Agenda item 2 is stage 2 consideration of the Scottish Fiscal Commission Bill. We are joined by the Deputy First Minister, who is accompanied by Alison Cumming and John St Clair of the Scottish Government. I welcome you all.
We move to the formal proceedings on the bill.
Section 1 agreed to.
Section 2—Functions
Amendment 5, in the name of Gavin Brown, is grouped with amendments 6 to 11 and 13 to 16.
The substantive amendments in the group are amendments 5 to 7, the combined effect of which is that official forecasts would be produced by the Scottish Fiscal Commission rather than, as currently under the bill, the Scottish Government. That reflects the conclusion that the committee reached in paragraph 69 of its stage 1 report, which says:
“The Committee, therefore, recommends that, in order 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 we have raised in the previous section of this report on independence. If the Commission does not produce the official forecasts then these concerns could remain.”
Accordingly, amendment 5 instructs the Scottish Fiscal Commission to
“prepare reports setting out its forecasts of receipts from the devolved taxes”;
amendment 6 instructs the commission to
“prepare reports setting out its forecasts of receipts from income tax attributable to a Scottish rate resolution”;
and amendment 7 instructs the commission to
“prepare reports setting out its forecasts of receipts from non-domestic rates.”
I reflected the wording of the bill as closely as possible.
You have put forward some of the arguments for the Scottish Fiscal Commission producing its own forecasts, but do you accept that a body can be independent while performing a checking function? For example, Audit Scotland, which is very independent, does not produce anything but checks other people’s work. The proposed approach leaves the question of who would check the forecasts if the Scottish Fiscal Commission actually made them, given that the commission currently does the checking. Also, would there not be duplication of resources if both the Scottish Government and the commission produced forecasts?
On your point about Audit Scotland, auditing is, by its nature, backward looking, so it is a very different beast. We can distinguish auditing from forecasting reasonably straightforwardly.
I accept that there might be a degree of duplication, but let us look carefully at the sums that we are talking about. According to the financial memorandum, the maximum spend for the Scottish Fiscal Commission would be £850,000 per annum, but the commission would be looking at tax receipts of about £600 million in land and buildings transaction tax, more than £100 million in landfill tax, £4.9 billion in income tax—this year’s figure—and something like £2.7 billion in non-domestic rates.
When we add all of that together, we arrive at more than £8 billion of public spend. Being out by a fraction of a percentage point could make a huge difference. Given that the commission’s total budget will be £850,000, I think that we can easily argue to the general public that it is in the public interest to take a belt-and-braces approach, even if there is a degree of duplication. The level of duplication relative to the size of the sums that we are talking about is, in my view, de minimis.
On the question of checking, I think that the point is dealt with in the Organisation for Economic Co-operation and Development principles for independent financial institutions. The last principle, which comes under the ninth heading, “External evaluation”, states:
“IFIs should develop a mechanism for external evaluation of their work—to be conducted by local or international experts. This may take several forms: review of selected pieces of work; annual evaluation of the quality of analysis; a permanent advisory panel or board; or peer review by an IFI in another country.”
There are therefore clear ways of carrying out such evaluation, but it is not clear to me that with the current format we are getting independent external evaluation. I think that there are blurred lines between the advisory process and the evaluation process. It was unclear to the committee where one started and the other ended, which was one of the reasons why we reached the conclusions that we did.
Coming back to the specific amendments, I have outlined what amendments 5 to 7 do. As I have said, I have attempted to mirror the wording of the draft bill as closely as I can. Amendments 8 to 10 remove the commission’s function of assessing Scottish Government forecasts, which would be unnecessary if the commission was doing the official ones. Amendment 11 removes the definition of “economic determinants”, again because the commission would be doing the official forecasts. Amendments 13 to 16 are technical in nature and reflect the changes made in amendments 5 to 7.
Presiding Officer—convener, I mean; I gave you a promotion there—I think that the committee made clear in its report why it reached this particular view. It was because of the quality of the evidence that we received, particularly from Dr Armstrong, Professor McGregor, Professor Peat and Chris Stewart. The current set-up leads to blurring. It is unclear where the challenge function stops and the evaluation function begins, and there are legitimate concerns that we could end up with advisers as opposed to an independent fiscal institution.
The commission has said to the committee on the record that it does not look at numbers or outputs, and it was unable, when I put the question, to say what would be classed as not reasonable. That caused me huge concern. By having the commission do the official forecasts, we avoid the optimism bias that can plague any Government; it removes the inbuilt incentive to be optimistic. Ultimately the commission needs to be independent and—just as important—needs to be seen to be independent.
I move amendment 5.
I have a couple of points. Members will know from my statements in the chamber and discussions that we have had in the committee that I had some reservations around this area. Those reservations remain. After listening to Gavin Brown, particularly his citation of the OECD principle, I remain unclear as to the exact mechanism through which the work of an SFC that produces forecasts would be appropriately and adequately scrutinised.
Gavin Brown talks about checking after the fact, for example. However, we have seen from the reports that the SFC has produced that the commission is performing an on-going challenge function. Gavin Brown categorises that as an advisory role, but I see it as a challenge role; indeed, it is an important challenge role, because it ensures that when the final forecasts are produced, they have been subject to challenge throughout the process and then, at the end, they are subject to analysis by the SFC.
There is also a question around the independence of the SFC, as Gavin Brown puts it. I think that it would be dangerous for us to assume that the individuals on the SFC would not be capable of exercising their functions with the degree of independence that we would expect from them.
The SFC’s evidence makes it clear that it is discharging its functions with independence as well as taking on board the importance of its role. There is also a question here around individual reputation and credibility; if individuals on the SFC were authorising as “reasonable” forecasts that they were not convinced were reasonable, they would be staking their reputations and credibility against those assessments.
