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Bill Jamieson: Watchdogs must be above question

Scottish Government risks creating a body critics will dismiss as a nodding donkey. Picture: Getty

Scottish Government risks creating a body critics will dismiss as a nodding donkey. Picture: Getty

  • by BILL JAMIESON
 

New Fiscal Commission is rightly under fire for involving First Minister’s special economic advisers, says Bill Jamieson

Central to good government in Scotland, whichever way we vote on 18 September, is that policy is based on sound evidence and robust budget figures. Indeed, the fiery independence referendum debate has already been studded with calls for facts and figures on which the public can rely – particularly in the areas of budget control and fiscal policy. Who in recent months has not been confused by the torrent of conflicting figures and puzzled over which ones to believe?

It was with the laudable intention to provide independent assessment and scrutiny of such policy that the Scottish Government has set up a Fiscal Commission, similar to Westminster’s Office for Budget Responsibility. Three senior figures, well-versed in economics and public policy, will undertake assessment and report its findings to the Scottish Parliament. John Swinney, the finance secretary, put stress on the need for this commission to be independent and to provide objective analysis. “There is widespread international recognition,” he declared, “that independent fiscal commissions play a vital role within a country’s fiscal framework. The Scottish Fiscal Commission will strengthen the credibility of the Scottish Government’s tax forecasts and provide parliament and the public with assurance over the reasonableness and integrity of the forecasts which appear in our budget documents from this autumn.”

So far, so good. But barely has this commission been set up than it has sailed into controversy. Of the three prominent figures chosen to comprise the commission, two have been drawn from the First Minister’s Council of Economic Advisers (CEA). This has given rise to concerns over potential conflict of interest.

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The issue bubbled up this month when the parliament’s finance committee, tasked to approve the appointments, baulked at recommending the administration’s “slate” as it proposed Lady Susan Rice (to be the chair) and Professor Andrew Hughes Hallett, both CEA members. How could they bring an independent eye to fiscal policy issues they may have approved?

The committee raised conflict of interest concerns and a letter was duly written to Mr Swinney. His reply did not sufficiently allay fears. He was then summoned to give evidence last week and concerns were further expressed.

The formal minutes noted: “The committee emphasises its key recommendation in its report on the proposals for the commission that it is essential that the SFC is independent and seen to be so.”

Despite this, the committee, helped by its SNP majority, voted by a narrow four votes to three to recommend support for the nominations. Conservative finance spokesman Gavin Brown then lodged an amendment proposing that the two nominees should only be accepted on condition that they stood down from the CEA.

This was again defeated, by four votes to three.

The committee’s controversial nominations then went to a meeting of the full parliament on Tuesday where, despite vocal opposition from Mr Brown and Labour’s Malcolm Chisholm, the SNP majority ensured final approval, by 65 votes to 50.

This is a remarkable state of affairs, under which two members of the First Minister’s entourage of advisers will advise financial policy on the one hand, and scrutinise it on the other: effectively now able, as I wrote here three weeks ago, to “run with the hare and hunt with the hounds”.

The objection, it should be stressed, is not to the proposed members of the Fiscal Commission per se, or their expertise. Lady Susan Rice CBE is managing director of Lloyds Banking Group, a non-executive director of Scottish & Southern Energy, a member of the Court of the Bank of England and a board member of supermarket giant Sainsbury’s. Professor Andrew Hughes Hallett, a prominent supporter of fiscal autonomy, is Professor of Economics and Public Policy at George Mason University and Professor of Economics at St Andrews University.

However, both are long-standing members of Alex Salmond’s hand-picked CEA – Lady Rice since 2011 and Prof Hughes Hallett since 2007.

As Mr Brown puts it, “We are now faced with a situation where two-thirds of the Fiscal Commission will also be on the SNP’s Council of Economic Advisers. We don’t believe they should have dual roles; they could be advising on economic policy on a Monday, then scrutinising it on a Tuesday.”

A matter of no consequence? The commission’s immediate purpose, said Mr Swinney last month, was to provide independent scrutiny of revenue projections for taxes created under the new fiscal powers devolved by the 2012 Scotland Act. He also confirmed that the commission would look beyond its immediate Scotland Act responsibilities, and assess the forces underpinning receipts from non-domestic rates. He also hinted at a much broader role for the commission in an independent Scotland, running the rule over a wide array of forecasts and assumptions.

Clearly the intent was to create a body independent in mind and spirit and one that could not be seen as a nodding donkey for the government’s purposes. Central to its credibility is that it should be at arm’s length from the executive and properly staffed and financed to undertake its role. On this, the government’s press release stated that “to ensure independence from the Scottish Government, the Commission will not draw on Scottish Government officials for analysis and other outputs”.

However, the budget for the Commission is set at just £20,000 – a sum barely able to support a part-time student with a laptop, telephone and printer in a back room at Glasgow University with a dangling low-energy lightbulb doubtless commensurate with the government’s carbon emission targets. By way of comparison the Westminster OBR has been set up with an annual budget of £1.7 million and with a detailed 15-page memorandum on its operations, competencies, governance and accountability.

Questioned by the committee on this point, Lady Rice suggested that as the Commission would be based in Glasgow University this might help the £20,000 go a bit further than it would if it was just commissioning research from outside organisations. But “outside organisations” are more often properly resourced with qualified staff, a research database in its specialist field and logistical capability.

What adds greater piquancy are the recent findings of the Institute for Fiscal Studies, based on forecasts from the UK OBR, that an independent Scotland would face a budget deficit of 5.5 per cent of GDP (£8.6 billion in today’s terms) in its first year of independence were it to inherit a population share of UK national debt. “This would not be sustainable for any prolonged period. Any upside surprise on oil revenues would help, for a while, but as recent experience demonstrates, these revenues can also disappoint. And in the longer term, the eventual decline of oil revenues would likely prove a much more acute problem for an independent Scotland than it would for the UK.

“Thus, while independence would bring more choice about how to deliver further fiscal consolidation beyond April 2016, it is unlikely to mean that further austerity could be avoided.”

As Scotland’s Fiscal Commission, drawn largely from the First Minister’s chosen friends, huddles down below that austerity lightbulb, we have good reason to ask whether this is a body in any way fit for the purpose entrusted to it.

 

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