The committee has concentrated on the Council of Economic Advisers in relation to a possible conflict of interests, but other words have jumped out at me from CVs, among them “Calman commission”, which immediately sets orange and red lights and all sorts of things flashing for me in terms of potential conflict. It makes me ask whether the person is too close to the Labour Party. If somebody says that they have had links with four of the parties, I am not to know which ones. They might have stronger links with the Conservatives, the Labour Party or anybody.
It seems to me that we are not looking at a blank sheet of paper here and that it is very much about how we manage the situation. Michael McMahon referred to there being no potential conflict of interests and Gavin Brown referred to perception, but perception is very subjective, is it not? Anybody could perceive anything about anybody, if we take it to the extreme conclusion.
I welcome what Mr McMahon said at the start of his question, which is a helpful contribution to the discussion, as it puts it beyond peradventure that the individuals are of significant strength and capability. That is important in the process, as those individuals have not quite volunteered for parliamentary scrutiny, but I have certainly invited them to go through it, and they have been prepared to make a particularly welcome and willing contribution. I therefore welcome what Mr McMahon said at the outset of his question.
On the second part of Mr McMahon’s question, throughout all my evidence to the committee, I have made clear the importance that I attach to the Scottish fiscal commission’s independence. I have gone to significant lengths to establish that in its whole founding ethos, where it will be located, how it will be supported, and its distance from Government.
I have also said that the members of the Scottish fiscal commission will only ever be appointed for one term. Therefore, they will never have to come back to me for reappointment, and nobody will be worried about saying, “Well, what if I say this this year? I might not get reappointed.” That is one of the founding parts of what I have put into the organisation of the fiscal commission, and that step is entirely correct.
The Scottish fiscal commission’s role is completely different and separate from that of the Council of Economic Advisers, which will have absolutely nothing to do with the scrutiny of the forecast tax receipts for the land and buildings transaction tax, the landfill tax or non-domestic rates income. If the committee requires further reassurance on that point, I shall make it crystal clear that the Council of Economic Advisers cannot consider any issues in relation to that. That might help the committee in making that distinction.
In a discussion on 8 January, Mr McMahon and I had an exchange in which he in essence invited me to confirm that the fiscal commission would have a very tight remit that was focused entirely on the forecasts. I was able to confirm that in our exchange, and I stand by that. The individuals will undertake a distinct task, to which they must apply themselves irrespective of any other perspectives and interests that they may have.
My point, which I made to the convener earlier, and which Mr McMahon has accepted with his generous remark, is that the individuals have built up biographies by protecting their independence utterly while working for different bodies and institutions. There is absolutely nothing in the arrangements that I wish to put in place that will jeopardise that.
I agree entirely—100 per cent—with the cabinet secretary about the high calibre and skill levels of all three of his nominees. The issue is the perception of a conflict of interest. The cabinet secretary has said clearly that he does not think that a conflict exists, but he sounded a little less clear on the question of perception.
Is it your view, cabinet secretary, that there is no perception of a conflict of interest in serving on a body that is advising Government on economic levers and serving at the same time on a body that is scrutinising Government on the use of and the forecasts for those levers?
Thank you for that, cabinet secretary. I will start by asking a couple of questions and will then open the session up to colleagues around the table. In his response to questions, Professor Hughes Hallett said:
“it is difficult to imagine how somebody who is independent can have a conflict of interests, because they would not then be independent. The council is not beholden to anybody, nor do I imagine the commission would be—anyway, I would not want to be.”—[Official Report, Finance Committee, 4 June 2014; c 4312.]
He also talked about the two organisations being “sequential” and their roles being “complementary”. Is that how you see them?
Of course. In establishing the fiscal commission, one of the factors that I weighed in my mind when making my recommendations to the committee was that I wanted a group of individuals with very strong technical expertise who would be able to challenge effectively the work that is done within Government in forecasting new taxes.
I did not want to establish a general commentary body; I wanted to establish a body of people who would have the correct perspective to be able to challenge what the Government was setting out and reassure the Parliament—if they were endorsing my estimates—that the estimates were made on a sound and justifiable basis. If they were not endorsing my estimates, I wanted them to be able to marshal to the Parliament the reasons why my estimates and forecasts were not sufficient. The three nominees were chosen to reflect that essential requirement, which Parliament would expect of a Scottish fiscal commission.
