MSPs look at Scottish budget watchdog plans

John Swinney said a Scottish Office for Budgetary Responsibility (OBR) was under consideration. Picture: PA
John Swinney said a Scottish Office for Budgetary Responsibility (OBR) was under consideration. Picture: PA
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Proposals to create a Scottish version of the UK’s budget watchdog will be scrutinised by MSPs.

Last month, Finance Secretary John Swinney said a Scottish Office for Budgetary Responsibility (OBR) was under consideration following a series of allegedly “inexplicable” and “over-optimistic” projections by the UK OBR.

He said a Scottish OBR would be necessary to manage Scotland’s new devolved taxes, but he faced opposition accusations of “cooking the books and looking to appoint his own chef”.

Holyrood’s Finance Committee has set up an inquiry to discuss how a Scottish version of the OBR would work in practice.

Convener Kenneth Gibson, an SNP MSP, is calling for expert and public opinion on how an independent financial institution (IFI) should work.

He said: “In evidence to the Finance Committee last month, John Swinney stated that, as a consequence of the new financial powers arising from the Scotland Act 2012, Scotland will require an independent forecasting body that can provide independent assessment to the Government and the Parliament of what might be generated as a consequence of those taxes.

Accountable

“The Cabinet Secretary said it was his intention to establish a new body prior to the implementation of the newly devolved taxes in April 2015.

“Our committee therefore wants to examine carefully how such a body should work in practice and to whom it should be accountable.

“Many OECD countries have set up IFIs in recent years, including the UK, Australia, Ireland, Sweden and Canada. We want to hear expert and public views on what powers a Scottish IFI should have and what areas of analysis it should focus upon.”

The committee is seeking views on the role and remit of the body; whether it should have a statutory basis; what powers it should have; whether it should be accountable to the Government, Parliament or both; and what its objectives and areas of analysis should be.

The UK OBR was created in 2010 to predict the UK’s future economic performance.

It has faced criticism from the Scottish Government for allegedly over-optimistic projections of devolved tax income, and allegedly pessimistic projections of future oil revenues.

Analysis

A small number of IFIs have existed in some countries for many years but over the past decade new IFIs have been established in South Korea (2003), Sweden (2007), Canada (2008), Hungary (2009, although effectively abolished as of 2011), Slovenia (2010), UK (2010), and Australia, Ireland, Portugal and the Slovak Republic (2011-12).

IFIs vary considerably and may be under the statutory authority of the legislature like the Canadian Budget Office, or under the executive branch of the government like the Swedish Fiscal Policy Council.

The OECD suggests the broad definition of “a publicly funded, independent body under the statutory authority of the executive or the legislature which provides non-partisan oversight and analysis of, and in some cases, advice on fiscal policy and performance”.

Critical to this definition is that IFIs look forward to emerging trends, in contrast to audit institutions which look backwards.