Scottish spending watchdog ‘must be independent’

Economist warns against body pleasing government. Picture: Ian Rutherford

Professor David Bell says a Scottish Independent Fiscal Body could fill a gap left by the London-based Office for Budget Responsibility (OBR) which does not always produce “forecasts specifically for Scotland”.

Finance secretary John Swinney announced plans for the new fiscal office earlier this year after the Scottish Government clashed with the OBR amid claims that Scotland’s future oil wealth was being downplayed.

But opposition parties have voiced concern that it is an attempt by the SNP to produce more favourable figures and have demanded guarantees the new body will be free from ministerial influence.

Prof Bell, of the University of Stirling, will give evidence to MSPs on Holyrood’s finance committee this week and says the watchdog could also be pivotal in examining Scotland’s tax base, with Holyrood set to take on sweeping new tax-raising powers in the coming years.

He added: “The forecasting record of the economics profession in general is not good. The same can be said specifically about the forecasting record of the OBR. We need to guard against seeing a forecasting body as a panacea for the uncertainties surrounding public finances.

“Perhaps the most significant aspect of its remit is its independence, meaning that although its forecast may be wrong, it will not be wrong because it is constructed to please the government of the day. It is important that such independence is endorsed through parliamentary scrutiny.”

Prof Bell said a standalone Scottish body could ensure its output was tailored towards the use of the Scottish Government.

“There could be a particular focus on forecasting North Sea oil revenues, which has proved controversial in the past,” he added in his submissions. “The OBR may choose not to produce forecasts specifically for Scotland and so differences between the Scottish and UK economies may not be fully captured.”

Representatives from the Organisation for Economic Co-operation and Development (OECD) will also give evidence to MSPs on the committee this week. The international organisation is to tell MSPs that it must be free from interference.

Mr Swinney told the finance committee in May he wants the new body up and running by 2015, when Scotland takes on responsibility for stamp duty, landfill tax and income tax.

At the time, Mr Swinney attacked an “utterly inexplicable” projection of a 36 per cent rise in landfill tax at a time when landfill deposits are declining.

The Scottish Government produced its own oil and gas estimates earlier this year, after complaining OBR predictions were too low. The OBR predicted oil tax revenue would drop from £6.7 billion last year to £4.1bn by 2017-18, but the Scottish Government estimated a figure of up to £57bn in tax revenue between now and 2018.

Salmond demands Barnett guarantee if Scots vote No

The Prime Minister has been urged to set out the consequences for Scotland’s finances if it remains part of the UK.

First Minister Alex Salmond fears Scotland’s budget could be cut by up to £4 billion, in line with reported recommendations by a Westminster tax scrutiny body. He wrote to David Cameron to challenge the perception that “Scotland takes more than its share of funds” from the UK. He demanded a guarantee Scotland’s budget will not be cut if it votes No and that the formula used to allocate Scotland’s share of spending will not be reviewed.

A report by the Westminster All Parliamentary Taxation Group (APTG) predicts that “the only possible future trajectory of Scottish autonomy will be one of significantly more extensive devolution, if not outright independence”. The extent of this devolution should depend on support for independence, according to the APTG, with anything less than 40 per cent meriting only limited further devolution. It states: “In the case of a No vote, the Barnett Formula must be replaced as a priority, with a needs-based formula for inter-regional resource allocation the best alternative, using the seven indicators of relative need identified by the Holtham Commission.”

Gerald Holtham, chairman of the Independent Commission on Funding and Finance for Wales, wrote in a newspaper column that a review of the Barnett Formula “could result in Scotland getting as much as £4bn less than it currently does”.