked the Government for such examples, I was told that Sweden and Ireland were the examples to follow. However, we went to Sweden and found that that was incorrect, because the institute in Sweden examines at least six forecasts when deciding how much is likely to be brought in. Other committee members went to Ireland and found that the statement about the example there was not true either, because the Irish fiscal institute prepares not the official forecast but its own forecasts.

There are glaring weaknesses in the bill as it stands. On top of that, there is the issue of the lack of transparency. Okay, the Fiscal Commission will produce a report, but it was made clear to us by the Deputy First Minister himself that any disagreements between the SFC and the Scottish Government about numbers would remain private. The Scottish Government said that it would refuse to publish any earlier figures that show a disparity and any figures that explain in numerical terms what changes have been made. The Government wanted to show us only the final forecast and went as far as saying that it would try to prevent, if it could, the SFC from publishing of its own accord details of disagreements over numbers.

Under the bill, therefore, we would end up with only a certificate of reasonableness from the Scottish Fiscal Commission that we could not look into and examine carefully. That is why the committee reached the position of welcoming the bill and supporting it at stage 1 but stating that huge changes need to be made to it at stages 2 and 3.

That is the committee’s view on the bill, and I look forward to hearing the rest of the debate.

The Deputy Presiding Officer:

We now move to the open debate. I call Chic Brodie, to be followed by Dr Richard Simpson. Four minutes, please.

Photo of Chic Brodie Chic Brodie Scottish National Party

Thank you, Presiding Officer—although I confess that I do not know how to compress into a four-minute speech the importance of the creation on a statutory basis—as Kenneth Gibson pointed out—of the independent Scottish Fiscal Commission to review Scotland’s proposed tax and borrowing powers and, indeed, the budget. However, I will try to do that.

This subject is a staging post in the journey that we are on. That journey already has the signposts of the additional tax powers that we have now and those that we know will come.

The Scottish Fiscal Commission will sit easily alongside what will, I believe, eventually be a Scottish treasury—in an independent Scotland—that interacts with the Government and provides assessment but does not manage the forecasting process. The oversight of budgets and financial forecasting is a reflection on how our country’s fiscal process, rules and framework will work in its relationships—initially with the United Kingdom. However, as more and more financial powers are devolved the function will become even more critical, as we take overall control of the Scottish financial and fiscal landscape.

What is just as critical in the interim and final stages will be the commission’s secured independence from Government. I was interested to hear Mr Brown talk about two countries, one of which was Sweden. If he had read the independent consultant’s report, he would have found that Sweden does not have an independent fiscal institution.

It is inconceivable to think anything other than that the demand for purity in oversight of financial rules, processes and forecasting, and a robust relationship between that oversight and our overall economic strategy, are paramount—as are the methodology and analytical professionalism. I cannot help but draw a comparison between that and what Ms Baillie said about the UK OBR. She will know that, in the 34 OECD countries, the OBR is one of eight such offices that are under the control of the Government.

Jackie Baillie also mentioned the oil forecast, which the OBR was responsible for producing for the UK budget.

Photo of Chic Brodie Chic Brodie Scottish National Party

No, I will not. I have only four minutes.

The OBR made a detailed projection of economic performance parameters, including the oil and gas outlook, as the basis for the Chancellor of the Exchequer’s autumn statement. That was all changed within seven weeks and the UK gross domestic product forecast was changed downwards. The UK balance of payments was wrong, as was the forecast of UK borrowing. All that lends credence to what Alistair Darling said in 2010 about the OBR being a wing of the Tory party. Those forecasts might have had a significant impact on the Scottish fiscal and economic outlook; such forecasts destroy confidence.

Let us consider the statement in the OBR’s “Economic and fiscal outlook—November 2015”. It said:

“We published a methodology note in March 2012 which described how we planned to forecast these Scottish tax receipts ... In particular, the macroeconomic data that we would need to produce a Scottish macroeconomic forecast and economic determinants were generally not available at a Scottish level ... That remains the case.”

The OBR is producing a forecast that impacts on Scotland. It continues:

“We are therefore not able to produce a Scottish macroeconomic forecast to drive the Scottish tax forecast.”

That was November 2015—two months ago—and it is still the case.