From that perspective, I am unconvinced by the proposed amendments. Gavin Brown has cited the OECD principle, but nothing in amendment 5 says how the forecasts would then be scrutinised or what the roles of different bodies would be. There had been discussion and debate about this committee having a role, but I would have great reservations about its—or a successor committee’s—capacity and expertise to enable it to perform that role to the same degree as the SFC is currently doing. At the moment, I do not see where that question is answered in the amendments. The citation that Gavin Brown gave is helpful in outlining what he thinks will happen, but given that nothing that I see in the amendments would lead to that automatically being the case, I am afraid that at the moment I cannot support them.
I echo quite a few of the things that Mark McDonald has said. My understanding is that, internationally, it is quite normal for the independent institution to do the challenging and checking and not actually produce the forecast itself. The situation is not totally black and white. On the visit that Jean Urquhart and I made to Ireland, it was clear that although the Irish equivalent had started off in a purely checking, examining and challenging role, it had started to do some of its own forecasts in specific areas. That is fine—I am quite happy with that—but that is quite different from saying that the main role of the Scottish Fiscal Commission as an independent body should be to produce the main forecasts.
I want to raise three points with Gavin Brown. First, independence is an issue that we discussed a lot during committee meetings. I am convinced that we get independence partly because of the structure, and partly because of the attitude of the individual people involved. You could have a good structure, but if you did not have the right people, you would not have independence. On the other hand, you could have all sorts of other structures, but you would still have independence if you had the right people. We might have put a little bit too much emphasis on linking independence only to the structure. If we get the right people—and they are, after all, going to be appointed by the Parliament—they can be independent. I still think that Audit Scotland is a good model for that, as it can be very critical and challenging of Government at all levels and is widely seen as independent.
The question of who does the checking remains open. The Scottish Fiscal Commission itself has said that if it were to produce the forecasts there would need to be some kind of checking role.
Finally, on the question of duplication, I take Gavin Brown’s point that the costs are not huge. However, they are already quite considerable compared with the costs in Ireland and Sweden—and given that we are tight for money these days, doubling up on forecasting is not where I would be spending any extra money that I had.
The importance of having an independent forecast ought not to be underestimated. I note John Mason’s comment about getting the right people, but as somebody who has produced forecasts for different organisations, I know that you cannot depend solely on an individual’s agency. There might be a model that everybody agrees on, but the variables that you put into the model will affect the outcome. You have to detach the politics from the economics. This is not a precise science. One of my degrees is a masters in science; it is in economics, and I know that economics is an art. It is about picking variables, and optimism bias will always be a significant factor. That is why peer review is important, but it is also why there really needs to be independence. The body must be at arm’s length, and it must be independent.
Forecasting is not like audit. In auditing, you go through the actuals, and actuals are actuals; they are either right or wrong. Forecasting is a completely different ball game.
I think that Lesley Brennan is being a little bit unfair to auditors—
She is being perfectly fair.
Auditing, which I have some experience of, is also about valuing buildings and a whole range of other things. I accept that that is not the major point, but my basic argument is still that independence comes more from the attitude of the individuals than from the structure. Does Lesley Brennan not accept that?
You cannot just factor that in and say that it is going to be dependent on an individual’s agency; you need to have the structure, too. That is why I think that Gavin Brown is right to say that the body needs to be independent in order to have credibility. I really do not think that we can pin the whole independence factor on an individual’s agency.
09:45
John Mason has summed up what I was going to say. I, too, wanted to mention our experience in Dublin. Some forecasting was done by the Irish commission, but that approach had developed. What we are doing here is very new; we are at the very start of the Scottish Fiscal Commission. Indeed, the letter from Lady Susan Rice, the chair of the Scottish Fiscal Commission, is relevant in that context.
I feel that we are trying to anticipate issues and, by doing so, are perhaps creating problems where problems do not exist. We should let the Scottish Fiscal Commission do the job provided for in the bill but, as with everything that the Parliament does, the situation should be reviewed—and, in this case, reviewed in consultation with the commission.
You talked about creating problems where they do not exist. A later item on today’s agenda is prevention. Do you accept that we are trying to prevent problems from arising?
Not really. The Parliament has been here for 17 years, and we are at the start of a process. We must acknowledge that we have professional people on the Scottish Fiscal Commission—people whom the Parliament accepted were the people for the job—and we should hear what they have to say, just as we hear what you have to say.
I wonder whether I might make one final point. The Parliament’s whole focus has been on a cultural shift from being reactive to being preventative, and it has been trying to mainstream preventative measures in health and other spheres. That is what this group of amendments is trying to do.
You might also say that the establishment of the Scottish Fiscal Commission is a preventative measure. The approach offers a degree of reassurance and security. We should accept the bill as it is, on the basis that things can always be reviewed.
This is the most important element of the bill, so it is critical that we get it right; after all, it is all about securing the independence of the commission for the future. I have heard what people have said about individuals, and with all due respect to the many individuals who are serving and will serve on the commission, this is about not them but the commission itself. It is about how we secure the operation of the commission for all time, irrespective of who serves on it. That is critical.
Gavin Brown has mentioned the OECD principles for independent financial institutions. It is not beyond us to draw from that approach and put a robust scrutiny regime in place.
The Deputy First Minister has said in the past that other, similar bodies do not do the kind of forecasting that is envisaged and that that is not something that he has seen. In fairness to him, he has not said that in many of those other cases—in Ireland and elsewhere—there are other independent institutions that produce forecasts on which the commissions rely. There is no similarity with Scotland in that regard, because there are no independent organisations out there producing forecasts.
Do you accept that, as Jean Urquhart has pointed out, we are at the beginning of a process? The independent institutions that exist elsewhere have been absent from Scotland because until now there has been no requirement for such a role to be performed here. Perhaps we need to develop the capability and capacity of such organisations—some of which have given evidence to the committee—to allow them to undertake that function.
We have also taken evidence from the Office for Budget Responsibility, which has said that although the OBR produces forecasts it is in the gift of the Treasury to ignore and reject them. Would you be happy with a situation in which the Scottish Government could do the same thing?
