The next item of business is to take evidence on the Scottish Government’s plans for a Scottish fiscal commission. The committee published its “Report on proposals for a Scottish Fiscal Commission” in February, and members have copies of the Scottish Government response. Before moving to questions from members, I invite the cabinet secretary to make an opening statement.
Thank you, convener. I am pleased to have this opportunity to provide the committee with further information on my proposals to establish a Scottish fiscal commission. I thank the committee for its report of 7 February, which was of substantial assistance to the Government in drawing together the views of a range of experts as well as the thoughtful contribution that was made by the Finance Committee.
The Scottish fiscal commission will be established this summer to scrutinise Scottish Government forecasts of receipts from land and buildings transaction tax and Scottish landfill tax. The commission will also be asked to scrutinise the economic factors that underpin the forecast of receipts for non-domestic rates. The commission will provide reassurance over the reasonableness and integrity of our tax receipt forecast ahead of the introduction of the 2015-16 draft Scottish budget in the autumn. The commission will report its findings to the Parliament and to the public, which will enhance the strength and the credibility of the Scottish Government’s tax forecasts.
Initially, the Scottish fiscal commission will be established on a non-statutory basis, but administrative safeguards will be put in place to protect its independence. I fully recognise the need for the commission to be structurally and operationally independent of the Scottish Government and that giving the commission a basis in statute will be important in the future. If possible, I intend to introduce legislation to underpin the commission in the current parliamentary session.
The role and remit of the commission will continue to be reviewed and expanded as the Parliament’s fiscal powers are enhanced. I also intend to review the role of the commission in relation to the Scottish rate of income tax prior to its planned introduction in April 2016.
The commission will have three part-time members, one of whom will act as chair. Commission members will bring independent minds and strong economic and analytical skills to bear on the Scottish Government’s tax forecasts. To protect the commission’s independence, I will make appointments for a single term of office of between three and five years. That will allow for rotation of members of the commission in line with good governance practice, while making it possible to manage the retention and transfer of skills and experience. People who are appointed to the commission will not be remunerated, but the Scottish Government will meet all reasonable expenses that are incurred in the course of the commission’s business. In addition, we will make available to the commission a modest budget to cover analytical and other necessary work.
I very much welcome the role that the Scottish Parliament will play in approving nominations for appointment to the commission. I will formally notify the committee of my nominations once candidates have agreed to be recommended to the Parliament for appointment. I believe that the scrutiny that the committee will bring to the appointments process will further strengthen the credibility and the authority of the commission.
The creation of a Scottish fiscal commission is another important milestone on the journey to enhance Scotland’s fiscal powers. I believe that the commission will play a key role in supporting the exercise of the tax powers that were devolved to the Parliament under the Scotland Act 2012. What is proposed is proportionate to those powers but creates a basis for the commission to expand its functions over time, alongside the expansion of the Parliament’s fiscal powers.
I am pleased to announce to Parliament the creation of the commission and to have the opportunity to answer any questions that the committee has on those plans.
Thank you very much for that fairly short but comprehensive and helpful opening statement, cabinet secretary. You have answered some of the questions that I intended to ask, so I will move on to some others.
One of the recommendations that we made in our report was:
“as the OBR produces Scottish tax forecasts twice a year, the SFC should also provide a commentary twice a year which should include the views of the SFC on the economic determinants underpinning the tax revenue forecasts”.
However, in your response, you suggested that scrutiny and commentary should be provided on
“a frequency that best suits the Scottish budgeting cycle and supports the work of the Parliament in holding Ministers to account on fiscal issues.”
You suggested that a commentary should be produced
“alongside the draft Budget document each autumn.”
Will the SFC also comment on UK budgets as they impact on Scotland?
That will not be part of the commission’s remit.
Why is that?
As it is founded, the commission will have a particular role to play in providing us with a critique and a validation of the estimates that we make in relation to landfill tax and the land and buildings transaction tax. As the Scottish rate of income tax develops, it will also have a role to play with regard to the estimating that we do in relation to that tax.
I want to ensure that the commission performs a highly focused role that enables Parliament to come to reasoned and considered judgments on all the questions that relate to the judgments that require to be made on the tax powers in question. Clearly, a commentary on the UK Government budget is given by the Office for Budget Responsibility and can be given by Parliament on any occasion on which it sees fit to do so.
You also said in your response that national non-domestic rates income modelling involves assumptions about bad debts and appeal losses. You observed:
“These are commercial assumptions which are based on experience and on assessments made within SG and by local authorities. It is less clear that the SFC will have expertise in these areas.”
