Under agenda item 4, we will take evidence on the accountability and audit arrangements for the proposed further devolution of powers. Members will be aware that the committee has issued a call for evidence on the subject. The committee will hold a further evidence session on the issue in May with the Cabinet Secretary for Finance, Constitution and Economy.
We will hear evidence again today from the Auditor General, Caroline Gardner, and from her Audit Scotland colleagues Russell Frith, assistant auditor general, Fraser McKinlay, director and controller of audit, and Mark Taylor, assistant director.
I understand that the Auditor General will make a brief statement.
Not today, thank you, convener.
You have caught us out there.
Okay. I will ask the first question of the Auditor General. On scrutiny of UK public bodies, we know that we can now potentially seek evidence from a number of bodies such as the BBC and the Office of Gas and Electricity Markets and that they will be able to lay financial reports before the Parliament. Will you elaborate on how you think that will be progressed?
I should say first that we are delighted to have the chance to talk to the committee as part of its inquiry into scrutiny of future powers arising from the Scotland Act 2012 and the Smith commission. We have looked closely at the Smith commission proposals that we think might have implications for us and for this committee. The bodies referred to in the Smith commission report and picked up in the draft clauses all carry out functions that can have a significant impact on and contribute to the Scottish Government’s policy objectives. It is fair to say that they are a wide-ranging set of bodies that do that in different ways.
At one extreme, most of the functions of the Northern Lighthouse Board are carried out in Scotland and a fair amount of reporting about that body is already available. At the other end of the spectrum, Ofgem regulates energy companies throughout the UK, including companies that are based in Scotland but serve the whole UK and companies that are based elsewhere in the UK but serve people in Scotland. The starting point is that no single model will work; it very much needs to start from the basis of what work the bodies carry out in Scotland and what the Scottish Parliament wants more oversight of.
It is worth noting that there are UK-wide bodies, including the Security Industry Authority, whose annual reports and accounts are already laid in the Scottish Parliament, although the fact that their accounts are laid here does not mean that the committee needs to do anything with them. There is a debate to be had about what the Parliament’s and the committee’s interests are, which should lead to a debate about how the process might work in practice.
Let us take the BBC as an example. When the financial reporting comes from the BBC, does it relate to the BBC licence fee revenue?
That is a very good example to use in picking apart what the Parliament’s interest is. The BBC is a UK-wide organisation that serves the people of the UK as a whole as well as the people of Scotland as a separate group within that population. I think that the BBC currently produces a management review for Scotland, which provides information about the services that it provides here but is not linked to financial information about what is spent in Scotland or the revenue that is raised from licence payers in Scotland. That is a good example of the sort of body in relation to which the Parliament may wish to have a discussion with both the body and the UK Parliament about the development of further reporting about Scotland such as you have been having with the UK Government and Her Majesty’s Revenue and Customs about the reporting on the Scottish rate of income tax. That money will continue to be collected by a UK-wide body but there is a definite Scottish interest.
Could there be some challenges in that? You talk about discussions with the BBC, but the Scotland Act 2012 makes clear the role of the Public Audit Committee in scrutinising the reports that are laid before it. Do you expect the UK Government to legislate on how the Scottish Parliament would interact with such bodies?
There are two sets of issues to be resolved. First, given that the number of bodies that play a role in Scotland is very high, in order to make the best use of its time the committee may want to think about its priorities and which UK-wide bodies’ activities in Scotland it wants to have clear oversight of.
Secondly, it will be easier for some bodies than for others to produce annual reports that contain Scotland-specific information. That would be no problem for the Northern Lighthouse Board, as most of what it does is already Scotland specific. Some parts of the BBC’s activities are also clearly Scotland specific, and I think that there could be a productive dialogue about what information you want on both spend and performance to allow you to carry out your oversight. However, for a body such as Ofgem it would be much more difficult to determine what aspects of its overall business it would make sense to talk about specifically in relation to Scotland as opposed to which specific projects were being carried out that had an impact on Scotland alone. That demonstrates the range of different bodies that we are talking about and the need to be clear about what your interest is so that the information can be developed and reported in ways that allow you to use it.
