‘Independent’ economic advice on Scotland slammed

Scottish Government-commissioned advisers have criticised supposedly “independent” economic watchdogs that use government staff and models to scrutinise government finances.

Economic benefits will flow from changes to procurement, says Graeme Young . Picture: PA

The Scottish Fiscal Commission Working Group, which features two Nobel prize-winning economists, said some fiscal watchdogs can suffer from “institutional capture”, using staff on secondment from government but labelling themselves as independent from government.

It has proposed an alternative watchdog for Scotland if it leaves the UK, featuring a small team of economists drawn from the public, private and education sectors.

This “Scottish Fiscal Commission” (SFC) could provide better scrutiny of Scotland’s finances than the UK’s Office for Budget Responsibility (OBR), the experts have suggested.

The OBR has been criticised by Scottish ministers in recent months for producing “inexplicable” forecasts on Scotland’s taxes and finances.

In a new paper to be released tomorrow, the advisers will suggest “an alternative model” to the OBR similar to Swedish and Irish models.

Sweden employs just six people with five assistants to its fiscal scrutiny body, the working group said.

In an advance trail of the report, the working group said: “International examples have shown that small commissions, with few members supported by a small secretariat of full-time technical economists/analysts can be effective.

“For example, the Swedish Fiscal Policy Council has just six members, assisted by a secretariat of five employees.

“Members of the SFC should be appointed for their expertise in public finance/the economy, and could potentially be drawn from the public and private sectors as well as academia.

“The working group is concerned about institutional capture. This can be particularly true if forecasts are badged as being undertaken by an ‘independent’ fiscal commission whilst, in practice, the staff of the commission are on secondment from Government and only use existing government models.

“The working group believes that the best approach is for such analysis to be conducted in-house by Government with the role of the SFC to provide informed comment on the forecasts, the approach to producing these forecasts and scrutiny of the work.

“This is similar to the Irish Fiscal Advisory Council which scrutinises and assesses the appropriateness of the Government’s macroeconomic projections, rather than producing them itself as the OBR does.

“This also ensures that accountability for the health of the public finances remains with the Government.”

Finance Secretary John Swinney proposed the creation of a Scottish version of the OBR earlier this year amid “over-optimistic” projections of Scotland’s devolved tax take by the OBR.

The OBR has also been accused by Scottish ministers of downplaying the projected revenue from North Sea oil, which would form a major part of Scotland’s economy if it becomes independent.

Commenting on the latest working group report, Mr Swinney said: “The working group has provided further thorough analysis, and I will study their proposals and recommendations for effective financial management and taxation closely.

“With independence we have opportunities to build on our reputation for fiscal responsibility and put in a place a framework with real credibility, something previous UK governments have failed to do, helping create the financial mess the UK finds itself in today.”

The Fiscal Commission Working Group was established in March 2012 to assess the economic choices, challenges and opportunities for Scotland post-independence.

It is chaired by Crawford Beveridge CBE and includes Professors Andrew Hughes Hallett, Sir Jim Mirrlees, Frances Ruane and Joseph Stiglitz.