I do not think that the Scottish Government would reject forecasts; I think that it would seek to work with whatever commission was in place to arrive at a conclusion. That has certainly characterised the method of operation so far so, as far as Mark McDonald’s second point is concerned, I do not see that as an issue.
In relation to his first point, Mr McDonald has put forward one argument that could be made, but surely when we have the opportunity to set out in legislation what a fiscal commission should do, we should take that opportunity instead of hoping that somebody else out there might do those independent forecasts. We have no control over those organisations, but we do have control over the bill that is before us, and I would hate us to miss the opportunity that it presents.
Many witnesses, including—and I would like to highlight this to Jean Urquhart—professional people from the Royal Society of Edinburgh and others besides, have made a compelling case for why the commission should do forecasting. I respect Lady Rice, but the fact is that others hold a differing but equally valid point of view, and it is our job to balance that.
Irrespective of the Government—because this will impact on future Governments, too—this is all about setting out how we want to proceed in future. We need to be quite clear that we should have a robust scrutiny regime and that we have nothing to fear from that, and I think that giving the commission the power to forecast and to be responsible for forecasting is exactly what we should be doing.
I acknowledge that this is a central issue for the debate and I respect the committee’s interest and the energy that members have applied to considering the issues as part of their scrutiny of the bill and of the wider questions with which the committee has been engaged for some considerable time.
I would like to go through some points of principle and some points of detail about the amendments that are before the committee today. As the committee knows, I believe that the core function of the statutory commission should be to independently scrutinise and report on the Government’s forecasts of tax revenues published in the Scottish budget. I have previously set out to the committee my view that Scottish ministers should be responsible for the production of tax revenue forecasts and should be directly accountable to Parliament for those forecasts.
The Scottish Government’s proposed approach maximises the transparency of the forecasting process and maximises public value by ensuring that the forecasts underpinning the Scottish budget are independently assured as reasonable. There is indisputable evidence that the weight of international practice favours the approach that is provided for in the bill as introduced. That is clear in the Scottish Parliament information centre briefing on the bill and in the various OECD publications. Twenty of the 23 independent fiscal institutions that are in place in OECD countries do not prepare official forecasts. They independently review those forecasts and some of them may also prepare alternative forecasts—something that the Scottish Fiscal Commission is already, and will continue to be, empowered to do.
There are also practical and resourcing issues to consider. The Scottish Government would need to retain a forecasting function to support policy development and responsible management of Scotland’s public finances. The amendments would inevitably increase the operating costs of the commission above those that are provided for in the financial memorandum. They would either give rise to significant duplication of effort and resources, at significant cost to the public purse, or lead to a replication of the OBR model, whereby fiscal forecasts continue to be produced by Scottish Government or Revenue Scotland staff, potentially threatening the commission’s independence. That is an important point, given the evidence that the committee heard from Edward Troup of Her Majesty’s Revenue and Customs. Mr Troup made the point that the groundwork and the detailed work in the preparation of OBR forecasts were invariably undertaken by officials of Government, and that that had the potential to undermine the independence of the OBR. That is my interpretation of Mr Troup’s remarks.
That is an interesting point. Would the cabinet secretary therefore say that the OBR is not completely independent, in the sense that it is impossible to have an organisation that is completely independent, because it needs input from the other side?
It is perfectly possible for an organisation to be independent in its decision-making capability because, once presented with the evidence and information, that body can determine and take forward its stance. What we have to be careful about—and I think that this is the point that Mr Troup was making to the committee—is the danger that, although we may label an organisation such as the OBR as independent, its source of information and of interpretation of a lot of data is actually the Government.
Therefore we have to be careful about the degree to which we believe an organisation to be independent in that respect. In the model that I am putting forward to the Parliament, it is crystal clear that the Government is doing the forecast and then the Fiscal Commission—free of Government and absolutely distinct from Government—is able to challenge that forecast.
Aside from those issues of principle and practical application, I consider that Mr Brown’s amendments would not provide for a workable statutory solution should the commission be required to prepare official forecasts.
I would like to go through some technical issues for the benefit of committee members in their discussions today. The amendments would reduce rather than increase the scrutiny of forecasts used in the budget. They make no provision for timely, independent checking of or assurance over official tax forecasts prior to their inclusion in the Scottish budget. The amendments would undermine the challenge to which official forecasts are subject and lead to a diminution of scrutiny, with a consequent increase in the risk that forecasts may not be robust. That concern was also raised by the Fiscal Commission when it gave evidence to the committee in November.
It is not clear how Parliament, the Government or the public will be assured as to the robustness of the forecasts, which are critical to determining the level of resources that are available for allocation in the Scottish budget and critical for the responsible management of Scotland’s public finances.
Parliament and the public would be reliant on the existing requirement for the commission to subject its performance to independent review at least once every five years. I believe that that could undermine or even threaten the integrity of the Scottish budget. Furthermore, the amendments do not address the additional access to information that the commission would require if it were to prepare official forecasts.
The commission would require statutory rights of access to additional sources of information, in particular to support the proposed new function to prepare forecasts of revenues from non-domestic rates. The amendments therefore do not equip the commission to prepare robust and reliable tax forecasts.
The amendments to section 4 do not require the Scottish Government to use the forecasts prepared by the Fiscal Commission to underpin the Scottish budget. It would remain open to Scottish ministers to make their own forecasts and to use those forecasts in the Scottish budget, just as the charter for budget responsibility enables the United Kingdom Government in effect to disregard OBR forecasts. It is therefore not clear what public value is served by the amendments. The commission would be required to produce forecasts, but the Government could simply replace them with forecasts of its own.
Indeed, in her comments to the committee, I think that Jackie Baillie accepted that the existing SFC arrangements essentially subject the Government to accepting the SFC’s analysis and perspective because of the test of reasonableness that is inherent in the Government’s—
Would the cabinet secretary give way on that point?
Of course.