Therein lies the reason for having a commission that is independent of Government, that is qualified, experienced and robust, and is underpinned by a clearly defined fiscal process and framework. The German Länder can do it, the Belgian High Council of Finance can do it and the Irish Fiscal Advisory Council can do it. So can we.

Independent scrutiny, forecasting, fiscal projections, and setting the fiscal rules are all key foundations of what will be a strong Scottish economy.

Photo of Richard Simpson Richard Simpson Labour

I have read the Finance Committee’s report and think that it is one of the best that I have read. I also thought that the convener’s speech got to the nub of the problem, although he said that there are other issues. Chic Brodie’s speech illustrated the point that forecasting is an inexact science. We all know that, and we know that there are some areas in public life in which duplication is appropriate. In this area, such duplication and understanding of the differences between forecasts are fundamental to the Parliament’s understanding.

I welcome some aspects of John Swinney’s response to the committee; I accept and welcome the five-yearly independent review, as I welcome the fact that we are going to get an annual report from the SFC.

However, the Government will endanger its own creation by giving the SFC a greater advisory role. Although that could be seen in the short term as being okay, it could also, as the convener pointed out, damage the independence of the commission. If we are to have confidence in our new situation, with our new taxation powers, that independence is absolutely important.

Photo of John Mason John Mason Scottish National Party

Does Richard Simpson accept that Audit Scotland, which gives advice, is independent?

Photo of Richard Simpson Richard Simpson Labour

Yes—but Audit Scotland’s function is somewhat different. It does not forecast; it scrutinises in retrospect, which is quite different.

The Finance Committee’s report is useful in that it seeks clarity on the functions of scrutiny through a memorandum of understanding. Some of the issues, such as agreement to the methodology, might be clarified by that. There can be differences between methodologies because econometrics is not a precise science. Other issues include assessment of the forecasting methods, testing of the suggested numbers and propositions, commentary on initial assumptions and forecasts, and assessment of the reasonableness of the forecasts and any revised forecasts. Even that duplication does not give me the comfort that I would like, because “reasonableness” is a fairly low threshold, as a Conservative colleague indicated.

One of the biggest problems that we have had throughout my time in Parliament has been that we have looked only one year ahead; there has been a lack of looking forward and of long-term strategies. For example, although we have a long-term strategy for climate change, the Government has, for one reason or another, missed the annual targets. I accept that has not been entirely its fault. The Scottish Fiscal Commission should look not just at the Government’s forecasts for its one-year budgets; it should insist on long-term scrutiny. How will things be made up over the long term?

It is the same with health; as Audit Scotland has told us, our health budgets have all been short term. We need to think about the long-term prospects. We hold our health boards to account only for one-year periods, with a bit of brokerage. That does not serve us well as a country, so we need to take a much longer perspective. If the Fiscal Commission’s independence is clear and is not jeopardised by its having an advisory role, it will be very effective.

The bill is welcome, although some issues could be addressed. I hope that at stage 2 the Finance Committee continues the excellent work that it has done by lodging amendments that will at least challenge the Government to look closely at the alternatives at stage 3, in order to ensure the independence of this important commission.

Photo of Mark McDonald Mark McDonald Scottish National Party

I will cover a couple of areas on which the committee took evidence. My colleague John Mason dissented on areas in the report about forecasting, on which he holds very strong views. Committee members know that I expressed a number of reservations, but without going as far as dissenting. I will touch on those reservations.

I am always interested in the world according to Jackie Baillie. She again held up the OBR as an example of an organisation to which we should aspire. She spoke of lack of Government intervention and she spoke about oil forecasts. I want to speak about a letter that the OBR sent to the committee in July 2014. It said:

“Our medium term forecast for oil and gas production is based on projections by the Department of Energy and Climate Change”.

That strikes me as the OBR relying on Government projections and forecasting to facilitate its work.

We were told that the Scottish Government’s prediction of an oil price of $113 per barrel was some kind of outlier, in terms of the international projections of oil price. The OBR’s letter said:

“In our central scenario oil prices rise from $102 a barrel in 2015 to $160 a barrel in 2040. Under the EIA ‘high price’ scenario shown above, oil prices rise from $138 a barrel in 2015 to $350 a barrel in 2040, delivering £71.8 billion more revenue than our central projection. Under the EIA ‘low price’ scenario, oil prices drop to $77 a barrel in 2015”.

