Bill Jamieson: Balance vital in scrutinising books

Professor Andrew Hughes-Hallett is hoping for a place on the new Scottish Fiscal Commission. Picture: Neil Hanna
Professor Andrew Hughes-Hallett is hoping for a place on the new Scottish Fiscal Commission. Picture: Neil Hanna
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The independence of those advising on government fiscal policy must be beyond question, writes Bill Jamieson

For those with long memories, the appearance of the feisty pro-independence academic Professor Andrew Hughes-Hallett before a Scottish Parliament committee triggers an anticipatory frisson.

It is three years since the professor, together with Professor Drew Scott, formally complained to the parliament’s Presiding Officer that they had been “ambushed” by Labour MSP Wendy Alexander for producing a “fundamentally flawed” report in a committee hearing.

The academics had threatened to walk out after Ms Alexander, the committee convener, focused her questions on an older research paper by the professors advocating fiscal autonomy for Scotland.

Memories of this fiery encounter would have been stirred yesterday when the parliament’s finance committee was treated not just to one appearance by Professor Hughes-Hallett, but two. The first was to hear evidence from him on why he should be considered for appointment to the new Scottish Fiscal Commission.

This is the new independent fiscal body for Scotland being set up to scrutinise and appraise the Scottish Government’s fiscal policy and the figures which underpin it.

Members of the commission have to be approved by the Scottish Parliament and this was scheduled for next Tuesday following a report from yesterday’s committee.

Professor Hughes-Hallett has no lack of academic credentials for this role. He is Professor of Economics and Public Policy at George Mason University and visiting Professor of Economics at the University of St Andrews, having previously been a consultant for the World Bank, the International Monetary Fund, the United Nations and the OECD.

The two other nominees are Lady Susan Rice, managing director of Lloyds Banking Group Scotland, and Professor Campbell Leith, an expert in macroeconomics, based at Glasgow University.

Professor Hughes-Hallett’s second appearance before the committee was to give evidence on Scotland’s public finances post-2014. He has been broadly very sympathetic to the independence case. Indeed, together with Lady Rice, he sits on the First Minister’s Council of Economic Advisers, advising Alex Salmond on the broad formulation of Scottish Government policy.

You do not, of course, have to be fully signed up to the First Minister’s independence ambitions to sit on the council. But it is chaired by Crawford Beveridge, a long-time nationalist, and its membership includes Jim McColl, another prominent independence campaigner. Other members include Professor Sir James Mirrlees and Professor Frances Ruane. The latter two, together with Professor Hughes-Hallett, sat on the Scottish Government’s fiscal commission working group.

It is natural that such distinguished academics should wish to serve on the council and Scottish Government bodies. But my question is this: can they also serve on an independent body set up to provide objective scrutiny of Scottish government tax and spending figures?

Bear in mind that, in an earlier report, the finance committee said the commission should adhere to the 22 principles for independent fiscal bodies identified by the OECD. “In reaching this conclusion”, the minutes noted, “the committee placed particular emphasis on the importance of independence, non-partisanship and transparency.”

I understand several members of the committee yesterday were unhappy with Professor Hughes-Hallett’s defence that membership of the council and the commission did not present a conflict of interest.

As a result, the committee did not make a recommendation on his nomination and the meeting of parliament scheduled to approve the nominations has been postponed.

That is highly unusual, but I believe the committee to be right in its misgivings. One of the key purposes of the commission is to engender greater public trust in public policy by virtue of this independent scrutiny. But is such trust enhanced when those proselytising for the government also sit as independent assessors?

Does it not smack a little or running with the hare and hunting with the hounds?

It was only last month that finance secretary John Swinney spelt out details of the commission’s work. Its immediate purpose, he said, was to provide independent scrutiny of Scottish Government revenue projections for taxes created under the new fiscal powers devolved by the 2012 Scotland Act.

He also confirmed that the commission would also look beyond its immediate Scotland Act responsibilities, and assess the economic forces underpinning receipts from non-domestic rates. He also hinted at a much broader role in an independent Scotland. “The Scottish Fiscal Commission”, he declared, “will strengthen the credibility of the Scottish Government’s tax forecasts and provide parliament and public with assurance over the reasonableness and integrity of the forecasts which appear in our budget documents.”

All this is particularly salient in the light of the assessment out this week from the Institute for Fiscal Studies (IFS). It finds new calculations, based on forecasts from the UK Office for Budget Responsibility (OBR), suggest an independent Scotland would face a budget deficit of 5.5 per cent of GDP (£8.6 billion) in its first year of independence were it to inherit a population share of the UK’s national debt.

“This would not be sustainable for any prolonged period,” the report notes. “Any upside surprise on oil revenues would help, for a while, but 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.”

The two new IFS reports update its medium-term forecasts for an independent Scotland’s public finances and consider the independence white paper in the context of these forecasts.

“This,” it notes, “is a slightly weaker picture for Scotland than in our forecast earlier this year, reflecting downward revisions to the OBR’s forecasts for the UK’s oil and gas revenues, and to the Scottish share of these revenues.”

That is quite a knock-back for the white paper and for the First Minister’s economic advisers. And in the light of this, it is surely even more critical that the parliament is sure that the commission members really are as independent as they are required to be.