Gavin Brown has already demonstrated that the test of reasonableness is such a high one that there are going to be very few occasions, if any, when the Fiscal Commission is not going to say that your assumptions have been reasonable.
I do not share that opinion, for many of the reasons that Lesley Brennan put to the committee earlier. There will be assumptions that will underpin the forecasts that are made. Those assumptions are utterly exposed to challenge by the Fiscal Commission. If the commission considered the assumptions that the Government made in its forecasting not to be appropriate or correct, it would explain—just as Lesley Brennan set out earlier—the basis on which it judged our forecasts not to be reasonable. The test is one whereby the assumptions made by the Government must be subjected to significant rigour of analysis.
Amendments 15 and 16, which would amend reporting functions in section 4, do not provide for a workable process by which the commission prepares forecasts to feed into the budget process. There is no indication of how the forecasts are to be provided to the Scottish Government in time for it to prepare the draft budget. Forecasts that are delivered on the day of the budget are of no purpose in setting a budget that must be finalised several days before the budget announcement is made to Parliament. Indeed, section 4(1), as amended by amendments 15 and 16, would not require a report on all matters in time for the budget; it would require a report on only one of them. If so minded, the commission could choose not to produce devolved tax forecasts.
I suggest that that is a fundamental weakness of these amendments. They clearly do not provide a workable legislative vehicle by which the commission could be required to produce official tax forecasts to support the production of the Scottish budget. Critically, the Scottish Government would be under no obligation to use the commission’s forecasts when preparing its budget. The amendments would create duplication; they could dramatically increase costs; they make no provision for access to relevant information; and they do not provide for independent scrutiny of the forecasts that underpin the Scottish budget. That places the integrity of the budget at risk.
10:00I recognise the aspiration of committee members to address the issues that motivated the formulation of these amendments. I would like to offer the committee the opportunity to discuss with interested members, well in advance of stage 3, how members’ aspirations may be addressed. I also would like to provide better reassurance about the contents of the provisions inherent in these amendments.
I invite Gavin Brown not to press amendment 5, and not to move the remaining amendments in the group. If the amendments are pressed, I urge members not to support them.
I call Gavin Brown to wind up and decide whether to press or withdraw.
There was a huge amount covered there, so I hope that you will bear with me as I address each point in turn. The first point was that there are currently challenges to the budget, and that everything is transparent. However, we know that that is not correct because there was a challenge to the forecast for non-domestic rates last year, and we still do not know what fiscal changes were made between the initial forecast and the published one. Therefore, there is a lack of transparency and, in my view, the bill as drafted does not change that.
I think that the cabinet secretary has been on the record about this. Does Gavin Brown not accept that putting two different forecasts into the public domain, rather than putting forward only the forecast that has been assessed as reasonable and which has been subjected to challenge throughout the process of compiling it, would lead to confusion? That is why the Scottish Government has only ever put forward the final forecast that has been arrived at following that challenge process.
I entirely accept that the cabinet secretary said that, but I think that one of the weaknesses of the bill is a lack of transparency caused by not being able to see both forecasts. Mark McDonald may remember signing up to a recommendation in the committee report that everything ought to be published, so it is interesting that he brings that argument forward at this stage.
Gavin Brown makes a reasonable point, but I think that he is confusing two things. One is the transparency of the process, and the other is the exercise of a challenge function. The Fiscal Commission said—and I confirmed this—that it exercised a challenge function, because it led me to change the forecast. It is beyond dispute that the commission exercised that leverage over me.
Mr Brown also raises the issue of transparency, which is fair. That issue is about whether all the traffic regarding the change in forecast should be published. It is reasonable that that issue should be addressed. It has always been my view that we should not have competing numbers, as that may lead to a question as to which is the right number. That is why we settle on one forecast. However, if publishing the traffic around how that was arrived at would help transparency, I am entirely prepared to consider that.
I certainly welcome that. I think that that is a change in your position from the last time that you gave evidence.
The second point we hear is that, because those on the commission are capable individuals, they would not say that the budget was reasonable unless they thought that it was reasonable. I suspect that that is probably correct. However, witnesses pointed out to the committee that “reasonable” is an extremely low bar to set. After our report, we took evidence from members of the commission on that point. I stress that they were unable to give us a single number that could be classed as unreasonable. They told us specifically that they do not look at the numbers or the outputs but at the methodology. For that reason, I do not think that there was a genuine, full assessment that could be seen to be independent.
The cabinet secretary raised the issue of international practice. He suggested that the changes that I have suggested would somehow make us an international outlier, or certainly close to being one of those outliers. Actually, the changes that I put forward bring us closer to international practice than the current bill is. Yes, it is a matter of fact that the majority of OECD independent fiscal institutions do not do the official forecast, but there is not a single IFI on the planet that I, or the Government, have been able to find that looks only at the official Government forecast, does none of its own forecasting and does not have another independent forecast to use as a benchmark for the Government’s forecast.
Mr Brown will know that there is nothing in the bill that prevents the SFC from undertaking its own forecasting. The cabinet secretary has confirmed that on the record today, so to categorise it as a fiscal institution that does not do its own forecasting is incorrect.
I do not agree. The OECD principles say pretty clearly that the functions of an IFI should be on the face of a bill, and it lists examples of functions, including forecasting. Forecasting is not on the face of this bill, and I think that there is a severe danger that the SFC will argue that it is not in its official remit to produce them and that they will not be produced.
When you add to that the statements over a period of time from the Scottish Government and in particular from the cabinet secretary—who has made it clear that he does not approve of the SFC doing forecasting and that, although he is not going to stop it legally, he wants to discourage it with his statements—I do not think that there is sufficient comfort in the bill as it stands.
I hear what Mr Brown says, but we have been round the houses on those matters before, during the committee’s scrutiny of them. I have put on the record very clearly my view that the ability of the commission to prepare any alternative forecast it wishes is adequately provided for in sections 2(1), 2(3) and 2(5). I do not think that it is in any way fair to say that it is not on the face of the bill.