The idea that the Scottish Government was way out in left field in its oil price projections and that there was a range of soothsayers who had correctly predicted what was going to happen with the oil price simply does not bear scrutiny in any way, shape or form.

Photo of Mark McDonald Mark McDonald Scottish National Party

If I can have a little bit of time back, I will take the intervention.

The Deputy Presiding Officer:

You will have to take it out of your own time.

Photo of Jackie Baillie Jackie Baillie Labour

I will indeed.

The point that I was making was that perhaps nobody could have made that assessment and that judgement, and that therefore somebody independent of Government would instil more confidence, whether or not they are right about what actually happens. I also note that the OBR predicted a lower level than the Scottish Government predicted.

Photo of Mark McDonald Mark McDonald Scottish National Party

I am quite sure, Presiding Officer, that had the projections that the Scottish Government used been based on something that had been produced by the Scottish Fiscal Commission, Jackie Baillie would in no way whatever criticise or impugn those projections. I know that she would never seek to do that.

Let us look at forecasting, because that is where the nub of the disagreement arises. I share the reservations that John Mason has and, indeed, that the commissioners themselves have, around forecasting. I hear the point that has been made about the role that the Finance Committee could perform in scrutiny, but I have reservations about that; I do not think that I am in a better position than Professor Andrew Hughes-Hallett to scrutinise forecasts. What I think is important, first and foremost, is that the projections are analysed and scrutinised and that we can have confidence in them. I believe that when the Scottish Fiscal Commission provides its seal of approval for projections, that will be an important endorsement.

From listening to evidence from academics who came before the committee, I believe that there is a need for academic expertise and capacity to be built up. As powers come to the Parliament and as things develop, that will happen and it will enhance the forecasting by the Scottish Government and the analysis by the commission. At this early stage, to give the commission responsibility for the official forecast while that other capacity does not yet exist would be jumping the gun.

Photo of John Mason John Mason Scottish National Party

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.

Photo of Elaine Murray Elaine Murray Labour

I congratulate the Finance Committee on the considerable amount of work that it has undertaken, not just on the bill, which was introduced at the end of September, but on its report on proposals for a Scottish Fiscal Commission almost two years ago and its visits to Stockholm and Dublin last year to meet the Swedish and Irish equivalents of the Scottish Fiscal Commission, along with representatives of Government and Parliament and fiscal forecasters—I thought that Chic Brodie seemed to suggest that Sweden does not have an equivalent body; if that is actually what he said, I wonder what some committee members were doing in Stockholm.

I read the committee’s report with considerable interest. It makes important points, which the convener summed up eloquently. The Scottish Fiscal Commission is intended to be an independent fiscal institution. The tension between its roles of influencing Scottish Government forecasts and providing an independent assessment of those forecasts was thoroughly discussed, and the report makes several recommendations in that regard, including for a memorandum of understanding between the Scottish Government and the commission.

In its report, the committee pointed out the need for more clarity on the commission’s functions and greater transparency in how it carries them out. The bill will require the SFC to lay its report on the reasonableness of the Scottish Government’s tax forecasts on the same day as the draft budget is laid. Any other reports to the Parliament must be copied to ministers in advance of being laid.

Some witnesses, including the Royal Society of Edinburgh, argued that commission assessments of Government forecasts should be carried out after the forecasts’ publication, to ensure transparency. The committee recommended that the SFC should be able to challenge and criticise Government publicly when necessary and that disagreements with the Government and their outcomes should be published. I welcome those recommendations.

The financial memorandum to the bill states that it relates only to powers that are transferred under the Scotland Act 2012; for understandable reasons it does not relate to the additional powers to be transferred as a result of debates on the current Scotland Bill. The resourcing of the SFC will therefore require to be reviewed in light of the Scottish Government’s additional tax raising responsibilities and the additional responsibilities for the SFC in that regard.

It appears that resourcing to enable the commission to undertake its own forecasts has not been included. A majority of witnesses argued that the SFC should produce the official forecasts. Professors McGregor and Swales pointed out that forecasting, whether official or not, is international practice, and the experience of the Irish Fiscal Advisory Council was that it soon realised that it needed to be able to produce its own forecasts if it was to be able to endorse—or not endorse—the Government’s forecasts. Resourcing for forecasting therefore appears necessary.