I have told the committee that I have set out my initial thinking on the resources that will be available to the fiscal commission. I have established the commission away from Government, under the auspices of the University of Glasgow, in order to put distance between the Government and the fiscal commission. I have also included the caveat—I think that the committee has gone over this ground with the nominees—that, if the figure of £20,000-worth of resources that I have allocated is not sufficient, that figure will be revisited. I must have an open mind on that question and I will advise the committee if it becomes necessary to change that figure.
In all those respects, the commission is being set up to exercise independent judgment—judgment that is independent in itself and independent from any other work that any other individuals may be associated with.
09:45Looking at the CVs and biographies of the candidates, I see that Professor Leith is one of the principal individuals who have explained and argued in their academic work the rationale for setting up independent fiscal bodies. That approach is reflected in the biography of Professor Hughes Hallett, whose work on the role of fiscal commissions and how they must be robust in challenging Government is extensive around the world. Susan Rice has served in a variety of public and private sector roles, most recently on the court of the Bank of England, so she is able to exercise a degree of independent judgment and challenge. We should have a great deal of confidence that these individuals can exercise the distinctive judgment that the Parliament expects of them as members of the fiscal commission.
There will be discussions from time to time between the chief economic adviser and members of the Council of Economic Advisers in between meetings of the council. The council generally meets a couple of times a year.
My fundamental puzzlement about the issue is that, although there are many eminent economists in Scotland—there are some eminent professors sitting behind you in the gallery—and you could have chosen any from a large number of figures, you picked two, of the three, who are already fulfilling particular roles. I am genuinely baffled by that, because many others would have been equally acceptable because of their competence but would not have stirred up controversy. I have no doubt that you will be able to push this through with your parliamentary majority, but you know that a lot of people outside Parliament are already questioning it, which does not get the fiscal commission off to the best possible start. I am genuinely puzzled as to you why you would seek to move into controversial territory when you could have picked other experts. We have had several before our committee in the past two months who would be eminently suitable for the role—Jeremy Peat, for example. Why did you choose to move into controversial territory by picking two who were already serving instead of casting the net wider?
The issue of perception is dealt with by the fact that I have made it absolutely clear that the roles and responsibilities of the Scottish fiscal commission and the CEA are entirely separate. There will be no discussion at the CEA that will encroach on the remit and the responsibilities of the members of the fiscal commission, which will be to scrutinise the forecasts that I make in relation to the devolved taxes and non-domestic rates income. Part of the remit that I have set out for the commission will be a technical evaluation of the estimates that I have put forward for the commission to consider and, I hope, to endorse. Clearly, if the commission did not endorse the estimates, I would have to reconsider the forecast that I had made.
The Parliament approved it very recently, so I can only believe that the Parliament considers it to be the appropriate code to be in place at the present time. The code provides further guidance and reassurance to the Parliament that the highest standards are being applied in the constitution of the Scottish fiscal commission.
I thank the cabinet secretary for his answer. I recall our discussion in January, which took place in a certain context. It never occurred to me that we would be talking about the same people sitting on two different bodies appointed by the Scottish Government, or I would have raised that issue at the time.
When Lady Rice was asked a question about a potential conflict of interests or the perception of such a conflict, she said—as did Professor Hughes Hallett and you, cabinet secretary, when you wrote to us and again this morning—that she would deal with the issue should it arise.
Surely the point is that there should be no potential conflict of interest. If we can foresee a potential conflict of interest, the perception already exists; that is the crux of the problem at the outset.
I understand it because I am here to respond to questions from the committee. Of course I understand it, but I do not accept it, for all the reasons that I have gone through already this morning. The commission has been set up with single-term appointments so that nobody will have to come back for renomination or reappointment. People can say what they like about my fiscal forecasts because they will never have to come back and ask me to reappoint them.
The fiscal commission will not be staffed by the Government. There will not be a single secondee from the Government in the fiscal commission. It is away in the University of Glasgow.