The word “forecast” is not in the bill.
The issue of the commission being able to exercise that function if it wishes to do so is provided for by three subsections that I have set out.
Convener, I stress again that the word “forecast” is not in the bill. We have been round the houses, and we disagree with the Government on that particular issue.
In terms of international practice, I repeat that there is not a single country—not a single IFI—that relies on Government forecasts and nothing else.
On that point, although clearly the cabinet secretary and I want us to be an independent country, the reality is that we are not. We count as a subnational Government, I believe. I think that it is very unusual to have any forecasting by a body equivalent to the SFC at that level. Can the member not accept that we do not need quite the same level of forecasts, or we are not going to have the same level of forecasts, as an independent country would have?
I cannot point to a subnational IFI either that relies only on an official Government forecast. If Mr Mason can, he is welcome to do so. We were told that Sweden and Ireland were in a similar basket, but we now know, from having visited both, that that simply is not the case.
The next argument in principle that was brought forward might be described as the Troup argument, which the cabinet secretary has raised before. It gives a very misleading picture of reality to quote only Edward Troup and not the very clear and exact response to that quote from Robert Chote. I will quote from that response, because it is important. A couple of months after Mr Troup spoke, the convener of this committee asked Mr Chote for his comments on that quote, and he said:
“He is right in the sense of the ‘first cut’ ... What then happens is that we have very detailed discussions in which we tell HMRC how we want it to change those numbers ... It is our forecast; we tell HMRC what the forecast is ... the key point is that these are our forecasts ... That may well condition what sort of first cut they bring to us, as distinct from the sort of first cut that it might have brought to the politicians in the old days ... it does not have the whiff of political interference about it.”
Mr Chote concluded:
“Speaking personally on how we are doing the job, I take comfort from the fact that, at the end of the day, I am coming up with a central forecast and not judging whether I am willing to accept someone else’s forecast. I also take comfort from the fact that we have HMRC as a good, robust professional organisation providing us with material that, as I say, does not ... have the whiff of politics about it.”
It is important to put that on the record, because the convener’s response was:
“Thank you very much for that comprehensive answer”.—[Official Report, Finance Committee, 1 April 2015, c 36-8.]
It countered a number of the points that were made by Mr Troup.
Will the member give way?
Will the member give way?
I will give way to Lesley Brennan first and then to Mark McDonald.
Does Gavin Brown agree that the cabinet secretary is coming up with process issues to do with timing and access to data rather than focusing on the substantive point about having an independent forecast?
They are process issues. I intend to address the process issues because they have quite rightly been raised, but I addressed the principles first, in the same way that the cabinet secretary did. Those are the principles, and I have set them out pretty clearly.
Gavin Brown cites some of the evidence that Robert Chote gave to the committee. He will recollect that Robert Chote also confirmed in that evidence session that it is in the gift of the Treasury to disregard the OBR forecasts should it wish to do so.
I can quote exactly what was said in the charter of budget responsibility, which is the secondary legislation:
“The Government intends to adopt the Office for Budget Responsibility’s (OBR) fiscal and economic forecasts as the official forecasts for the Budget Report. The Government retains the right to disagree with the OBR’s forecasts and, if this is the case, will explain why to Parliament.”
So, yes, the UK Government is perfectly at liberty to do that, should it choose to. It has never happened, and it would be a pretty unusual situation in which a Chancellor of the Exchequer had to go to Parliament to explain why the independent experts that the Government had appointed were going to be ignored.
Mr Brown makes my argument for me. He has just said that it would be a very unusual circumstance for a Chancellor of the Exchequer to go to the House of Commons and disagree with an OBR forecast. Can Mr Brown therefore not accept my argument that it would be an inconceivable situation for a finance secretary in the Scottish Government not to change his forecast if the SFC said that it was unreasonable?
The point is this, and in some ways Mr Swinney makes my argument for me too. First, in its report, the SFC has expressed huge concern about the lack of behavioural analysis and yet no change has been made in a year and a half by the cabinet secretary or the Government in relation to that analysis on the residential aspects of land and buildings transaction tax.
Could I—
Let me finish the answer first. The commission has expressed huge concerns, yet the forecast is still deemed to be reasonable. I return again to the point that the commission could not give me a single number that would be deemed to be unreasonable—not a single one. The bar is therefore so low that I cannot foresee a circumstance in which the commission would say, “This is unreasonable.”
The issue that Mr Brown raises about the commission’s comments on behavioural analysis essentially confuses the point that he is trying to make. The point is about the assessment of the reasonableness of the forecast. That is the test in law that the commission must assess. The commission considers that issue in law and it judges whether the forecast is reasonable. If it judges it to be unreasonable, how on earth could a finance secretary put that forecast to Parliament?
As part of its reporting, the commission has said that the Scottish Government needs to improve its behavioural analysis. In no way does that question the reasonableness of the forecast. It means that we have a job to do, which I have already told the committee will be done before the next forecasts are undertaken.
Two things are being confused to try to suggest that something other than a very hard test in statute has been applied to the Fiscal Commission.
It is not an attempt to confuse at all. I just do not accept that it is a hard test. When the commission is unable to give me a single number that would be unreasonable, it seems pretty unlikely that it is ever going to—
Will the member give way?
I will give way once more, but I feel that the committee is now attempting to prevent me from getting to the technical points. We are going round the houses a little.
I can assure you that I will allow you to get to the technical points. I am not going to cut you short.
Thank you, convener.
I am in no way seeking to filibuster Gavin Brown. He is being very generous in accepting interventions.
The discussion has brought us back to Lesley Brennan’s point about economics being an art rather than a science. If we fixate on the number that comes out at the end of the process, rather than focusing on the robustness of the methodology that is applied, as we should do, we get away from the point about reasonableness. The issue is whether the methodology that is applied in coming to a conclusion is reasonable, rather than the precise number that is arrived at in the conclusion.