The committee rightly questioned the ability of the processes for which the bill provides to demonstrate the SFC’s independence. In its recommendations on page 12 of the report, it noted:

“The model being proposed in the Bill depends on a high level of behind-the-scenes interaction between the Commission and the Scottish Government.”

That includes interaction to seek agreement on methods and to test numbers and propositions. As has been discussed, the committee has, therefore, recommended that the commission should produce the official forecasts.

On the issue of governance and who appoints the commission, I note that the committee supports the appointment processes that are described in the bill, whereby the members are to be appointed by ministers but approved by Parliament. I accept that the committee has perused the evidence on that, and I respect its view. However, having very recently been involved in the appointment of the chair of the Scottish Human Rights Commission, I feel that there is considerable merit in appointments being made by Parliament in order to secure cross-party agreement and confidence. The latter will be essential if the SFC is to operate effectively.

I have been a member of the Justice Committee for the past two years, but I was previously on the Finance Committee. The Justice Committee has influenced and changed legislation, and I am hopeful that the Finance Committee will play that role with regard to this bill. I am happy to support the principles of the bill at stage 1, but I hope that the Finance Committee’s views prevail in the long run.

Photo of Joan McAlpine Joan McAlpine Scottish National Party

I will take a slightly different tack and look more generally at forecasting and its unreliability. Other members have mentioned oil forecasting, and I have in front of me the Department of Energy and Climate Change’s July 2013 fossil fuel price predictions. For 2015, it predicted a low of $92 a barrel and a high of $137 a barrel. That shows that, even when predictions are made by experts, they often go wrong.

On 21 October 1929, the Yale economics professor Irving Fisher said:

“Stocks have reached what looks like a permanently high plateau.”

Three days later, on black Thursday, the market collapsed and the great depression arrived. In 1984, The Economist conducted an unusual survey for its Christmas issue. It invited four chairmen of big multinational companies, four University of Oxford students and four London bin men, or dustmen as they call them down there, to offer their predictions on the economy over the next 10 years. A decade later, the accuracy of their forecasts was checked and each group was given a mark for their predictions. The bin men scored joint top, along with the company bosses. In fact, the bin men demonstrated more foresight than any other group when it came to the price of oil—perhaps that is where we all went wrong. As the economist John Kenneth Galbraith once said:

“The only function of economic forecasting is to make astrology look respectable.”

I am being only half-serious in saying those things. However, as other members have said, even the independent OBR, which has been suggested as a model for the commission to emulate, admitted in its 2012 forecast evaluation report that projections are always a best guess. It said:

“we have been at pains to point out that there is enormous uncertainty around any economic forecast and that policymakers and others need to recognise this when taking decisions based on them.”

In any event, as members have noted, HMRC continues to produce tax forecasts on behalf of the OBR. In January last year, Edward Troup, the second permanent secretary at HMRC, told the Finance Committee.

“We measure and forecast, and the published forecasts are signed off by the Office for Budget Responsibility ... Although the OBR has been praised for its independence, from our perspective, the process feels very much the same as it was when the Treasury was doing the forecasting—we had the same conversations with colleagues in the Treasury, and the Treasury would make those forecasts.”—[Official Report, Finance Committee, 21 January 2015; c 43, 45.]

If the Scottish Fiscal Commission prepares official forecasts, it may be similarly reliant on Scottish Government and Revenue Scotland data and resources, leading, as others have noted, to duplication of effort within the commission and the Government.

In my view, the most important thing is that we get the commission’s role as a commentator right. Its independence is being assured by the bill and it must be fully resourced—if there is duplication, that might mean that it is not fully resourced. That is important, as it needs to develop analytical capability and capacity in order to provide a benchmark set of projections.

Of course the commission will be free to make its own forecasts, which offers a wider range of options. It is answerable to this Parliament and, I assume, the Finance Committee, which has shown its independence in producing its report.

I am confident that the commission’s initial remit will be expanded to reflect further powers as they are devolved to the Scottish Parliament and I welcome the bill.

