Official Report: Minutes of Evidence

The Chairperson (Dr Aiken): Hi, Scott. Can you hear us?

Mr Scott Cameron (Organisation for Economic Co-operation and Development): I can. Good afternoon.

The Chairperson (Dr Aiken): Excellent. The wonders of long-distance communications or whatever it happens to be and all the rest of it.

This is the first in a series of oral evidence sessions scheduled by the Committee to inform its deliberations on the future role of an independent fiscal council and any associated forthcoming legislation. Scott Cameron is a policy analyst for the Organisation for Economic Co-operation and Development (OECD). Scott, will you make an opening statement, please?

Mr Cameron: Absolutely. Good afternoon. Thanks for having me. I always appreciate the opportunity to talk about fiscal councils.

I spent seven years at the Canadian Office of the Parliamentary Budget Officer. I have helped to set up similar institutions in Europe and Asia. I am now coordinating the OECD network for independent fiscal institutions (IFIs). We have about 40 of those in our network, and we hope to welcome Northern Ireland's council in the near future; we have reserved a seat for it beside the Scottish Fiscal Commission. Our network promotes and monitors the implementation of the OECD principles for IFIs. I see that you have included those in the council's terms of reference; that is good. OECD members are expected to implement those principles when designing their fiscal councils. However, we recognise that every jurisdiction is unique and that you need to design the institution that works best for you.

One of our network's main activities is to conduct external reviews of fiscal councils. During those reviews, we have seen a common set of lessons emerge. There are issues that come up over and over again, and, if you can address them from the beginning, you will spare yourselves a real headache later. The first lesson — these are from my written submission — is that fiscal councils are usually small institutions; the secretariats may end up having only a handful of analysts. Even though you said that it will be, technically, a stand-alone body, there is a temptation to attach it to a larger organisation, such as an auditor general's office, that will provide shared services such as HR and IT. However, they really should be out on their own, like the Scottish Fiscal Commission, but, if you attach it to a larger organisation, you should make sure that clear walls surround it to guarantee analytical and operational independence in order to protect both of them. A fiscal council tends to wade into more controversial policy commentary than other public bodies, and that can lead to tension and conflicts between the two, unless clear lines are drawn between them.

The second lesson is that the chair of the council should be at least a part-time position and, ideally, a full-time one. Northern Ireland is small; it has a small population and public sector. If you do not think that part-time is necessary, at least be very specific with the expected commitments so that the chair and the council members can clarify arrangements with their outside employers. You may call in a professor from a university for the council or as chair, telling them that it will be for only a few hours a week or a month even. However, it could end up being a lot more, and, if the university does not reduce a chair's other responsibilities, they might have a very unpleasant work-life balance. As you know, your temporary chair, Sir Robert Chote, was full-time at the Office for Budget Responsibility (OBR) and enjoyed a long impactful tenure. In the Republic of Ireland, where they have part-time chairs, they have struggled with that balance.

The third lesson is that the law should clearly define the council's role in serving the Assembly and designate specific points in the Budget cycle to do so. That might include appearing before the Finance Committee twice a year, in the spring and fall, to provide an opinion on the economy and public finances or to discuss the sustainability report. If that interaction is not explicit in law or in other rules of procedure, we find that Committees and councils do not interact as often as we would like.

Lesson 4 is that the legislation should explicitly grant the IFI the right to publish self-initiated works. If the council is confined to one assessment report or a sustainability report a year, what happens if an urgent issue comes up in the summer? Sometimes, the ability to publish self-initiated works is intended by the designers of the council, but they leave it as a grey area in law, and then the Government can challenge whether a certain report should come out. Be clear with that power, if you intend it.

Lesson 5 is that, on access to information, you should give the council a specific resolution in the event that a Department does not comply with an information request. The most common resolution mechanism is that the council can come to you, the Finance Committee, or the Speaker of the Assembly with a complaint, and then Assembly Members can use your powers to compel the Government to hand over the information. Moreover, be very specific in defining the circumstances in which the Government can decline an information request. For example, an information request from the United States Congressional Budget Office can be declined only if fulfilling a request would break another law. Then the onus is on the Government to point to which law that would contravene.

Lesson 6 is that the council needs a sustainable secretariat, and that means enough analysts to provide an ongoing institutional memory and analytical capacity to make the council's views coherent and consistent over time. Some councils are set up with the idea that council members would do the analysis themselves. That led to very personality- and opinion-driven assessments that changed over time and were not consistent when council members left. Therefore, the council should really be there for quality control and to be the public face of the secretariat's work.