In preparation for today, I looked through all the evidence of my line of argument throughout this process, and it has been that the Scottish fiscal commission should have a tight remit to judge my fiscal forecasts. There is not to be remit creep into other areas of policy and activity. I have specifically and consistently ruled that out during the committee’s inquiry.
All those reasons should give sufficient reassurance that no conflict of interest arises.
There are only two bodies—one at present, which is the Council of Economic Advisers, and there will soon be a second one—that have a direct link to Government economic and financial policy. Given the controversy, which you obviously think is unjustified, what would be the problem with asking their members to choose? The implication of what Lady Susan Rice said is, I think, that she is so committed to the role on the fiscal commission that she would choose it. I do not know what Andrew Hughes Hallett would choose. However, I do not really see why asking people to choose would be such a big problem, because you would certainly have other people to fill whichever vacancy arose.
The controversy has arisen partly because, I suppose, certain people feel that the Government has its favourite economists, that too cosy a relationship can develop with one or two individuals and that it is better to spread such relationships as far as possible. We know from the evidence that we have taken over the past two months that there is a range of views and that it is better to let that range of views be reflected in the different bodies.
That is undoubtedly possible. However, I return to the answer that I gave to Malcolm Chisholm about why I arrived at the choice of the three individuals concerned. I chose Susan Rice because of her significant business leadership capability, and particularly because of her role in the court of directors of the Bank of England. I chose Andrew Hughes Hallett and Campbell Leith because of their technical expertise and the fact that they have been so instrumental in the design of fiscal commissions around the globe. Those are important contributions that I want to make sure are available to Scotland as we embark on an entirely new area of activity in the management of our public finances.
I see the roles of the Council of Economic Advisers and the fiscal commission being entirely distinct and separate. When I came to the committee on previous occasions, both prior to and after the publication of the committee’s report on the subject, I established what I hope was a very clear line of argument that the Scottish fiscal commission would, in essence, look at the forecasting of taxes that are being devolved as a consequence of the Scotland Act 2012.
As part of the committee’s evidence taking on the whole process, there was a debate on whether the Scottish fiscal commission should have a wider remit than that. I acknowledge that there were different voices—some outside the Parliament and some within the committee—who thought that the Scottish fiscal commission should have a broader remit than undertaking scrutiny of the forecasting of new taxes. However, that was not my view. I did not set the Scottish fiscal commission up to rival or compete with any other sources of economic discussion or deliberation.
I said to the committee on 8 January:
“If we give the commission too broad a remit beyond the forecasting of the taxes that have been devolved to Scotland as a consequence of the Scotland Act 2012, we will create the opportunity for intrusion into the responsibilities of other bodies.”—[Official Report, Finance Committee, 8 January 2014; c 3518.]
My view has been crystal clear that the role of the fiscal commission is to scrutinise the forecasts that I bring forward to this part of the budget process. That is the extent of its responsibility, and the Council of Economic Advisers will have no involvement in that process.
I open up the discussion to colleagues around the table.
You have talked about the different roles of the Council of Economic Advisers and the fiscal commission, and in a letter to the convener you said:
“The CEA will not have a role in the forecasting process. Furthermore, nor will it, or the Commission, take a view on setting rates for the devolved taxes.”
How will that protect the independence of both bodies and prevent a conflict of interest from arising?
I do not see how a conflict of interest can arise. First, I have nominated three individuals with significant independent credentials, as Mr McMahon has accepted in his remarks this morning. Secondly, I have indicated that the Scottish fiscal commission’s role is completely separate from the role of the Council of Economic Advisers, and I will not tolerate any fusion of their remits. Thirdly, the members of the Scottish fiscal commission are appointed for one term only. If the Parliament approves their nominations, they are not beholden to me in any respect, and they are free to say what they like about my forecasts. They will never have to come back to me for reappointment, because that would interrupt or undermine their independence.
Given those three points, I say to Mr McMahon and the committee that I see no potential for a conflict of interest to arise. I accept the caveat that, if a perceived conflict of interest was to arise, we would have to remedy it, but I do not foresee how one could emerge.
I make it absolutely clear that the Council of Economic Advisers has no involvement in forecasting or scrutiny. It will certainly have no involvement in forecasting, because that is my business as the finance minister, and no involvement in scrutiny of the forecasts, which is the exclusive preserve of the Scottish fiscal commission.
