Bill Jamieson: The black hole in our accounts

The economic ride ahead could be a bit of a helter-skelter, but it is unlikely to be enjoyable. Picture: Neil Hanna
The economic ride ahead could be a bit of a helter-skelter, but it is unlikely to be enjoyable. Picture: Neil Hanna
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We need a robust, independent body to analyse fiscal policy, writes Bill Jamieson

Is it a process? Is it a transition? Or is it a helter-skelter political race? With a declaration from Scottish Secretary David Mundell that new income tax powers for Holyrood devolving control over rates and bands should come into force by April 2017 – a year earlier than expected – we are being pitched into a maelstrom with little public appreciation as yet as to the purpose of these new powers and their wider effects.

As if the Smith Commission was not “rush to judgment” enough, a political race is now on to see which party can gain the most kudos for rushing through the Scotland Bill and delivering extra powers earlier than envisaged.

The case for more powers has been advanced with overwhelming support from Scotland’s main political parties. Few now doubt the case for the Holyrood parliament to have greater control over tax and spending decisions in Scotland.

But there has as yet been all too little discussion as to what we seek to achieve with these powers, how they will be deployed and, to the extent that they are intended to improve the performance of Scotland’s economic performance and fiscal well-being, where the priorities for action now lie.

We are rushing into a political maelstrom with all too little public assessment and analysis of what the new powers are intended to achieve. Even the SNP administration is now sounding a note of caution about the acceleration of pace, saying it would not support a deal that would leave Scotland worse off. It is quite right to air such concerns.

Arguably the most troubling aspect of all this is the marked absence of independent expertise and debate about the impact on Scotland’s public finances. This is a glaring hole in our public life and one that now compels our immediate attention.

While there are “lone voice” independent experts such as Stirling University’s Professor David Bell and Professor Brian Ashcroft’s Fraser of Allander Institute, we do not have in Scotland a credible, authoritative body of expertise that is crunching the numbers and sparking policy discussion.

Without denying the work of Fraser of Allander, we just do not have the equivalent of an Institute for Fiscal Studies in Scotland or the equivalent of Oxford Economics or the National Institute for Economic and Social Research. Or even the Dublin-based Economic and Social Research Institute, which well serves Ireland with commentary and analysis.

For this our universities bear some measure of responsibility. In the scramble for research funding obsessively focused on league tables, there is little incentive to get involved in fiscal studies and macro-economic assessment relating to Scotland. Even Fiscal Affairs Scotland, the fledgling research body set up by John McLaren and Jo Armstrong last year, is now struggling to survive and faces hibernation if not closure for lack of financial support. Despite its widely appreciated work, “we’re soon to be dead” is how McLaren puts it.

And fears are now growing that the proposed new Independent Fiscal Commission may suffer for lack of qualified staff to undertake the necessary macro-economic research.

This is a lamentable state of affairs for a country that brought forth Adam Smith and David Hume and which is set to become one of the most powerful devolved administrations in the western world. It is beyond excuse and apology.

Well, bully for all that, you may think. Why should Scotland’s universities, which already have fraught relations with Holyrood, put their heads on the block with independent research that might not totally concur with the government’s views? Surely we could leave it to the government to get it right? Scotland’s economy is just too small to be of interest for research purposes. And why can’t private or corporate benefactors step into the breach where there is such evident public-sector failure?

Into this vacuum has bravely stepped Scotland’s former auditor general Robert Black. He has prepared a prospectus for a Scottish Centre for Research in Fiscal Studies and has sent this to the Funding Council and to several universities.

In Scotland, he notes, there is no centre of academic expertise capable of undertaking a sustainable programme of research on Scotland’s fiscal circumstances.

“There is an urgent need,” he writes, “for Scotland to have an independent expert body, trusted by the business community and society as a whole, which provides objective, independent analysis, commentary and challenge on fiscal and economic issues affecting the public finances, taxation and the performance of the public sector.”

The public interest objectives of a Scottish centre for research in fiscal studies would be to inform those engaged in developing Scotland’s public policy, to offer constructive, evidence-based commentary and challenge to the public sector, and to assist the electorate in their understanding of the economic and financial issues and the difficult choices facing Scotland.

“Since there has been significant policy divergence between Scotland and the rest of the UK in many areas of public policy,” he argues, “there are opportunities to undertake comparative studies across the regions of the UK and internationally.

“There are also opportunities to undertake research on the efficiency and effectiveness of devolved systems of government and policy formulation and implementation in Scotland and elsewhere.”

A model for how the centre would be organised, he adds, exists in the struggling Fiscal Affairs Scotland. It is a regulated charity with a formal educational and community development purpose and the potential to undertake independent academic research.

His plea for support lacks for nothing in ambition. The new centre would be guided by an advisory board drawn from participating universities to ensure its work is of the highest standard. He wants to be able to attract experts of international standing, to have a research staff of seven or eight and a small team providing administrative support. This would require a budget of some £500,000 a year.

He envisages the centre’s work could, over time, expand to include analysis of public spending; assessment of the tax and benefit systems, fiscal rules and economic and financial statistics; pensions and retirement; analysis of policy impact, including distributional consequences; inequality, poverty and living standards; housing policy, health and education, public sector productivity and environmental policies.

In the short term, the centre would undertake research projects on Scottish and UK fiscal developments, analysis of Scottish economic performance and borrowing and debt analysis.

It would also seek to provide opportunities for undergraduate, masters and doctorate students to increase their knowledge and capacity to analyse the Scottish economy.

This would be of material benefit, not just to augment the Independent Fiscal Commission but to make good an evident black hole in the public realm.

Without it, we are careering blindfold into the “more powers” maelstrom – a perfect recipe for rushed judgment, poor evidence base, resource misallocation and expensive policy error. It is time we made good this glaring gap in Scottish public affairs.