I appreciate that there is some complexity involved and that one size of auditing may not fit all. We are in preparation mode, as we have quite a few additional powers coming today and a whole load of significant powers coming down the line. The Food Standards Agency has been devolved for many years, although it becomes Food Standards Scotland as of today. Where the Forestry Commission, which is a UK-wide body, operates as a cross-border body, Audit Scotland is the auditor under statute and the agency reports directly to the Scottish ministers. Given that we have had experience of both those agencies, can you say whether the Food Standards Agency—as was—and the Forestry Commission are good examples of how bodies can fit with the further devolved powers that are coming down the line, which the convener just mentioned?
I ask Russell Frith to talk you through how that has worked in the past, and we can then draw out what that might mean for the future.
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There might be some lessons from the Forestry Commission but I am not sure that it provides a perfect example partly because, since Scottish devolution, its business has been clearly divided up between England, Scotland and Wales, which have had their own management boards, committees and groups. The commission has produced separate sets of financial statements in each country and the policies that have been employed in each country have differed as devolution has gone on.
The Forestry Commission still has a lot of central functions that it is economic to provide on a GB-wide basis but the business has been clearly divided on a geographical basis whereas the business of some of the bodies that it is now proposed will lay their reports in Parliament is not so clearly separate in each of the geographical areas.
I understand that. Would any existing body be a better fit than, say, the Forestry Commission or the Food Standards Agency? Is there any good practice that could be adopted to fit some of the new powers that are coming?
For a body such as the BBC, the nearest parallel is probably the discussions that you have already had with HMRC about its role in collecting the Scottish rate of income tax and, in future, VAT, part of which will be assigned to Scotland.
The challenge comes for bodies such as the Office of Communications and Ofgem, which very much work on a UK-wide basis and regulate for the UK companies that serve the whole UK. We do not yet have a model for that scenario. That is where there is more thinking to do about what the committee and the Parliament need in order to receive assurance about those bodies’ performance in relation to Scotland and about where there might be more difficulties in breaking down the information in ways that are meaningful to you without disproportionate cost.
That is helpful. My final question comes from the Scottish Parliament information centre and concerns the no-detriment principle, which, in layman’s terms, basically states that the Scottish or UK budget should be no larger or smaller as a consequence of tax and spending changes.
If we suppose, for example, that the Scottish Government increases the top rate of tax to 50 per cent and Scots pay less national insurance, should the Scottish Government compensate the UK Government for the fall in national insurance contributions? Alternatively if, as often happens with the higher rate of income tax, high-earning Scots shift their income from earnings to dividends or higher-rate taxpayers move elsewhere in the UK, should the UK Government compensate the Scottish Government?
It is a very muddy area. Can we really expect the no-detriment principle to continue clearly and effectively as we go forward with very different powers and economic and fiscal decisions?
Your question highlights the challenges that will need to be addressed in working through—
I think that “challenges” is an understatement, if I may say so.
You will not be surprised to hear that we are clear about the challenges that are involved in the matter. The way in which they are resolved will be part of a political process. Our interest is in ensuring that the process for making adjustments to the funding formula for Scotland, whatever it looks like in the future, is transparent and clearly understood and that there is a way of providing assurance to this Parliament as well as to the UK Parliament about the funds that are received into Scotland for spending on Scottish policy objectives.
There is a lot of work to do in making that a reality. We are not the only people to say that and it is one of the areas on which the Parliament is rightly focusing at this stage.
However, even if the system is open and transparent, can the no-detriment principle be followed in light of the two examples that I gave? I appreciate that it is challenging but, for example, how can we relate increased revenue in the rest of the UK to an increase in tax in Scotland? How can we prove that the decision to invest in England was the result of an increased tax? I cannot see it in my mind. I do not know how that can be traced effectively under the no-detriment principle.
There are technical challenges, as you describe, but I am sure that they can be worked through if appropriate information is provided and appropriate systems are put in place. There are also political challenges, and I suspect that they might be the more difficult challenges to overcome. I am very clear that there is work to do in order to make a reality of that recommendation from Smith.