Lesson 7 is that the council should have full ownership of its communications. The ability to communicate publicly is the key to councils' influence. Ministers do not necessarily care what an economist says unless it shows up in a headline on their desk in the morning. We have had small councils outsource their communications to contractors who did not really understand the work. We have had councils in large organisations with a communications office that would filter their voice. The council and secretariat really need their own voice.

That concludes the lessons. We have lots to cover on options for mandates, leadership appointment, resources, access to information all those areas. I hand back to the Chair, and we can get on with it.

The Chairperson (Dr Aiken): Thank you very much indeed. To us, the key is the first word: "independent". I do not know whether you have been following Northern Ireland's travails, including scandals and other issues, but this is one of the main things that we have been asking for. I must declare an interest, as I am the leader of the Ulster Unionist Party, but we have been asking for an independent fiscal council of some description for at least a decade so that we can have some degree of oversight of what we do. One of our biggest issues is the need for independence, and everything that you outlined in your seven points gives the reasons why we need it.

It is noteworthy that you talked about the size of Northern Ireland, yet our latest figures showed that we have a £13 billion budget. We may be small in numbers, with a population of about 1·8 million, but £13 billion is a sizeable budget. We also have to look at how it is managed.

There have been issues with the movement of powers to the regional Administrations, particularly the Scottish and Welsh models. You identified your seven key points, but has anything in particular that you have seen over the last couple of years stood out that we must make sure we get right at the outset? For instance, one of the questions at the minute is whether we should put the independent fiscal council on a statutory basis. That is the first question that we will need to ask. I would be delighted to hear your views on that.

Mr Cameron: Thanks for the questions. Right off the bat with your last issue, obviously, you do not have a constitution per se. That would be the strongest way to implement it and ensure its independence, but that is very rare, even for countries that have a constitution. Primary legislation is where we see it most often and where we recommend that it be created and outlined. Eighty-four per cent of councils are created by primary legislation. The use of a constitution to create councils is very rare and accounts for about 10%. Another 10% are legislative budget offices, such as parliamentary budget offices (PBOs), which may be created through standing orders or through the internal rules and procedures of the Parliament. Obviously, stand-alone legislation is what you would like.

The concerns that we saw in the early years were with budget disputes. Councils tend to be created during tumultuous times, such as, it sounds, you have. The global financial crisis is one such example, as is where Governments face cutbacks generally or when there have been threats to budgets early on. If you can, you should also enshrine a budget guarantee in statutory legislation. That is difficult to do in statute. However, in the Republic of Ireland, for example, they gave it a baseline rate in legislation. Ideally, you would grow that with inflation over time to put a floor on the budget so that the Government cannot cut the budget and effectively silence it by reducing its resources.

Also on independence, in the early years we saw offices being set up within Ministries of Finance. I was there the first year of the OBR in the UK Treasury, when they stuck a piece of paper up on the door of the former macro team to say that it was now the OBR. Such arrangements can work. The offices are generally keen to be independent, and the analysts and the public servants are almost the most willing to start criticising how things are done and give the independent voice that they have always wanted to give. That can work. Ideally, however, we would not want to see it attached to a Ministry of Finance, especially in the early years when it needs to set the public perception of its independence.

The Chairperson (Dr Aiken): OK. Thanks.

Mr Wells: Do you have any experience of an office of budget responsibility or a fiscal council being set up in an Administration that has, basically, no tax-raising powers? The Northern Ireland Budget is very different from nearly every other that you will see. Apart from the regional rate and bits and pieces such as car tax, planning fees and things like that, we really do not have an awful lot of money coming in that is directly under our control. Can you have a proper fiscal council or OBR if you do not have control of both levers of the economy?

Mr Cameron: Where the Government have complete discretion over all their finances, there is a lot more work for a council to do, and it will have a bigger role to play. An office would have just as important a role to play in your situation because the fiscal envelope is fixed. That is the case whether or not there are explicit fiscal rules. I believe that you are like Scotland, in that you can borrow a little for capital and there are some rules for that.

The Chairperson (Dr Aiken): Yes.

Mr Cameron: It is important to have councils: they can check the Government's planning assumptions to make sure that they are reasonable and that you do not run afoul of the rules or effective constraints so that, three quarters of the way through the year, you do not all of a sudden exhaust your spending envelope and, because you cannot raise revenue but are bound by that, have to cut public services. There is very much a role for them. The role is up to you. They can simply be for checking the Government's assumptions, or, as they have done in Scotland, if you have concerns about the planning assumptions, you can bring some of them out of the Government's discretion and give them to the council.