I will highlight one other point—to which I have referred already this morning—from my earlier evidence to the committee. By giving the fiscal commission a very clear and focused remit, I wanted to avoid the opportunity for intrusion into the responsibilities of other bodies. That is a significant point of reassurance for the committee that the fiscal commission will not have its responsibilities or its territory intruded on by anybody; equally it will not do likewise with any other body.
I am sure that the Bank of England is up for criticism, but it is also quite respected. In some ways, I was surprised that the bank allowed Susan Rice to be involved in the Council of Economic Advisers, but she said that the bank is quite positive about that as long as proper safeguards are in place. She said that that situation is an example that could be replicated. Is it your contention that that can be replicated, because it is almost inevitable that someone will have a conflict of interests somewhere along the line?
I see no grounds for a perception of a conflict of interest in that respect, because those are two entirely different things. The fiscal commission will not provide me with advice on how I might exercise the fiscal levers. It will provide the Parliament with an assurance that my estimates on the calculation of tax receipts from land and buildings transaction tax, landfill tax and non-domestic rates income are soundly based. That is a technical process that involves economic modelling, and the modelling of tax take and the assumptions that we use in that process. It is not in any way, shape or form related to policy development or the manner in which economic levers have been exercised.
Obviously, the minutes of those meetings are put online. When you say that there will be meetings from time to time in addition to the formal meetings, do you have a rough idea of their regularity?
It certainly was not my plan to move into controversial territory. I have taken care, throughout the inquiry, to build as much consensus and agreement as possible around the establishment of the Scottish fiscal commission. I do not think that anybody could look at the evidence that I shared with the committee, at the approach that has been taken to the handling of the issues, or at the response to the Finance Committee’s report and say that the Government has done anything other than work in the spirit of the Finance Committee’s approach to establishing the Scottish fiscal commission as a body that is entirely independent of Government.
I will go through the individual candidates and what informed my judgment of them. Susan Rice is an individual of significant distinction in the business community in Scotland who has exercised a number of independent and challenging roles. In particular, it was uppermost in my mind that her experience in the court of the Bank of England required a very strong element of independent thinking. Professor Campbell Leith was nominated because he has been one of the key academics who have considered, explained and set out the basis on which independent fiscal commissions can operate. Professor Andrew Hughes Hallett is another key academic who has been involved in the design of independent fiscal commissions around the globe. I judged that, if we had that experience available to us and those people were willing to participate, their appointments were a reasonable conclusion to arrive at.
Of course, many of our eminent academics and commentators could have been put on an independent fiscal commission. However, I made my judgments entirely to ensure that the fiscal commission is established on an independent footing and that it includes people who have significant records and who can contribute to the process. I could have chosen other nominees but, after exploring all the territory, I tried to get individuals who have absolutely no connection to anything that has gone on, and of whom people could not say that they might be conflicted in certain circumstances, which would be impossible to rule out in relation to a range of other possible nominees.
I will deal with that in two ways. First, the fiscal commission will have a very tight and focused remit, which is about challenging the forecasts that I make for tax take from the various taxes. As I said already, it will not range across other questions.
On the Government having its favourite economists, I need only to recall First Minister’s question time a week past Thursday, I think, at which the leader of the Conservative Party used Professor Hughes Hallett’s contribution to suggest that he was somewhat at odds with the Government. I cannot see how we can have it both ways.
Thank you for that full answer.
In his response to questions, Professor Hughes Hallett said that he did not foresee that there would be a conflict of interest but that, if there was, that would lead to
“a parting of the ways.”—[Official Report, Finance Committee, 4 June 2014; c 4312.]
In terms of the code of conduct, would you agree with that?
They will happen from time to time. There is not a set programme, but when the Council of Economic Advisers is working on issues it will take forward the discussion with the office of the chief economic adviser or other officials within Government.
When the council is involved in an issue—as it was in relation to childcare, for example—it interacts with Government officials who are nothing to do with the chief economic adviser’s function but are policy specialists in the area concerned.
In her written response to the questions that the committee sent to her, Susan Rice said:
“I was asked to join the Council of Economic Advisers in 2011 and agreed to do that only if my political independence would be protected at all times ... This restriction was accepted willingly”.
