Good Things Come in Threes: The Scottish Fiscal Commission Comes of Age

As part of the 9th Annual Meeting of the OECD Network of Parliamentary Budget Officials and Independent Fiscal Institutions hosted at the Scottish Parliament, Lady Susan Rice gave a welcome speech to our peers from around the world:

Presiding officer, ladies and gentlemen. I’m really pleased to see so many familiar faces and a special welcome to Alice Rivlin. I’m so pleased that you’re all here in our wonderful Scottish Parliament.

Can I welcome you to Scotland during one of the most exciting years in its fiscal history.  After a huge amount of work, the Scottish Fiscal Commission, this week, became a non-ministerial body.  So a little bit about its journey.

My theme is ‘good things come in threes’.  You might well ask why?  This is my third OECD conference, and there’s no doubt that it’s a good thing.

Three years ago, in Vienna, I described our then new organisation which comprised three part-time, unpaid Commissioners.  The Scottish Fiscal Commission was set up in June 2014 as a non-statutory body.

Our job was to provide independent scrutiny of the Scottish Government’s forecasts of receipts from the taxes newly devolved to Scotland and we had to make a judgment as to whether their forecasts were reasonable or not.

We had three devolved taxes to consider in that first year… Land and Buildings Transaction Tax, Scottish Landfill tax, along with analysis of the economic determinants of Non-Domestic Rates (NDR).  And we published a report – our first one.  It was 12 pages long – a bit like a pamphlet. 

Even though we were then one of a tiny handful of sub-national independent fiscal institutions (IFIs), we still wanted to establish that we were doing things in the right way.  That’s why, however simple our role, we started at the beginning to mark ourselves against the 22 OECD Principles for IFIs; we actually met quite a few of them.

Next, when I saw you last year, I described the progress we’d made in year two.  At that point, we’d added an administrator, two research assistants, a small annual budget.  We’d developed a visual identity and a logo, and started producing outturn evaluation reports as well as our draft budget report.  The Commissioners were even being paid.

The forecasts had moved from a two- to a five-year horizon and our second report on the Draft Budget turned out to be five times longer than the first – more like a short story.

There was also, during that year, quite a lot of Parliamentary debate about whether we could genuinely be independent of Government.  We were answerable to the Parliament and appointed by it, but in response to Ministerial recommendation.  And we were after all scrutinising the Government’s forecasts.

So we became more public in describing our alignment to the OECD Principles.  They gave us an external benchmark of good practice.  We knew we were operating independently, but it was the OECD principles as a reference point that let us talk about ourselves, when challenged, in a positive way, not defensively.

So quite a lot of progress in our second year but the evolution continued.  

For our third budget round in 2016, income tax receipts and threshold-setting powers were added to the list of devolved taxes, so we began talking real revenue for the country.

As you might expect, our Report on the Draft Budget last December expanded even further.  This time it was ten times bigger than in our first year – pretty much a novella.  Next time, who knows – a novel…

Our activity throughout last year was like a well-oiled machine.  We had matured.  We set the agendas and called the meetings with the Scottish Government forecasters.  We scrutinised and challenged their work, and also started a process of knowledge transfer, beginning to work with the models ourselves – changing assumptions in order to test forecast sensitivities.

At the same time, two new Bills were passed – the Scotland Bill 2016 in the Westminster Parliament and the Scottish Fiscal Commission Bill in the Parliament here.  Together, they both fundamentally changed our purpose and provided the primary legislation and framework for us to operate on a statutory basis.

So, just as we thought we’d matured into our role as scrutineers, we’ve spent twelve months in a transition programme to put ourselves into statute.  Last Saturday (April 1st) we emerged from the cocoon as a non-ministerial body, operating under statute but independent of Government.

We’ve set the protocols and standing orders and agreements needed in order to operate to the highest public sector standards.  We’ve also hired a team of analysts.   Why?  Because today, while we’re still called the Scottish Fiscal Commission, we now have to produce the central fiscal, and economic, forecasts for the Scottish Budget.

We’re now responsible ourselves for forecasting Scottish onshore GDP, income tax receipts (apart from savings or dividend income), Land & Buildings Transaction Tax, Scottish Landfill Tax, non-domestic rates, and demand-led social security expenditure… with Air Departure Tax coming our way next year and subsequently Aggregates Levy.

Around £17bn worth of taxes which were formerly set, received and redistributed by the UK Government, are now coming under the control of the Scottish Government.

Our analytical team have been recruited or seconded into the Commission from academia, the private sector and both the UK and Scottish civil service – and I’m delighted Mairi Spowage, our deputy chief executive, is participating in these meetings.  Their experience includes fiscal forecasting, macroeconomic modelling, housing market analysis, public sector finances, and data and statistics.

As with any organisation, we also have a corporate services function and a senior responsible officer.  That person, once appointed, will report to me as Chair together with my fellow Commissioners, Prof Alasdair Smith and David Wilson, who are both here and I hope you meet them.

Over the coming months, our own staff now will develop the models and forecast the outputs, with challenge and direction set by us, the Commissioners.   We’ll have to scrutinise the work produced by our own staff in order to gain assurance around the reasonableness of these forecasts.

Because, at the end of the day, the forecasts are the Commissioners’.  We’re personally answerable to Parliament for them.  An unusual structure.  And, if we’re still one of only a handful of sub-national fiscal institutions today, we’re also one of only three IFIs to produce its own forecasts.

That’s our story, and I hope next year there’ll be very little change to report.  But, this year, I thought it might be helpful to summarise a few of the challenges we’ve had and how we’re steering through them. 

First, along the way, it was essential for us to influence the legislation to have clear boundaries for what we are, and are not, to do.  Parliamentarians, the press, the public all have different views on what they want us to do.  So it’s essential to have boundaries enshrined in law.

Second, it’s also essential for us to ensure that the rather complex structure we now have still allows us to act independently – in perception as well as in fact.

Third, looking ahead, we’ll need to adapt our brand new organisation as it settles in, and establish our professional credibility not only through reasonable forecasts but also through good communication.

We think we have a chance of meeting these three challenges if we focus on three goals:

• One is to develop a strong reputation as an authoritative, independent and transparent body – that’s about our forecasts
• The next is to deliver value for money to the taxpayer, we need to be efficient, adaptable and operate to a high standard – that’s about our organisation
• Third, we’ll do these things, as we’ve done from day one, by learning from all of you and drawing clearly on the OECD Principles

So I’ll close by saying thank you for your help, even if you didn’t know you were helping us.  I salute you all and hope you enjoy these two days.