Photo of Nigel Don Nigel Don Scottish National Party

This has been a very interesting debate.

I note that the commission’s purpose is to provide independent scrutiny of Government tax forecasts and economic conditions. In passing I will put on my convener’s hat, as I have done before, to note that the ancillary powers and all the other delegated powers in the bill were considered by the Delegated Powers and Law Reform Committee and we had no concerns whatever about what was proposed.

There has been discussion about the independence of the forecasting. However, before I turn to that, I will refer to the way in which it is suggested that members of the commission will be appointed. As Dr Murray said, they will be appointed by the Government, they will be removable and it is a matter of some concern that that be done on appropriate terms. I note that section 16(1)(b)(i) states the Government may remove members of the commission only when they are “otherwise unfit” or make themselves unavailable and, even then, that may happen

“only with the approval of the Scottish Parliament.”

It seems to me that that is about as good as it is going to get in a parliamentary democracy and that it is probably the right approach.

I welcome the minister’s comments about allowing commission members to have a second term, having defined lengths of term and having terms staggered—which has already been agreed—because continuity is extremely important.

There has been some comment about whether the bill restricts the commission’s functions. The commission itself suggested on page 3 of its letter to the Finance Committee that it would like to have other powers to assess the sustainability of Scotland’s public finances and the Scottish Government’s adherence to its own financial rules. Section 2(3) of the bill probably covers all that, given that it states that

The Commission may from time to time prepare reports setting out its assessment of the reasonableness of such fiscal factors (other than those mentioned in paragraphs (a) to (d) 25 of subsection (1)) as it considers appropriate.”

I think that that is wide enough to cover precisely the things that the commission mentioned in its letter and probably pretty much anything else that might come up.

I will skip on past the discussion about the independence of forecasts, which I do not have time to add to, to look at the question of reasonableness. I think that Gavin Brown commented on whether what is provided for in that regard is appropriate and Dr Simpson mentioned methodology and final numbers. I suggest that what is being proposed is probably very sensible.

A few years ago, back in the days when planes used to crash rather more often than, mercifully, they do now, I was much struck when, following a plane crash, the chairman of the company came on the television and assured us that planes were run using two parallel computer systems and that it was quite impossible that both would have failed at the same time. That demonstrated that he was not a systems man at all, because he completely missed the point that if we give the same system the same data it will make the same mistake; the only way that we will get different economic predictions is by having a different methodology because we will undoubtedly be putting in the same basic data, assuming that we have it.

Professor Hughes-Hallett put it nicely in his evidence to the committee. When the convener asked him what reasonableness was about, he said that the predictions should get better from year to year. To quote him directly, he said that predictions

“should be better than they were last year.”—[Official Report, Finance Committee, 25 November 2015; c 49.]

He wants to see better data and we understand that it is not there.

It seems to me that all of this is in its infancy. We are starting in a good place and we need to recognise that things will develop. What is before us now is not the finished article, but it is a very good place to start.

The Deputy Presiding Officer:

Before we move to the closing speeches I invite all members who have taken part in the open debate to return for them. I call Gavin Brown, who has four minutes.

Photo of Gavin Brown Gavin Brown Conservative

It has been an interesting debate and it was pleasing to hear a number of members praise the Finance Committee’s work.

It is worth reflecting on a comment that was made by Jeremy Peat of the international public policy institute at the University of Strathclyde. He published a paper last month that said:

“the Finance Committee of the Scottish Parliament is to be praised for its continuing robust examination of the Government’s proposals and willingness to seek and take full account of informed commentary.”

It is worth the Government reflecting again on the report and the central conclusions that the majority of the Finance Committee reached about stages 2 and 3 because, if we proceed with the bill without substantial change, we will be left with a group of highly qualified advisers. They will, ultimately, perform an advisory role. Yes, they will scrutinise forecasts in private and challenge the Government but, if the only forecast that is ever published is the final result that the commission deems to be reasonable, we will not get the level of scrutiny that we require or what is defined internationally as an independent fiscal institution. The Parliament wants and needs such an institution and it becomes more important with every extra power that we get.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

Does Gavin Brown accept that, in OECD countries throughout the world, the overwhelming majority of independent fiscal institutions do not produce the forecasts? The forecasts are produced by the Governments and the institutions assess them.