Andrew Hughes Hallett said:
“I am a member of”
the Scottish Government’s
“Council of Economic Advisors on the condition that my independence would be protected”.
Do you think that we should take that in good faith and accept that Susan Rice and Andrew Hughes Hallett will also act independently as members of the Scottish fiscal commission?
Do you not concede that having two distinct and separate remits is not the same as having two distinct and separate people on each of the bodies? That is where the perception becomes a problem. The only way in which you can guarantee that there is no potential conflict of interest is to have different people on the two different bodies.
10:00
I think that you will remember what answer the First Minister gave to that, but I do not want to pursue that line of questioning.
Would it not be better to have a fiscal commission that was independent not only of the Government but of the Council of Economic Advisers?
I made the point about the “Model Code of Conduct for Members of Devolved Public Bodies” in my letter to the committee. I have also made it clear to the committee that I see a very clear and firm distinction between the remit of the Council of Economic Advisers and the remit of the fiscal commission. There is sufficient distinction between those remits to ensure that there will be no conflict of interests. However, I return to my fundamental point that the individuals concerned have worked for a variety of organisations and projects with different perspectives, for different political parties and so on, and have protected their independence throughout. That is the nature, calibre and strength of the candidates whom we have in front of us.
I am exploring those questions at the moment in relation to the 2015-16 budget. I will make a decision on the tax rates and tax bands that will be applied, and that will be my judgment—there will not be any input from the Council of Economic Advisers or the fiscal commission in that process. I am the finance secretary and I have to exercise that judgment—the Parliament expects that of me. Those judgments will be signed off by the Cabinet as part of the budget process and we will make estimates of what we think will be generated as a consequence of those rates and bands. The estimates will be submitted to the Scottish fiscal commission and it will have due opportunity to scrutinise them, in its own time and with its own responsibilities, and tell me either that I have made a reasonable set of assumptions or that I have to go back and think again. Adequate time will be given to the fiscal commission to enable it to come to either conclusion.
Has the Council of Economic Advisers at no time given you advice or suggestions on how tax levers might or might not be used?
It is clear, from the different experience of and the different responsibilities that have been undertaken by all three nominees for the Scottish fiscal commission, that all of them have undertaken a range of projects, developments, initiatives, roles and responsibilities for a variety of organisations—some of them at the same time. Given that they have been able to undertake all those roles in the past, the three very distinguished individuals whom I have nominated to serve on the fiscal commission have demonstrated the ability to handle properly any issues that might arise or might be perceived to arise in relation to potential conflicts of interest. To put it bluntly, you do not get a CV like the CVs of the three individuals who have been nominated without being able to manage properly the independence and integrity that they bring to the work that they undertake. That is exactly what I would expect of them in their participation in the Scottish fiscal commission.
Those are fair and representative statements by Susan Rice and Andrew Hughes Hallett. The CEA has been established to provide advice to the First Minister on the Scottish economy, and its members participate willingly and voluntarily. They do so with the very clear proviso that their independence is utterly protected and respected, and, in all my observation of the CEA, that is the approach that has been taken.
You mentioned in your opening statement that the members of the commission will be subject to a code of conduct. Will you tell us a bit more about that and say how it will deal with conflicts of interest, in particular?
That is not what I said. I am saying that the fiscal commission has a very specific remit, which is to consider technically the tax forecasts that I am making for the relevant taxes. That is the commission’s function, and at no stage, under any circumstance, will the Council of Economic Advisers be involved in that process in any way.
I have proposed three eminent candidates who have built their reputations on being independent figures.
Thank you. That has exhausted the questions from the committee. I thank the cabinet secretary and colleagues for their contributions. I suspend the meeting for a minute to allow a changeover of officials.
10:27 Meeting suspended.
When you discussed the draft budget at the Council of Economic Advisers, how in-depth was the discussion?