It is my understanding that although the Department for Work and Pensions may well provide some of the services, it will be spending money that is, in effect, Scottish Government money on welfare payments. If I am right in that regard, how do you see the DWP reporting to us on how it spends that fraction of what will be our budget?
The Government and the Parliament have a choice to make about how the welfare responsibilities that it is proposed be devolved to the Scottish Parliament will be administered. Broadly, there are three options. First, as you say, the DWP could continue administering the services under Scottish Government rules. Secondly, the Scottish Government could seek to set up its own body to do the work, in the way that it has done with Revenue Scotland. Thirdly, it could look at other options, such as the arrangements that are in place for councils to administer housing benefit and council tax benefit.
Each of those options would have different implications for the information that the Parliament would need and would have access to. I will ask Russell Frith to outline those implications for you.
If the Parliament decided to continue with the DWP administering Scottish benefits, the HMRC arrangements that are being developed for the Scottish rate of income tax provide a good model. The UK legislation that gives effect to that could make similar arrangements for the DWP to report to the Scottish Parliament as well as to the UK Parliament, and that could be followed by similar arrangements for audit.
The implication of that is that you feel that a model is available not only for the DWP, but potentially for any other UK Government department that does something for the Scottish Government that it used to do for itself and spends our money in doing so.
Yes—when it spends money that the Scottish Parliament has control over.
Okay.
I return to the previous discussion, which was about the risks involved in discretionary expenditure and discretionary income. In the context of the developing situation, how do you feel that those risks could be audited?
I do not think that we would be looking to audit the risks. Our interest is in making sure that the information is available for the Government to use in making decisions and making policy, for the Parliament to use in scrutinising the Government’s actions and for bodies such as the Scottish Fiscal Commission to use in its work in reporting on fiscal sustainability. That is exactly the way in which the OBR uses UK whole-of-Government accounts at the moment. It looks at issues such as the Government’s commitments on public sector pensions and other long-term liabilities to estimate over the longer term—25 years and out—what they mean against changes in the population and known policy commitments. We envisage the transparent reporting that we propose being used in the same way by the Scottish Fiscal Commission as the whole process develops.
That leads me inexorably to precisely the same point that came up earlier about timing and how long we will have to wait, because risk and time are inevitably intertwined. Do you feel that we are moving to a point at which information will be available soon enough to allow the right people to make the right judgments and to enable us as parliamentarians to scrutinise the risks involved in those decisions?
It is hard for us to give you any assurance about that without knowing the detail of the Government’s plans for developing its financial reporting, but I will ask Mark Taylor to talk in a bit more detail than we did earlier about what we think is needed and what we think is likely to be possible.
With regard to the timetable, there is a point about the information being made available as quickly as possible and the investment in relation to that, but there is also a point about the commentary on some of the risks that arises from not knowing. Inevitably, where there is more variability, it is certain that there is more risk involved. Enhanced financial reporting would be clearer and more open about where the uncertainty and variability lies, and we would then be able to talk about some of those issues.
Of course the committee would like more information, but at least the decision makers are clear about where the information gaps are, what is known, what is estimated and what is forecast, and—as far as possible—the reliability of all that.
I am perhaps making the point for those who want to report this session, but the term “risk” is really being used to mean “uncertainty”. There is no risk of anybody falling over or going bankrupt, for example—the issue is not having the accuracy in the information that we have when the information is historical.
That is absolutely the way in which we use the term “risk” as auditors.
Auditor General, you spoke earlier about the no-detriment principle, which has drawn quite a lot of attention. In essence, it is about there being no detriment at the point of transfer, rather than relating in any way to the policy decisions that are taken—if it were to be interpreted in that way, it could easily become a no-benefit principle.
I do not expect you to comment on the politics of the debate surrounding the principle. However, in your view as an auditor, how great is the need for independent sources of information and for scrutiny of information in relation to the agreement at the point of transfer, whether that is at the point at which something is devolved or at a subsequent point when there is a policy change?
It is always hard to talk about such issues in the abstract, because we are inevitably talking about hypotheticals and the way in which things might work through.