Photo of Gavin Brown Gavin Brown Conservative

The minister needs to go into a bit more depth on that. As I said in my opening speech, some institutions do the official forecasts, some produce their own unofficial forecasts and others scrutinise the Government forecasts alongside several other independent forecasts. If we proceed with the bill as it is, we will have the only fiscal institution that I can find on the planet that scrutinises solely the official Government forecasts. I have put that point to the Government at least half a dozen times.

As we have heard from the convener and many experts, Governments, regardless of their stripes, have an optimism bias by definition. Governments want to do things; they do not want to have the blocks put upon them. Therefore, there is an optimism bias. I do not want to dwell on oil revenues, but the oil revenue projections that the Government produced just before the referendum are a clear example of the fact that optimism bias affects it as much as it does any other Government.

Photo of Mark McDonald Mark McDonald Scottish National Party

At the same time, the projections on LBTT from the Scottish Government and the OBR were a long way apart, and the OBR has had continually to revise downwards its projections for LBTT and other devolved taxes to bring them more into line with the Scottish Government’s more realistic estimates.

Photo of Gavin Brown Gavin Brown Conservative

Okay, so the Scottish Government was closer to the mark on a smaller tax but it was miles adrift on a far larger tax at a time when it would have affected the country hugely.

I am a little surprised and disappointed at Mr McDonald’s position in the debate. The report was published a week ago and he signed up to it without dissenting from any paragraphs. He signed up to the entire report, including the central conclusions, but eight days later, he tries to distance himself from those conclusions. I leave it to him to defend that position but, if committee members sign up to a committee report, they ought to stand by it and not fall away from it just a week later.

The crucial point relates to forecasting. There are big dangers in having only an official Government forecast. That is why we reached the conclusions that we did. However, the weaknesses in the bill go deeper than that. The idea of only assessing reasonableness without commenting on the final numbers does not go anywhere near far enough. The idea that any disagreements over numbers will never be published so that they can be scrutinised is unacceptable and goes against the basic OECD principles. Again, if we stick with the Government’s position, we will have the only fiscal institution that we have been able to find on the planet that considers only Government forecasts.

The Conservatives will vote for the bill. We support the setting up of the Scottish Fiscal Commission but it must be more than a group of advisers if we want to get it right. Eventually, we will be talking about billions upon billions of pounds, so we have to get it right. That is why we will need to make changes at stages 2 and 3.

Photo of Lewis Macdonald Lewis Macdonald Labour

It has been a productive debate. The Finance Committee’s convener and a number of its members have laid out the basis for their report very clearly and have pointed us towards the changes that we will undoubtedly debate at stage 2.

We all agree on the need for an independent fiscal institution for a devolved Scotland. The nature of the Scottish Parliament is changing, thanks to the Scotland Act 2012 and the changes arising from the Smith agreement. The question is whether the Scottish Fiscal Commission as it is currently proposed is fit for purpose, or whether more should be done to give it the power that it needs to do its job.

The 2012 act prompted the creation of the Scottish Fiscal Commission in 2014. As Jackie Baillie said in her summary, it was initially set up as a non-statutory body to deal with issues surrounding the taxes that were being devolved to the Scottish Parliament for the first time. Given that a further Scotland Bill is set to devolve much more extensive financial powers to the Scottish Parliament, it is clear that the role of the Fiscal Commission needs to be formalised and placed on a statutory footing, independent of ministers, so we welcome the bill, but we want it to be strengthened.

The main functions of the Fiscal Commission as proposed would be to assess fiscal forecasts that are produced by other organisations, and to commission research and appoint committees to consider relevant issues. As has been said, unlike the Office for Budget Responsibility, it would not produce its own fiscal sustainability report, nor would it have the power to examine the affordability or sustainability of policies.

Even to carry out the more limited functions that are intended for it, the Fiscal Commission will require to have access to financial information from the Scottish Government. As we have heard, the bill allows the commission to have access to but not to publish relevant information from the Government and other Government agencies such as Revenue Scotland. The Finance Committee has rightly called for that right of access to be established on a statutory basis. There can be no meaningful assessment of fiscal forecasts that are produced by the Scottish Government without the relevant information being to hand. After all, that is the point of creating the new body.