I do not accept that point. As I have said to the committee already, if you look at the biographies of the individuals whom I have nominated, you will see that they have all managed to work for a variety of bodies. The convener made the point that Professor Hughes Hallett, for example, has advised all four main political parties in the United Kingdom. He therefore must be able to provide advice in a fashion that commands confidence among various political parties. As I have said already, Susan Rice has successfully managed any circumstances in which there may have been a perceived conflict of interest in the different roles that she has taken on as part of a wide and varied career. Individuals of that calibre are perfectly capable of managing any potential issues that could lead to the perception of a conflict of interest.
Professor Hughes Hallett talked about being approached by representatives of all four main Scottish political parties to provide impartial advice. All the witnesses talked about integrity and independence of mind and the ability to give advice in that manner. However, colleagues on the committee have raised the issue of perception, because two of the three members whom we met are members of the two different bodies—the CEA and the Scottish fiscal commission. How do you deal with the issue of perception? That is very much at the heart of the deliberations this morning.
The code of conduct is the “Model Code of Conduct for Members of Devolved Public Bodies”, which was approved by the Parliament in December 2013. It provides guidance for members of devolved public bodies on their general conduct, on the registration and declaration of interests and on things that they have to watch out for in relation to perceptions of influence from external factors, lobbying and access to members of public bodies. It goes through all those questions.
The code has been subject to parliamentary scrutiny, so I am confident that a very robust standard of scrutiny has been applied to it, and it would be used to regulate any issues connected with membership of the Scottish fiscal commission.
It would be at the level of me setting out that the Government’s priorities would be around maximising capital investment to support economic recovery, the focus on the person-centred approach that the Government is taking to the reform of public services and our actions to fulfil our commitments in relation to climate change, equalities issues or issues of that type.
In that last exchange, you touched on the kind of people that we want. I jotted down some of the things that have been said about the people whom we are looking for that I do not think anyone disputes. We have had: “independent credentials”, “significant records”, “highly respected”, “skilled”, “authoritative”, “expertise” and “perspective”. The bar is quite high.
Will you give us an idea of how big a pool you think we are drawing from? I presume that it is not thousands of people. Another point that I thought of is that they would have to know the Scottish economy quite well, which restricts the pool further. How big a pool are we talking about?
That leads me neatly on to my next point. In response to Gavin Brown, Professor Hughes Hallett said something that the convener has already highlighted:
“The council is not beholden to anybody, nor do I imagine the commission would be—anyway, I would not want to be.”—[Official Report, Finance Committee, 4 June 2014; c 4312.]
Is that your understanding of how the CEA works, and is that how you envisage the Scottish fiscal commission working?
But has the Council of Economic Advisers given you, or could it potentially give you, advice on the use of taxes?
Our second item of business is evidence from John Swinney, the Cabinet Secretary for Finance, Employment and Sustainable Growth, on the nominees for appointment to the Scottish fiscal commission. The cabinet secretary is accompanied by Alison Cumming, the head of tax policy at the Scottish Government. I welcome both of them to the meeting and invite the cabinet secretary to make an opening statement.
You believe that it enhances transparency. Crucially, the code has been subject to parliamentary scrutiny.
There is a reasonably comprehensive pool of individuals. It is not in the thousands.
I cannot recall any instance in which the Council of Economic Advisers has given the Government any advice on the exercise of tax powers.
Did business rates feature at all in that discussion? Did any member of the council discuss them?
I am pleased to discuss with the committee my nominations for appointment to the Scottish fiscal commission. Scrutiny, review and discussion of the nominations is an important process in establishing the commission’s credibility and independence. I believe that the process is very much in line with what the committee envisaged when it included the suggestion in its report on the fiscal commission in February. It is also in line with what I envisaged in accepting that proposal.
I believe that there is widespread consensus across the Parliament that the Scottish fiscal commission will be an important and welcome addition to Scotland’s fiscal framework. The commission will play a key role in scrutinising and reporting on tax forecasts that are prepared by the Scottish Government. I am strongly of the view that the commission will be able to fulfil that role effectively only if it is independent of the Scottish Government and is seen and understood to be so. Given that view, I take the independence of the prospective members of the commission very seriously.
As I confirmed in my letter of 6 June, I gave full consideration to the potential for conflicts of interest to arise, or to be reasonably perceived to arise, between membership of the commission and other roles and offices that are held by the nominees. Those include membership of the Council of Economic Advisers, to which the committee made specific reference in its letter to me of 4 June. I will set out why I am satisfied that no conflicts of interest exist between membership of the Scottish fiscal commission and membership of the Council of Economic Advisers.