We are seeing in the Smith clauses a number of elements that are either different sources of revenue-raising powers for the Scottish Parliament or spending responsibilities. For each of those, there will need to be an agreed mechanism for tracing through the likely impact at the point of transfer—as you describe—on the adjustment to the Scottish block grant.
First, we need to ensure that the information that is necessary to underpin that forecast is, as expected, available and agreed on. Secondly, it must be able to be scrutinised by this Parliament and by people more widely. The transparency of that information will be a key part of building confidence, but it will also help to highlight where there may be problems that need to be addressed by developing new information sources.
I am sounding like a stuck record, as “transparency” seems to be the word of the day, but it is a key part of the process in addition to getting the technical process right and understanding what might change, what information can be used and what gaps need to be filled. Ensuring that that is aired and understood as widely as it can be will be a key aspect of the process.
Russell Frith may want to add to my comments.
In some cases, there may well be a technically based agreement that can be audited through specific data, but in other cases—the land and buildings transaction tax first-year agreement is a classic example—there will be a negotiated agreement between the two Governments. The LBTT example involves a revenue stream that is very volatile over the economic cycle in accordance with house sales; one can audit what has happened in each year, but at the end of the day the agreement is made between two Governments.
That is interesting. In a way, thinking about some of the politics, a lot of the facts are contested and will probably remain so into the future and at the point at which matters are transferred. As auditors, your interest will presumably be in the process rather than in the amounts that are agreed—reluctantly or enthusiastically—between either party.
Speaking narrowly as auditors, our interest is in the amount that is agreed and how that flows through into the Scottish Government’s accounts. With regard to the stability of the fiscal framework, we have the same interest as everybody else in this Parliament in ensuring that it is robust and stable so that the Scottish Parliament and the UK Parliament can make sensible decisions moving forward for the good of the people they represent.
We all know that there are huge challenges in doing that, but it is very important that it can be done in a way that keeps the longer-term view in sight and picks up the Smith commission’s recommendation on strong intergovernmental mechanisms as a basis for proceeding properly.
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Yes—it is important that we read these recommendations in conjunction with some of the others.
I do not expect you to predict the future of your own work in an environment that is difficult to predict. However, I presume that you could, in theory, imagine circumstances in which you might be commenting on whether or not an amount of money that was earmarked for something was correct. The term “correct” is somewhat value laden, of course, but you may be making a judgment about the actual amounts that were transferred. Do you think that that is likely?
It might be helpful if we use the Scottish rate of income tax as an example, given that it is the area that we have worked through the furthest.
There is now an agreement in progress among the UK Government, the Scottish Government and HMRC about how the implementation will be achieved. In future, the Scottish Fiscal Commission will comment on the forecasts for the Scottish rate of income tax proceeds in the same way as the OBR does for UK forecasts. Our formal interest will start at the point at which that sum of money is transferred from HMRC to the Scottish Government’s consolidated fund bank account. We will be auditing that in the Scottish Government’s financial statements, whatever form they take at that stage.
The memorandum of understanding that committee members have in front of them in draft form today attempts to move a bit further than that in saying that the Scottish Parliament also has an interest in ensuring that the amount that is transferred properly reflects the amount that is collected from Scottish taxpayers under the agreement that has been made. HMRC is a UK body that is audited by the NAO and will continue to be so, but we are agreeing a mechanism by which HMRC will discuss with us its audit work in so far as it relates to the Scottish rate of income tax proceeds. We will have the power to comment on its reports to this committee and to this Parliament if we think that there are issues that need to be drawn to your attention.
That model can be extended to other sources of income or expenditure that are administered by UK bodies on behalf of the Scottish Parliament. For some of the new taxes that are to be raised in Scotland, such as air passenger duty and the aggregates levy, the focus will be much more clearly on what is done by the Scottish Government, and we will therefore have a direct audit relationship.
We are looking at a more nuanced landscape and set of arrangements in future, and it is helpful to have the chance to talk to you now about your priorities and the areas of interest or uncertainty on which you may need assurance in future.
The example of the BBC was used at the beginning of the session, and it is an interesting one. As a Scottish licence-fee payer, I am interested in what the BBC does in Scotland and in its Scottish output, and in the BBC’s reporting on Scotland elsewhere in the UK, although that is probably—to be frank—a minority element of my interest in the BBC’s overall output.