However, you went on to say:
“the SFC should comment annually on NDRI forecasts at the time of the publication of the draft Budget document.”
If the SFC will not have much expertise in that area, why are you keen for it to comment on it?
I was seeking to make a distinction between the factors on which I think that the commission will be able to add input—which will be to do with buoyancy and performance in the economy and what effect that is likely to have on the non-domestic rates take—and other factors.
As part of the annual calculation of the non-domestic rates estimates, we make an assessment of the appeal losses and bad debts of local authorities across the country. Essentially, the decisions that are taken to determine the effect of those factors on the overall NDRI totals are operational decisions, which I do not think are affected by economic performance. I do not think that the commission will have the necessary capability to consider those issues, some of which are commercially sensitive in that they relate to negotiations to do with appeals that are undertaken by assessors with interested parties.
I will discuss such matters with the members of the commission once they have been appointed, but that is my judgment on the areas of involvement and expertise that they will have.
I will ask one more question before I allow colleagues to enter the discussion.
In paragraph 4 of his submission for the next item on our agenda, Professor John Kay—who is sitting right behind you—said:
“in my view the OBR has been established too much as a body to give validation to what was formerly the forecasting operations of the UK Treasury, and too little as a body exercising the functions described in its title—the promotion of budget responsibility.”
How would the Scottish fiscal commission differ from the OBR in that regard?
As we currently envisage its role—and as I think was established in the evidence that I gave to the committee; I was certainly struck by what the committee said in its report on the matter—the commission will be a focused body that will look at the particular elements of tax collection for which we are assuming responsibility in Scotland and it will provide, as I described a moment ago, the necessary critique and validation of the estimates that are put forward.
There is nothing wrong with validation of the estimates as long as the critique has been done in the first place. In the light of the evidence that the committee took and the report that it produced, we have arrived at the proposition that the commission should have a very focused role, which I am happy to implement.
As I have indicated, there will be a dynamism to the issue, which will be driven by the constitutional debate, so we may well need to revisit some of the details to do with the role and the focus of the commission in the light of that debate.
Thank you very much, cabinet secretary.
For the first time in my three years as convener of the committee, members have no questions to ask. [Interruption.] Oh, they do! I did drop a hint that that was to be my final question and not one member indicated that they wanted to ask one. They need to be a wee bit smarter next time—under the previous item, I said by way of a hint that a tsunami of members wanted to ask questions and that got a response.
It looks as if members have some questions after all, so I am afraid that the cabinet secretary will not get off as lightly as he might have suspected.
I will begin with a couple of simple technical questions. What is the rough timescale for the legislation that you intend to introduce?
As things stand, the earliest I could see that happening would be in the final year of the present parliamentary session.
10:30
So it would be 2015-16, as it were.
Just to be absolutely clear, it would be the parliamentary year starting in the autumn of 2015.
As opposed to the financial year.
I presume that you would want to have the interim remit for the fiscal commission in place by the summer. I think that that is what you suggested.
What I plan to do is this, convener—although I am obviously in the committee’s hands in this respect, because it has a significant role to play in the process. Reasonably shortly, I would expect to share with the committee the nominees who I intend to put forward. I would appreciate it if the committee could, in a reasonably short timescale, consider the nominees I suggest and thereafter make the appropriate reports that it sees fit to make to Parliament to secure parliamentary agreement for the nominations that I make. Obviously, with that I will clarify the remit and other working arrangements of the commission.
Normally, cabinet secretary, I encourage you to cut costs and to think carefully about expenditure, but I think that I heard you say that there would be no remuneration for any of the commissioners and that there would be a budget of about £20,000 for administration, resourcing and so on. Taking those two aspects together, do you think that that will be enough resources to make the commission robust and to enable it to do the thorough job that we all need it to do?
Yes. The issue about remunerating members is connected with whether or not the SFC has a statutory basis, so that is a short-term issue for the 2014-15 financial and parliamentary year. If the commission had a statutory basis, that position could change.
I will be guided by the commission on the nature of the resource and expertise that it requires to fulfil the functions that it is given. I will have a very open discussion with the commission about that issue. I am clear that the commission has to be able to fulfil the role that Parliament envisages for it, and I will ensure that it is properly equipped with the necessary resources to enable that to be the case.
Finally, one of the recommendations in the committee’s report was:
“The Scottish Government should consider the option of inviting the SFC to produce the official macro-economic and fiscal forecasts”.