10:15
I make no apology for fixating on the final number, which is pretty important. I do not accept the idea that we would not look at it.
Let me move on to the technical points that were made about the effect of my amendments. One point was that the commission would lack the right to information. I am not sure that I accept that. Section 7 gives the commission pretty significant powers to access information. Indeed, the commission will be able to get information that is
“in the possession or under the control of ... any member of the Scottish Government”.
If the Scottish Government has information and is able to use it, it seems pretty obvious that the Scottish Fiscal Commission will be able to have it and use it.
If the Deputy First Minister thought it necessary to add a paragraph (f) to the list in section 7(2), to include local authorities, I would have no objection. Under paragraph (e), the Scottish ministers will be able to make regulations to specify “such other person” as they want to specify, but it probably would be wise to add in local government at stage 3. However, the fact that the Scottish Government already has the information and the commission can get it from the Government means that what has been suggested about the commission lacking information is not a concern. It is certainly not a reason to object to my amendments.
Given that the Government is keen on framework acts—I think that most of the bills that the committee has seen have been classed as framework bills—and that it often argues that it should not include every piece of procedure in a bill because it wants to deal with such matters in secondary legislation, the Government’s approach in this context is confusing. The Budget Responsibility and National Audit Act 2011 was a very basic act; the detail was filled in by secondary legislation. The idea that the UK Government might disagree with a forecast was established in the charter for budget responsibility, under secondary legislation. If, at a later stage, the Scottish Government wants to include a provision that gives that sort of comfort, it is perfectly entitled to do so.
The fact that the bill does not specify the number of checks that need to take place over a year does not nullify my amendments in any way. Section 9 clearly provides for a review of the commission’s performance every five years. If the amendments in my name are agreed to, I will want to lodge amendments to decrease that timeframe massively, and I suspect that I will be beaten to it by the Government, to ensure that there is a much shorter timeframe for review—that would be sensible. I do not accept that that is a reason to object to the amendments. Section 9 could be bolstered pretty easily at stage 3 or indeed by using one of the regulatory powers that are present throughout the bill, although I think that it would be better to amend the bill at stage 3 in that regard.
I have mentioned the principles behind my amendments, and I have said that the technical arguments against them do not stack up. I have attempted to deal with every point that has been put forward and every intervention that has been made. For all the reasons that I have given, I press amendment 5.
The question is, that amendment 5 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Brennan, Lesley (North East Scotland) (Lab)
Brown, Gavin (Lothian) (Con)
Against
Gibson, Kenneth (Cunninghame North) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
McDonald, Mark (Aberdeen Donside) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 3, Against 4, Abstentions 0.
Amendment 5 disagreed to.
Amendment 6 moved—[Gavin Brown].
The question is, that amendment 6 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Brennan, Lesley (North East Scotland) (Lab)
Brown, Gavin (Lothian) (Con)
Against
Gibson, Kenneth (Cunninghame North) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
McDonald, Mark (Aberdeen Donside) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 3, Against 4, Abstentions 0.
Amendment 6 disagreed to.
Amendment 7 moved—[Gavin Brown].
The question is, that amendment 7 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Brennan, Lesley (North East Scotland) (Lab)
Brown, Gavin (Lothian) (Con)
Against
Gibson, Kenneth (Cunninghame North) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
McDonald, Mark (Aberdeen Donside) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 3, Against 4, Abstentions 0.
Amendment 7 disagreed to.
I call amendment 8, in the name of Gavin Brown.
Convener, if it is helpful, I should say that the other amendments in my name in this group all flow from amendments 5, 6 and 7—
I am aware of that, but I still have to ask whether you intend to move them.
I do not intend to move any of them. That might speed things up.
Okay, but I also have to check that no other member of the committee wants to move them. You are not moving amendments 8 and 9, so no question will be put—
I can say “not moved” if it helps, convener.
Indeed—you have already said it. The clerk wants us to go through everything precisely; we have got the general drift.
The question is, that amendment 10, in the name of Gavin Brown, be agreed to. Are we agreed? No, because he is not moving it.
The question is, that amendment 11 be agreed to. Again, Gavin Brown is not moving it, so that amendment is not being taken forward.
Amendments 8 to 11 not moved.
Amendment 12, in the name of Jackie Baillie, is in a group on its own.
The committee was unanimous in its view that the bill should be amended to widen the functions of the commission, in particular to include assessment of the Government’s performance against its own fiscal rules and of the long-term sustainability of public finances. That view was shared by many of the professional witnesses who came before the committee. Amendment 12 therefore reflects what I regard as an emerging consensus.
Scottish ministers have already set a few fiscal rules, and it is entirely appropriate to judge how the Government’s performance can be measured against them. A long-term look at public finances and their sustainability must be a positive thing. Amendment 12 would enable the commission to look back and see whether it got the forecasts right—not that it will be producing them now.
Will the member give way on that point?
Fine.
I thank the member for giving way. Paragraph (c) of the new subsection that her amendment proposes to insert in section 2 refers to
“an assessment of the accuracy of fiscal and economic forecasts previously prepared by it.”
Does that refer to the commission? If so, is the amendment dependent on the commission preparing the forecasts?
It presumed that the commission would prepare forecasts. From listening to the cabinet secretary, it seems that he has not closed down the possibility of the commission producing its own forecasts, and therefore the amendment still stands. I see that members are nodding. If it is clear to John Mason, that is great.
The OBR produces reports on financial sustainability, and it is not alone in doing so. I will read from a list of fiscal councils that have such powers and actually use them. They include the fiscal councils in Austria, Belgium, Canada, Denmark, Germany, Hungary, the Netherlands, Slovenia, Sweden and the UK—as I have mentioned—as well as the US Congressional Budget Office. It is not a strange thing to do; it is quite usual in countries around the world.