It would be difficult to see how you could audit that area separately, if we were to go down the route of having BBC Scotland lay accounts beside whatever report it made to the Scottish Parliament. I would assume that it would be an opportunity for scrutiny of BBC Scotland’s work and for a degree of influence over its forward priorities rather than an accounting mechanism in reality. Is that a fair comment?
That is a good way of framing the question. This Parliament clearly has an interest in the BBC’s activities as far as they relate to Scotland specifically, and there is a debate to be had about how that process operates.
It would be possible to develop the current BBC Scotland management review further to provide the committee with more information on performance and the amount that is spent in delivering its Scottish outputs. However, given the current direction of travel, the BBC will continue to be a UK-wide institution that will report on a UK-wide level, and it will have its accounts audited by KPMG—as it currently does—with the UK Public Accounts Committee having some oversight of that process.
If you want to develop arrangements here, they will need to be negotiated with the BBC and the UK Government. In the Smith recommendations, there is a mechanism to enable the annual report and accounts to be laid in Parliament. However, the question of how that process might develop to give you the information that you need, and what your purpose in undertaking it would be, has not yet been worked through.
Can I ask one final question, convener? Well, I might be cheeky and ask about two related things in one.
Please be brief.
Auditor General, is there likely to be a need for legislative change in relation to your relationships with bodies such as the National Audit Office and others that might be important to the Parliament, or are you confident that they can be dealt with through working in partnership and memoranda of understanding?
The other thing is that I want to give you an opportunity to say what you regard as the biggest risks. I take Nigel Don’s point about use of the word “risk” but, from your point of view as an audit organisation, what are the biggest risks in the transfer of the powers that we are talking about?
The honest answer to your first question, on legislation, is that it depends. If the DWP was to continue to deliver some of the Scottish Government’s new responsibilities for welfare, it would be useful to have some of the arrangements enshrined in legislation, as is already the case with the Scottish rate of income tax with the requirements for both HMRC and the NAO to report to the Scottish Parliament. That is a parallel, and I can see circumstances in which it would be useful to have something in legislation. With other things, there would be no need, either because they are too small or because the committee’s interest would be not in the accounts but in something else.
Your second question was about the biggest areas of uncertainty that need to be dealt with. As we discussed during the previous agenda item, the question of the new volatility and the new uncertainties that come with raising revenue and with welfare spending, both of which vary with the conditions in the economy more widely, is something that nobody in Scotland has really had to consider before, and it is why we believe that the availability of more comprehensive and transparent information is a key way of helping to manage those uncertainties.
Thank you.
I would like to go back—dare I say it?—to the principle of no detriment. Given that there is no international illustration or definition of “no detriment”, is it fair to say that, ultimately, the rules that will govern it can be laid down only by the fiscal agreement that will have to exist between the UK and Scottish Governments?
That fiscal agreement has to be the starting point. As we have discussed, there will then be technical and political challenges in the way in which it operates, but I do not think that that is entirely uncharted territory. We talk about the Barnett formula, but within that there are areas that are the results of different levels of discussion and negotiation. The same is true of other strands of funding that come in. What we are discussing is on a different scale, but it is not entirely a new thing that is different from anything that we have had to deal with since 1999, when the Scottish Parliament was established.
I agree. Would it be helpful if no detriment were to be considered not in the context of a particular tax that changes on a particular date—you highlighted air passenger duty—but in the context of a fiscal cycle of three years, or whatever the agreed fiscal cycle might be?
I am not sure that I agree that it is an either/or choice, but I absolutely agree that we need to think about the matter both at the level of individual policy measures and in relation to the big picture—not least because we know that some policy measures will interact with each other, so it might not make sense to look at each in isolation in coming up with the overall answer to how the principle of no detriment will be protected.
Another committee that Stuart McMillan and I serve on has been playing around with this for a while, and the evidence from there suggests that to consider the matter over a cycle—it would have to be agreed between Governments, which would involve Cardiff and Belfast as well—would be better, both for the reasons that you gave and for audit purposes. It strikes me that to consider the matter tax by tax would be a nightmare politically and in every other sense. In audit terms, to consider it over some kind of cycle might be a better way to achieve what is being sought—if I understand the principle correctly.