My first point relates to the status of the Council of Economic Advisers, which is an independent group that provides advice to the First Minister on the Scottish economy. The political and professional independence of individual members of the council is protected and fully respected. Susan Rice and Professor Hughes Hallett have each provided assurance on that point in their written evidence to the committee and during their pre-appointment hearings. Susan Rice demonstrated to the committee that the CEA has put appropriate procedures in place to protect her independence. She and the Bank of England were satisfied with the procedures to address any actual or perceived conflict of interest between her membership of the Council of Economic Advisers and her role on the court of the Bank of England.
My second point relates to the roles of the Council of Economic Advisers and the Scottish fiscal commission. I strongly believe that they do not conflict. The Council of Economic Advisers and the Scottish fiscal commission have entirely different roles and remits. The commission will engage in the technical scrutiny of revenue forecasts, which will draw on the members’ understanding of economic and financial data, trends and assumptions. The work of the CEA focuses on recovery and jobs, internationalisation and economic levers. The CEA will have no role in the forecasting process, which will be undertaken exclusively by the Scottish Government and will be scrutinised exclusively by the Scottish fiscal commission. There is no intention that the commission will review work that is undertaken by the CEA or vice versa.
To further ensure the independence of commission members, I have proposed that the chair and members should be subject to a code of conduct that is based on the “Model Code of Conduct for Members of Devolved Public Bodies”, which was approved by the Parliament in December 2013. The code deals with all aspects of conduct, including the registration and declaration of interests. That should provide the committee with further assurance that the chair and members will be held to the highest standards of conduct. I would, of course, be happy to share that material with the committee for its consideration.
I have nominated three highly respected, skilled and authoritative individuals to serve on the commission. I believe that Susan Rice and Professors Leith and Hughes Hallett would bring a strong set of skills and experience to bear on the work of the commission. The committee has direct evidence of the calibre of the nominees from their written evidence and the hearings on 28 May and 4 June. I am pleased to have the opportunity to discuss my nominations with the committee this morning and to answer any questions that the committee may have.
At no point?
No.
Are there dozens?
Never. I cannot recall that happening. There may well be something that I cannot recall today in response to that question, but at this stage I cannot recall it happening.
I turn to the Organisation for Economic Co-operation and Development rules, because the committee has obviously signed up to all 22 OECD rules. Rule 2.1 refers to avoiding
“even the perception of partisanship.”
Is it still your view that there could be no perception whatsoever of a conflict between the two roles if they are held at the same time?
Yes—the number is probably in the dozens. However, we also have to think about what those other people are doing. Because of other projects that they are involved in, some of them would not be able to commit the time to be involved in the fiscal commission. There is a variety of considerations in relation to whether individuals would be prepared to be nominated. However, the pool is certainly substantial.
I want to explore what the Council of Economic Advisers does. Although the fiscal commission may well be set up as an independent body, if there are individuals who are simultaneously serving on both bodies, there is, in my view, at least a question of a perception of a conflict.
How regular are the engagements between the Council of Economic Advisers and the chief economist’s office, outside formal meetings?
To be in that pool—I assume that it numbers dozens, scores or something along those lines—those people could not have empty lives and zero history outside their current role, could they? I presume that they all have complex histories and, at present, a wide range of roles.
I do not accept that argument.
I have a question on another issue that has cropped up in relation to the perception of a conflict or a lack of independence. Some comments have been made about the OBR and its lack of independence from the Government, as I suspect happens in other countries. You said specifically when you gave evidence to the committee in January that the OBR
“is an example of the more limited number of cases in which the independent fiscal commission constructs the forecast itself. However, given that that arrangement operates on the basis of secondment from the Treasury to the OBR, there is a justifiable degree of scepticism about how far from Government the office is.”—[Official Report, Finance Committee, 8 January 2014; c 3515.]
Do you not think that you have, in effect, challenged the independence of another fiscal body by making that statement?