When we look at the International Monetary Fund fiscal council data set, we see that the second most important function of both previous and new and emerging fiscal councils is to judge the long-term sustainability of public finances. The third most important function of the emerging new generation of fiscal councils is to check the Government’s compliance with its own fiscal rules. It is nothing unusual. Across the range of fiscal bodies, particularly those that have been most recently established, assessing long-term sustainability and compliance with rules is a very important part of their remit.
I move amendment 12.
I support the amendment entirely. It reflects the conclusion at paragraph 119 of our report, which was reached unanimously by the committee, and it backs up the Scottish Fiscal Commission’s evidence to the committee.
I have to say that the commission’s letter yesterday was extremely surprising in both its timing and its content. In its written evidence to us, the SFC said that it
“believes it should have responsibility for assessing the ... forecasts on the sustainability of Scotland’s public finances, such as adherence to fiscal rules ... and it would welcome the Bill being amended now to anticipate this additional responsibility”.
Professor Hughes Hallett said in evidence to us that the bill should be amended to make explicit that the commission has a role in carrying out sensitivity analysis and in assessing fiscal sustainability.
The wording of the amendment appears to be similar to the wording in the 2011 act, which is quite clear and exact. At one stage, the Government argued that this is a role for members—it is, but having the SFC look at the overall finances in terms of longevity would do nothing to diminish our role; indeed, it would enhance it. If members look at any budget debate in the House of Commons, they will see that MPs from every party regularly quote the OBR analysis, which enhances their ability to hold the Government to account and look at the state of public finances. For all those reasons, I support amendment 12.
I acknowledge the committee’s interest in the point, but the purpose of amendment 12 is far from clear. Having listened to how Jackie Baillie has explained it and how Gavin Brown has supported it, I think that its purpose is rather confused.
I would like to comment on three separate elements of the amendment: the proposed requirement on the commission to assess performance against fiscal policy objectives; the proposed requirement to analyse the sustainability of public finances; and the proposed requirement to assess the accuracy of forecasts that the commission has previously prepared.
I turn first to the proposed function to assess performance by Scottish ministers against fiscal policy objectives. I understand that the provision is an attempt to require the commission to assess the Scottish Government’s performance against fiscal rules. However, the amendment seems to include assessment of performance against policy objectives as well as against any strictly termed fiscal rules that would normally relate to levels of borrowing. It is not clear whether Jackie Baillie intended the proposed function to be so wide in its scope but, as currently drafted, it would conflict with the OECD principles for independent fiscal institutions, which provide that such institutions should not have a role in normative assessments or evaluations of the merits of Government policies. That is where I think that the amendment is confused.
That highlights the difficulty of defining fiscal rules under the devolved fiscal framework that supports the exercise of the tax and borrowing powers under the Scotland Act 2012. The Scottish Government is subject to statutory aggregate borrowing limits and annual borrowing limits that are set administratively by the UK Government. We do not have free rein to act or operate outside those predetermined limits.
We are also subject to budgetary rules, performance against which is assessed firmly by the Auditor General as part of the annual audit of the Scottish Government’s annual financial statements. I am concerned that the amendment would intrude on the proper statutory arrangement of the Auditor General holding the Government to account.
My points reinforce the Government’s view that it would be more appropriate to consider the proposed function when we collectively assess how the commission’s remit should be expanded to reflect the Smith powers that are proposed to be devolved.
Turning to the proposed function in relation to fiscal sustainability, I remain of the view that that 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. It is not an appropriate role for the Scottish Fiscal Commission; it is appropriate for Parliament to determine the robustness of the Government’s budget choices.
Do you accept that members would be aided in that scrutiny by having such reports from a Scottish Fiscal Commission? Do you seriously think that scrutiny would be diminished by those reports?
Members would be aided by having such reports from a range of bodies. In the earlier debate, Jackie Baillie mentioned that we do not have any bodies that comment on some of these issues. Last week, she hosted an event in Parliament on behalf of the Fraser of Allander institute, which has made very clear its aspiration to challenge and scrutinise aspects of the Government’s delivery of policy. However, that would be different from the Fiscal Commission’s specific statutory role.
I know that Mr Brown takes a different view of the Fiscal Commission’s role, but in my view it faces a hard test in assessing the robustness of the Government’s forecast of revenues. The evaluation of policy and the consideration of long-term fiscal sustainability are issues on which plenty of commentators can comment but, ultimately, they are for members of Parliament to form a judgment about. That is what we are here to do; that is the role that the Finance Committee undertakes.
The final aspect is the amendment’s reference to the accuracy of economic forecasts prepared by the commission, but neither the bill as introduced nor any amendment lodged at stage 2 requires the commission to prepare any economic forecasts. It is therefore unclear what the commission would be tasked with doing here and how much resource it would require to—
10:30
Will the cabinet secretary take an intervention?
Of course.
I think that I recall the cabinet secretary saying earlier that the commission had the ability to do its own forecasting. That ability is not excluded by the bill and therefore it would be appropriate for the commission to be able to do that forecasting.
Clearly, the commission has the scope to undertake that activity. However, the question of economic forecasts gets us into even more uncertainty about the purpose and scope of the amendments. I have been making the point that amendment 12 has been drafted with a scope that is broader than is compatible with the remit and outlook of the Scottish Fiscal Commission.
I would suggest that the area is revisited once the fiscal framework has been agreed and the Scottish Government has greater fiscal flexibility and, potentially, can set fiscal rules within that flexibility, which would extend beyond the constraints that are applied by the United Kingdom Government’s borrowing rules. Therefore, I invite Jackie Baillie not to press her amendment. Failing that, I ask that members do not support it.
I call Jackie Baillie to wind up and to indicate whether she wishes to press or withdraw amendment 12.
I will be pressing the amendment in my name. There is nothing terribly confused about it; it is quite simple in what it wants to achieve. The approach is common to other countries, so there is nothing unusual about it either.
The drafting of the amendment was done on the basis of looking at OBR practice and seeking to emulate that practice here. The Scottish Government sets fiscal rules on borrowing, and I entirely accept that the significance of that will increase once the fiscal framework is agreed. Nevertheless the amendment stands now and can be applied now, so we do not need to put it off.