I return to my earlier answer. What is needed are measure-by-measure agreements that contribute to a picture for the whole package. It clearly makes sense also to keep the big picture in mind over time, as it comes together more generally.
That is fine. Given your earlier answer on the importance of the independence of the Fiscal Commission, is there a logical role for that independent body, in conjunction with the OBR, to underpin the analysis? That could help the Governments not to argue about the numbers so much—although we will probably always do that—but instead to agree on the dividing point and the need to come to what will be a political agreement on a particular scenario.
It is very clear that the OBR and the Scottish Fiscal Commission will need to work closely together on the issues in exactly the same way as Audit Scotland and the National Audit Office do. We do not want huge amounts of duplication in our respective roles, but we need to respect the fact that the UK Parliament and the Scottish Parliament have separate sets of interests that in many cases will overlap but which will not be the same. Both Parliaments need to be assured about the forecasts that the OBR and the Fiscal Commission will produce, the adjustments that are made to Government funding streams and, in our case, the annual results that come out of that in the financial statements.
That was helpful. Finally, do you think that the consolidated accounts or the whole-of-Scotland accounts that we discussed earlier are important in this context, or do they not necessarily play a significant role in how Parliament can best scrutinise the whole no-detriment principle?
Consolidated accounts are not the whole answer, but they are a very important building block. As my colleagues have made clear, having for the whole of Scotland’s public finances a set of financial statements that are prepared according to IFRS, in order to ensure that we all know the assumptions and conventions that underlie them, and which are audited in ways that give independent assurance that they say what they purport to say, will make a really strong contribution to this Parliament’s scrutiny and the Scottish Fiscal Commission’s ability to do its long-term financial-sustainability job.
This is probably outwith the area that Audit Scotland considers, but I want to pose this next question so that I can reconcile myself with the answer. With regard to the intergovernmental relations that happen at the moment and which will happen as a result of the further powers that are coming to the Scottish Parliament, are you aware of all the different mechanisms that are in place, and are you content with the information transfer that happens in those IGRs?
I am not sure that we can put our hands on our hearts and say that we are aware of all the mechanisms that are in place. We are very deliberately not part of Government; we are independent of it. We understand the parts that affect the areas in which we have a direct professional interest, and we fully respect the Smith commission recommendation that the intergovernmental mechanisms need to evolve as the Smith commission clauses come into effect.
Does Audit Scotland have any recommendations to put on the table about what is in place at the moment?
I am not sure that there is very much that we would want to add. The issue that, for good reason, we have stayed closest to has been the negotiations over the Scottish rate of income tax, because starting next April it will have a very direct impact on Scotland’s public finances. From our perspective and from what we have seen at this committee, those negotiations have focused on the right issues and good progress is being made, but we are not party to the wider set of intergovernmental relationships that cover all the other policy and political questions that need to be managed.
Thank you.
Mark Taylor said earlier that information should be made available as early as possible and that decision makers should know how accurate that information is. In the previous evidence session, I asked about the budget processes that are followed by the UK and Scottish Governments, and I note that in written evidence to the Finance Committee for its meeting on 25 June 2014, Professor David Heald stressed that the devolution of more taxes would require a UK-wide change and that, for example, the UK Government “budgetary timetable” would have to be changed in order to avoid gaming. As Tavish Scott has made clear, some of the issues have been raised at another committee. Does Professor Heald make a valid point in his submission? When it comes to intergovernmental relations, information sharing and the accuracy of information for decision makers, do you think that such a move would be beneficial, particularly with regard to the devolution of further powers?
I go back to Lord Smith’s very clear recommendation that the fiscal framework needs to be updated to take account of all that. The fiscal framework includes not only financial reporting, which for obvious reasons is what we have been majoring on, but the budget and scrutiny cycle, the fiscal rules that will need to be agreed and other elements. All those need to be reviewed. Our focus has been very much on financial reporting, because that is where our professional expertise lies, but I can only agree whole-heartedly with Lord Smith’s conclusion that the whole picture needs to be developed over the next couple of years as the Smith commission clauses come into being.