The Scottish Government did not accept that recommendation, but in its response to the committee it said:
“The Scottish Government believes that responsibility for carrying out economic and fiscal forecasts, including tax receipt forecasts, should lie with the Scottish Government and that primary accountability should be of Ministers to the Parliament.”
Can I take it from that statement that the Scottish Government plans to carry out and publish economic forecasts?
We undertake that type of activity on an on-going basis.
But, as I understand it, you do not publish official Scottish Government economic forecasts.
For example, the most recent “State of the Economy” report that the Scottish Government’s chief economist published last week—if my memory serves me; it was maybe the week before—includes a forecast about the pattern of development of the Scottish economy. That is what I would call a forecast.
I know that you look at various forecasts and take views—I read the economic report—but I did not believe that those were official Scottish Government economic forecasts. The way that I read the Scottish Government’s response led me to wonder whether you will now produce official Scottish Government economic forecasts.
The point that I made in the response to the committee’s report is in the context of the debate that the committee had about what the commission’s role should be. Should the commission essentially tell me, “We think that you will raise this amount of money from these taxes,” in response to which I should say, “That is fine; that is the commission’s view, so we shall just put that figure into the budget,” or should my officials produce an estimate and test it for validation with the fiscal commission?
When I made that point, I was trying to clarify that we see it as our responsibility as ministers to be accountable for assessing the pattern and development of the Scottish economy and then, when necessary, to seek the critique and the validation of the fiscal commission about the content of our estimates.
Thank you, cabinet secretary. We will be discussing the roles of your appointees with them on 28 May.
I have a general question, which follows on quite well from Gavin Brown’s last point. I think that it is true to say that there is a bit of disappointment among the committee members because you have not gone quite as far as we were suggesting. However, I suspect that there is even more disappointment among the economists. Professor Kay has already been quoted in that regard, and his submission says:
“The critical question is ‘is the current level of public sector service provision sustainable at current levels of taxation?’”
That connects with a point that Professor David Bell made in his evidence to us.
You will also have seen the very passionate article by Jeremy Peat in The Herald two days ago. He must be very disappointed because, at the end of the article, he said that the new body in Scotland
“should be ... not just an informed commentator on Government figures but the actual provider of key forecasts.”
Earlier on in the article, he talked about the importance of having a body
“To consider the long-term health of the economy”
and so on.
My question is of a general nature. I am curious to know whether your limited remit for the new body is driven fundamentally by the fact that, initially, it will have a very small amount of taxation to deal with or whether—which perhaps was suggested by your previous answer—you have a fundamental objection in principle to such a body having a wider role.
Clearly, the future is unknown but if the limited remit is driven by the former fact, I imagine that you would be open to the body having a wider role in the future. However, a few minutes ago you talked about looking at the detail, so my sense is that you are certainly not sympathetic to the idea of a body with wider powers—I was going to say that you are perhaps quite hostile. The idea has been proposed by many distinguished economists and has been supported—at least to a certain extent—by this committee.
I struggle with Mr Chisholm’s explanation of the views of the committee in its report because my reading of the committee report—again, it is my reading—was that the committee was encouraging me to establish a body and I got a very clear sense from my previous evidence session on this topic that the body should undertake a proportionate task in relation to the taxes that we have to deal with—LBTT and landfill tax.
I remember clearly setting out my view to the committee—which I thought was a view that was broadly agreed with within the committee—that we already have a fairly extensive commentary network about the economic performance and the economic future of Scotland and that there is no need to add an additional fiscal commission to explore that territory.
The proposals that I am putting forward relate very directly to the particular tax powers that we have. I have indicated to the committee that the role of the body will be enhanced when the SRIT emerges. It will also be the subject of review when we are clearer about the constitutional direction that the country is going to take.
All those comments are designed by me to say that I see a dynamic about this whole process. We will start off with a body that focuses on what we have the statutory function to do and consider at this particular time, but we remain open—I remain open—to considering how its role can be expanded once a broader range of responsibilities come to the Scottish Parliament.
Do you expect to use the experiences of the interim Scottish fiscal commission to inform proposals to establish it on a statutory basis?
Yes. I would also seek to dwell very heavily on the material that we have discussed as part of the committee’s inquiry—and the Government response to the committee report—to ensure that we establish the commission on the most appropriate footing to begin with.
That ends your evidence for today. I thank colleagues for their questions and I thank you for your evidence, cabinet secretary. I suspend the meeting to enable members to have a natural break and to enable a change of witnesses.
10:40 Meeting suspended.Previous
Scotland Act 2012