Independence from the Scottish Government is another key aspect of the bill and an issue that a number of members have touched on. The OECD has developed a number of minimum requirements for independent fiscal institutions, and the importance of that independence is covered in some depth. For example, independence in the recruitment and management of staff was highlighted by the Scottish Government’s Council of Economic Advisers in its 2013 report, “Fiscal Rules and Fiscal Commissions”, in which it said:

“An important aspect is to avoid institutional capture whereby those working in an independent fiscal commission are formally—or informally—part of the government”.

That is clearly something to which we would all subscribe—that is the whole point of a fiscal commission.

Like Audit Scotland, which has also been mentioned, the Scottish Fiscal Commission must be free to speak the truth to those with power, and it must not depend on the good will of ministers to respect the proper boundaries. If the Government’s own advisers understand that point, ministers should accept it, too.

That is of particular importance during the Fiscal Commission’s transition from a non-statutory to a statutory body. Seconding staff with relevant expertise and experience from the Scottish Government might be helpful to get the commission started, but that must not be done in a way that compromises its independence or makes it dependent on any Government directorate.

The issue of independence is not just about staffing and recruitment. Without the powers that the OBR enjoys to produce its own economic and fiscal forecasts, the Fiscal Commission will be wholly reliant on the figures that are produced by the Scottish Government in making its assessments. There has been some discussion about whether the capacity of the OBR to produce its own fiscal forecasts is unusual or whether its character is significant. Other such bodies in Belgium and the Netherlands do the same sort of thing, and it is common for fiscal institutions in other countries to use information and forecasts from Government and independent experts, as members of the committee have witnessed for themselves.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

Does the member recognise that the bill as drafted does not prohibit the Scottish Fiscal Commission from producing its own forecasts or looking at any others that it wishes to?

Photo of Lewis Macdonald Lewis Macdonald Labour

Indeed it does not, but as we have heard, some of those who resist the proposition that the Fiscal Commission should produce its own forecasts have said that, were it to do so, that would be duplication. Of course there is no statutory bar to it. I think that what the Finance Committee is arguing is that statute should encourage it, make it possible and specifically provide for it. That is where there is a deficit.

In interventions, the minister has suggested that, because independent forecasting is not done by many parallel bodies, that implies that it should not be done in the case of the Scottish Fiscal Commission. Surely in devising appropriate institutions for a modern devolved Scotland, we should seek not the weakest form of independence or power, but the most robust. That is what the Finance Committee has proposed, and the Government should at least reconsider the point before stage 2.

The commission should have the powers to test the Government’s fiscal rules and the long-term sustainability of the public finances. On transparency, the Scottish Government’s reluctance to reveal details of disagreements is revealing in itself.

All those matters have rightly been highlighted in the debate. I look forward to continuing cross-party efforts to improve the bill further at stage 2.

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

I genuinely thank members for their contributions to the debate and for offering their views on the Scottish Fiscal Commission Bill. The Government will, of course, consider those views as the bill continues through the parliamentary process, subject to its being passed at decision time.

I will try to cover some points that have been raised. Dr Simpson and Nigel Don, I think, talked about additional powers and functions, and Dr Simpson suggested the idea of longer-term scrutiny. In fact, this year, for the 2016-17 budget, we published five-year forecasts for the devolved taxes, which were scrutinised by the Scottish Fiscal Commission. Dr Simpson also talked about when additional powers come to the Parliament. The Government is clear that, when those additional powers come to the Parliament, we will consult on proposals for how the commission’s remit should be expanded.

The committee talked about the long-term sustainability of public finances. The Government very much takes the view that holding the Government to account and holding ministers directly to account for the robustness of our financial judgment are primarily roles for members of the Scottish Parliament. Obviously, the Parliament as an institution will look to ensure that members have the resources to do that. I remember that, when I was a member of the Finance Committee in the previous session, there was no financial scrutiny unit. That was a Parliament innovation to bolster the robustness of the support that could be given to members as the Parliament’s powers grew. That is a very important point.