That is one of my core points. Individuals do not amass the biographies and CVs of the character that the three nominees who are before the committee have amassed if they have not done lots of things for lots of people and lots of bodies over time. The crucial point is that they have done that while preserving their independence. That is at the heart of the nominations that I have made.
No, I have not. The issue about the OBR is that it is in essence staffed by secondees from the Treasury. The Scottish fiscal commission will not be staffed by secondees from the Scottish Government. I have set it up away from Government. I have set it up in the University of Glasgow and in such a way that we send it the forecasts that we make, which are worked on by my finance officials and by the office of the chief economic adviser. Ultimately, I will make a judgment based on those forecasts and we will send them to the Scottish fiscal commission, which will be independent and removed from Government.
The fiscal commission is empowered as a result of being staffed by individuals who will never have to come to me for reappointment. They are not civil servants who would have to come back and work for me later on and would think, “What will it be like if I have to go back and work for him later?” They will never have to do that and they will never have to come back to me for reappointment. They get their single term to exercise this independent function.
Finally, you have publicly expressed scepticism about the independence of one fiscal body, although members of that body are not simultaneously providing advice to Government through another body. Can you at least understand why some questions are being raised by the committee, and by other outside commentators, about a perception of a conflict when members—not staff but members of the body—will be serving on both bodies?
Cabinet secretary, I preface my question by accepting absolutely the credentials of the three nominees whom you have put forward. They are estimable figures in the field in which they operate, and we should have the utmost confidence in their ability to do the job.
However, do you agree that that is not really the question that we are here to consider? The crux of the problem is that, in all the evidence that the committee has taken—we have taken extensive evidence on the establishment of a fiscal commission—the commission’s independence seemed to be a given. It seemed to be a given that the individuals concerned would be independent of the Government and that we could rely on that fact.
You gave the example of Lady Rice’s being on the court of the Bank of England and also on your Council of Economic Advisers, but do you concede that the two entities in question are entirely separate, with different auspices and that the appointments are different? Do you also concede that we have a concern that the Council of Economic Advisers and the independent fiscal commission are both appointed by the Scottish Government and that that is where the perception of a potential problem comes from?
Cabinet secretary, you said just now that you do not see how a conflict of interests could arise, but Lady Susan Rice clearly gave a great deal of thought to that and therefore could envisage the possibility. Her implication was that, were that to be the case, she would choose, and she implied that she would pick the fiscal commission. Given all that, do you think that you are right to be so absolutely sure that it is not possible for conflicts of interests to arise?
Yes—I think that I am correct.
In a sense, however, you want to reinforce your position. You suggested that you would make it explicitly clear to the Council of Economic Advisers that it would have no role in forecasting. I do not know how wide that exclusion will become. Surely it is very restrictive for such a body not to be allowed to consider matters of fiscal policy that are so crucial to economic and financial policies. You said that you thought that the council has not given advice on taxes, but surely it could, and it might think that that is very relevant to its role. You are almost being put in a position in which you have to constrain the council’s remit in order to protect your statement about a hard separation of the two roles.
I will quote from the Official Report of the Finance Committee’s meeting on 8 January. This is territory on which Mr Chisholm and I had an exchange. Mr Chisholm raised with me the issue of clear demarcation between Audit Scotland and the Scottish fiscal commission. In my answer I said:
“I am simply saying that uppermost in my mind will be the need to avoid creating the conditions in which the body can move into territory that is properly the responsibility of organisations that we all accept have been properly constituted.”—[Official Report, Finance Committee, 8 January 2014; c 3518.]
What I meant is that I am anxious to avoid the Scottish fiscal commission’s responsibilities extending into those of other bodies, and to avoid the responsibilities of the Council of Economic Advisers creeping into the areas of responsibility of other bodies. I was trying to set out as clearly as possible that I do not want bodies to intrude on the responsibilities of others. I make it expressly clear to the committee that that cannot be the case.
You said that there could be some blurring at the edges if the Council of Economic Advisers wanted to talk about fiscal policy and the consequences of certain taxation decisions.
My point is about the remit of the Scottish fiscal commission, which is to forecast the taxes that have been devolved to Scotland as a consequence of the Scotland Act 2012 and as a consequence of decisions that I have taken on domestic rates income. That, and no more than that, is the remit of the Scottish fiscal commission.
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