Of course I expect Parliament to scrutinise the long-term sustainability of public finances and whether the Government is meeting its own fiscal rules. However, I see the work of the Fiscal Commission informing the work of the Finance Committee and the Parliament in that regard. I recognise that the amendment is all about the future—it is about Government implementing systems that are as robust as they can be as we assume new powers.
The cabinet secretary said that it was the aspiration of the Fraser of Allander institute to set up a body to look at the financial aspects of this, and that is indeed welcome. However, the speed at which it would be set up and what its coverage would be is not something over which we have control. Therefore, it is important, as a signal from the Government, that we give the Fiscal Commission the power to take on that role.
You mentioned the Fraser of Allander institute’s aspiration. It does not have that role, and it may say that, due to scarce resources, it can no longer take it on.
The cabinet secretary said that the amendment’s scope was too wide, but paragraph (a) of the new subsection that the amendment would insert refers to the Fiscal Commission’s
“assessment of the Scottish Ministers’ performance against any objectives set by them relating to the formulation and implementation of fiscal policy”.
Do you agree that, rather than being too wide in scope, the amendment is explicit and focuses on what would be looked at, namely the
“formulation and implementation of fiscal policy”?
I agree with that. Amendment 12 is focused, and it is entirely appropriate for the Fiscal Commission to undertake such scrutiny. As I have said, such a role is not unusual, and the amendment is not too wide. Of course one needs to look at economic policy if one is to be able to look at the money that this Parliament raises through taxation.
The amendment has a significant number of supporters. They included the committee—I hope that that remains the case.
Carlo Cottarelli of the IMF talked about fiscal rules often being part of a fiscal commission’s responsibility—
Will the member give way?
Let me finish making this point.
Ian Lienert, who was the adviser to the committee, made similar comments. In its written submission, the Fiscal Commission talked about having responsibility for assessing the Scottish Government’s forecasts on the sustainability of Scotland’s public finances and aspects such as its adherence to the fiscal rules. Professor Hughes Hallett and Professor Campbell Leith have both been quoted in support of the commission having that remit.
On that point, I am happy to give way.
Jackie Baillie says that the committee has signed up to the provisions of the amendment. My agreement to paragraph 119 of the committee’s stage 1 report was based on the understanding that the Fiscal Commission can assess the Government’s performance against its fiscal rules, but the amendment refers to assessing the Government’s performance against fiscal policy. The cabinet secretary made the point that those two things are not the same, and I agree with that. Does Jackie Baillie accept that the two are not the same?
I do not. Paragraph 119 talks about the commission
“assessing the performance of the Government against its fiscal rules and an assessment of the long-term sustainability of the public finances.”
It needs to be done in the round.
I am genuinely disappointed that members of the committee are not—
Will the member give way?
No, I will not. Frankly, I have heard enough excuses. As a committee, we agreed this—
Aw—the consensual approach.
I am genuinely disappointed that that consensus has not held good.
I will press the amendment on that basis.
The question is, that amendment 12 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Brennan, Lesley (North East Scotland) (Lab)
Brown, Gavin (Lothian) (Con)
Against
Gibson, Kenneth (Cunninghame North) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
McDonald, Mark (Aberdeen Donside) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 3, Against 4, Abstentions 0.
Amendment 12 disagreed to.
Amendments 13 and 14 not moved.
Section 2 agreed to.
Section 3 agreed to.
Section 4—Reports
Amendments 15 and 16 not moved.
Section 4 agreed to.
After section 4
Amendment 1, in the name of the cabinet secretary, is in a group on its own.
As I indicated in my response to the committee’s stage 1 report, I will seek to take all action that I can to promote and safeguard the independence of the commission. Amendment 1 responds to the committee’s recommendation that there should be greater transparency in interactions between the Fiscal Commission and Scottish ministers.
Amendment 1 introduces a requirement for a protocol between the commission and Scottish ministers, and for the commission to publish that protocol. The protocol must set out the manner in which the parties are to engage during the scrutiny process; the parties’ respective responsibilities; and the procedures for handling draft reports. The amendment also requires that the protocol be regularly reviewed and revised over time, as appropriate.
Amendment 1 has been crafted so that the protocol focuses on the relationship between Scottish ministers and the commission. That is important because it avoids requiring the parties to agree to anything that might impinge on the independence of the commission or its approach to the discharge of its statutory functions.
I move amendment 1.
Amendment 1 agreed to.
Sections 5 to 11 agreed to.
Section 12—Disqualification for appointment
Amendment 2, in the name of the cabinet secretary, is grouped with amendments 3 and 4.
Amendments 2 to 4 respond to the committee’s recommendations on the subject of term length and the ability to reappoint members of the commission to serve a second consecutive term. Amendments 2 and 4, which amend sections 12 and 13, allow for the reappointment of members on one occasion. Members will therefore be eligible for one reappointment, provided that they are a member of the commission at the time of the reappointment, or that they were a member no more than three months prior to the reappointment. The period of three months is designed to ensure that there is sufficient time to follow the procedure for reappointment, including parliamentary approval. That applies even when the vacancy arises around the time of the summer recess.
The changes also remove the proposed statutory bar on the reappointment of the current members of the commission, who will now be eligible for appointment for a second term.
Amendment 3 relates to the committee’s recommendation that maximum term length should appear on the face of the bill. It provides that members, including the chair, may be appointed for a term of up to five years. I urge members to support amendments 2 to 4.
I move amendment 2 .
Amendment 2 agreed to.
Section 12, as amended, agreed to.
Section 13—Period and terms of appointment
Amendments 3 and 4 moved—[John Swinney]—and agreed to.
Section 13, as amended, agreed to.
Sections 14 to 28 agreed to.
Long title agreed to.
That ends stage 2 consideration of the bill.
10:40 Meeting suspended.