John Mason, Mark McDonald and, I think, Joan McAlpine referred to the arrangements around the Office for Budget Responsibility. It is a fact that it is not as transparent as people perhaps once thought it was. HMRC continues to produce tax forecasts on behalf of the OBR, as the second permanent secretary at HMRC told the Finance Committee in January last year. There is really a lack of transparency about the nature and effect of the OBR’s scrutiny of forecasts that HMRC has prepared. The Scottish Government is determined to ensure that there is transparency in the process that we take forward.

Photo of Gavin Brown Gavin Brown Conservative

If the Government is so keen on transparency, why will it not publish any numerical disagreements between the Scottish Fiscal Commission and the Government?

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

I will deal with that point right now. In his contribution earlier, Gavin Brown suggested that the Deputy First Minister had said that he would block the publication of such figures. I have the Official Report of what the Deputy First Minister said. He said:

“I will have a quick look at the bill because I suspect that I might be in conflict with section 6 if I was to block such a proposition, although I would argue strongly against its desirability”.—[Official Report, Finance Committee, 2 December 2015; c 15-16.]

Although the Deputy First Minister said that he was unconvinced about the desirability of publishing two sets of figures, he made it very clear that it was not in his power to block such things, and he has gone further.

Photo of Gavin Brown Gavin Brown Conservative

The minister has just said that the Government is keen on transparency. Why, then, is he not encouraging transparency?

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

I thank the member for helping me to come to my second point. I am sure that he has read the Deputy First Minister’s letter to the committee in response to the stage 1 report, in which he says:

“While I have reservations about the public interest which would be served by publishing multiple forecasts, I am willing to revisit the Committee’s recommendation that both the original and revised forecast should be published where changes are made to Scottish Government forecasts following Commission scrutiny.”

That is the way in which the Deputy First Minister and the Government have approached this. We are listening to the committee. Dr Simpson praised the committee for its work and the way in which its report is written. I would echo that. It is a very thorough piece of work. Although we remain unconvinced by the committee’s central disagreement with the Government about who should produce the forecasts, we are keen to work with the committee to improve transparency and ensure that the commission is not just independent but seen to be independent. Those are important points.

It has been suggested that we should propose to the commission that, as part of its process, it should produce alternative forecasts. In committee, Jackie Baillie called it “a third way”. In some of the countries that were visited, Sweden in particular, alternative forecasts are produced by the fiscal body. That is allowed for in the bill. The bill has specific provisions to allow the commission to publish such forecasts. However, it is very clear that that is not necessary. In its evidence at stage 1, the International Monetary Fund said:

“There is no need for the SFC to present its own forecasts.”

It is really a matter for the commission to determine.

Photo of Gavin Brown Gavin Brown Conservative

The minister said that the bill has provisions for the Scottish Fiscal Commission to publish forecasts. Which specific provisions are those?

Photo of Joe FitzPatrick Joe FitzPatrick Scottish National Party

Section 2(5) allows for the commission to publish any other information that it wants to publish. The commission is an independent institution. It is for the commission to determine whether it wants to publish alternative forecasts, although the commissioners are not of the view that that would be helpful. Lady Rice said:

“We think that there needs to be one producer and one assessor of the official forecast. If you were to turn to the Fiscal Commission and say, ‘Actually, we’ve changed our minds. You do the official forecast,’ we would need to be assessed by someone ... If we did our own forecast and then needed to defend it, we, too, might be biased.”

Professor Andrew Hughes Hallett concurred. He said:

“Then there is the question of second opinions. We are doing a kind of second-opinion exercise—the Government will produce its forecasts and we will provide a second opinion. ... Doing it this way round gives us the freedom to compare the Government’s forecast with other forecasts”.

He went on to say:

“I think that being asked to do the official forecasts would seriously compromise our independence.”—[Official Report, Finance Committee, 25 November 2015; c 53-55.]

Another thing that I think would seriously compromise the commission’s independence would be if we were to tell the commission that it had to produce alternative forecasts. In his report to the committee, Ian Lienert, the independent public finance consultant whom the committee commissioned to produce a report on the matter, said:

“It is rare for an independent fiscal institution to be obligated by legislation to prepare alternative fiscal forecasts.”

Although it is absolutely clear that the commission can do that, it would be detrimental to its independence if we were to sit here and say that it must do that.

This has been a fantastic debate. I thank all members for their contributions and hope that everyone will be able to support the general principles of the bill at decision time.