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Obviously all the major parties have signed up to the Smith recommendations. I am not asking you to make any policy suggestions, but with regard to the further powers that are coming to the Scottish Parliament, does Audit Scotland have a view on other organisations that could have an impact on, or a regular dialogue with, the Scottish Parliament or its committees? I am thinking in particular of the Bank of England, given the borrowing powers that the Scottish Parliament is going to have.
Sticking with our interest, which is about providing this committee and this Parliament with assurance on the way in which public money is being spent, I say that the key bodies in this respect will be HMRC, given that the Scottish rate of income tax and VAT will continue to be collected by that UK-wide body, and the DWP—although that will depend, of course, on the policy decisions on the new welfare responsibilities and whether DWP will continue to play a major role. That will be especially important, but I think that, because of universal credit, there will in any case still be a read-across.
Beyond that, I come back to the convener’s opening questions; it all depends very much on what the committee’s interest is. At this stage, I would not expect the Bank of England to be a particularly high priority on that list. The borrowing powers that are coming through the Scotland Act 2012 are, at the moment, very limited—although that is not to say that they are unimportant and do not need to be managed well—and the extent to which further borrowing powers will be devolved is an issue that will need to go through the legislative process. That relationship might change, but it all comes back to clarity of purpose, which will allow you to work out which bodies need to be involved and what the relationship should be.
Thank you.
I want to build a little bit on the issue of risk management. Obviously with new powers come new risks; there is a risk to public spending if the revenues from devolved taxation come in lower than forecast, and there are risks with demand-led welfare powers. To what extent can Audit Scotland audit and report on the risk to Scottish public finances arising from the proposed new powers in areas such as taxation, borrowing and the welfare provisions?
I do not think that we would be particularly reporting on the risks from those areas of policy; instead, we would expect the audit work that we produce to inform the Scottish Fiscal Commission’s reporting on such matters. However, we can expect, especially over the transitional period, to play a role in the implementation of the new powers and readiness for them. You might recall that at the back end of last year we reported on preparations for the Scotland Act 2012; we gave a good deal of assurance on the preparations that were in hand, but we also raised some questions about the speed of implementing information technology systems. That is a good example of our oversight of the preparations that are happening during the transitional period, which is, I guess, when the risks are likely to be at their highest.
The command paper states that the fiscal rules need to be agreed by both the Scottish and the UK Governments. What is your role in monitoring adherence to those rules?
I am not expecting that to be a significant part of my work or the work of Audit Scotland, just as it is not a significant part of the work of the Comptroller and Auditor General or the NAO in the UK. The OBR plays that role on a UK basis and, as I have said, draws on some of the information that comes out of the Government’s audited accounts. I expect a parallel situation to develop here in Scotland, and that we will have a close relationship with the Scottish Fiscal Commission. From our perspective, that relationship is developing very well and will allow us to understand our work programmes and to explore areas of uncertainty or working papers behind the scenes, but the two sets of responsibilities are pretty clearly demarcated.
Obviously the Scottish Fiscal Commission has a clear role in the forecast element of tax and spending decisions, but what do you think are the priorities for ensuring an effective and independent commission?
I think that the Government has done a very good job of establishing the Scottish Fiscal Commission early and ensuring that it was in place in good time to comment on the first Scottish tax forecasts for land and buildings transaction tax and the landfill tax. You will be aware that in the past week or so the Deputy First Minister has produced a consultation paper with proposals for putting the commission on a statutory basis as its role expands to cover the Scottish rate of income tax and the Smith proposals. That paper includes some questions about ensuring that the commission is on the strongest possible footing to do that work. We will certainly respond to the consultation paper with some suggestions for fine tuning but, as I have said, the most important challenge is to ensure that the commission has the capacity and expertise to do what it will need to do in the future, and that its independence, non-partisanship and transparency place it beyond question in what is a very political environment.
On behalf of the committee, I thank the Auditor General and her team for their contributions. We now move into private session.
11:50 Meeting continued in private until 12:15.Previous
Section 23 Report