Mr Wells: It would never happen here that we would go over budget or out of kilter with our allocation; that would be impossible. If the Finance Department were ever to make a solo run or was leading us into disaster, what powers do you recommend that the council, the office for budget responsibility or whatever we call it should have? What power would you give it to intervene in such a situation?

Mr Cameron: When councils were first discussed, particularly during the global financial crisis and in the EU framework, the academic idea was that you would take a lot of the control away from the Government and, by default, the Parliament and give it to the councils in the way that we have done for monetary policy. Democratically and fundamentally, that is the Government's prerogative. You are there to do the official oversight or scrutiny of the Government's plans. We recommend that the role of councils is not to take control away from you or the Government but to increase transparency and make sure that you get the right information to do your job, have the subject matter expertise to examine the Government's assumptions and bring that information and any causes for concern to you directly. That is why it is so important to have it ingrained in the legislation that a council should come to you to tell you its findings. Other than that, as I said, you could bring some of the assumptions for planning and the spending forecasts to the council to do. Governments are sometimes too optimistic about health spending; that is a problem in the Republic of Ireland. You could require the council to do some of the planning assumptions. However, as for having the teeth to make Governments change their plans halfway through the year, we do not see that in councils' remit. Hopefully, however, a council could bring such matters to your attention, and you could take action with whatever powers you have, which, unfortunately, are not often much for legislatures.

Mr Wells: Do the three dreaded letters "RHI" mean anything to you?

Mr Cameron: Is that the taxation and inflation mess that they have all over —?

Mr Wells: If only it were something as minor as that. RHI is the renewable heat incentive, which, basically, brought the Assembly down for three years. It created absolute chaos. It was a scheme that ran completely out of control and threatened, frankly, to bankrupt Northern Ireland. You are saying that, should there be a repeat of that type of scandal, you do not believe that an office for budget responsibility or a fiscal council would have a right to intervene and put the brakes on; all it could do would be to highlight it and provide information about it.

Mr Cameron: I am not familiar with any examples of where a council would have that control or authority. You could have legislation that says that, if the council gives an adverse opinion on the budget, the Government have to go back to the drawing board. You could have the council perform an endorsement function. It could scrutinise the Budget and could be required to endorse it before it comes to you for approval. That is an option. Hopefully, it could look at the RHI problem. It could not comment on a policy and say whether it was good, but it could comment on whether the Government have presented it accurately and transparently or whether they have misrepresented it. If it thinks that the Government have not done so, it could decline to endorse the Budget. Then, the Budget either goes out without with an endorsement, and people know that and you know that, or it has to go back to the drawing board, and the changes have to be fixed before the Budget comes to you.

Mr Wells: You have been generous with your time, but, finally, we are the same size as Estonia, as an example of population, although I think our Budget is bigger than theirs. At what size of an economy is it appropriate to have a full-time office for budget responsibility? From your experience, for instance, in Canada, do Nova Scotia and Newfoundland have their own regional offices? At what level do you pitch full-time staffing?

Mr Cameron: Nova Scotia does not have such a body yet, and, of course, it is quite small. Ontario, which is a big economy, has its own full-time parliamentary budget officer, and Quebec has just done so.

That is a really difficult question. Most of the European Union council members are not full-time and not even technically part-time, although many of them commit to it part-time. We are doing a review now. Essentially, this council requires a retired chair, and that is who is fulfilling it right now, because it is a lot of work and a lot of press and media engagement at the drop of a hat. Somebody with a full-time job could not serve in that role. It is not fair to them or to the council. A lot of it depends on the mandate and what you want them to do. If, as your terms of reference say, it is two reports a year — an assessment report and a sustainability report — it may not be every year; it might be every couple of years. It depends on what you want this council to be, how much authority you want to give it, and its roles.

If you want it to do independent policy costing of a spending programme, it will be geared much more towards a full-time role. It depends on its relationship with the Government and how much the Government are willing to cooperate. If the Government open their books and say, "Come on in", you do not need a lot of staff or a full-time chair. You just need somebody to go in a couple of times a year, go through the books and sign off on them, but that never happens. Surveillance is a full-time job, and you need a strong secretariat with a strong head of secretariat who can replace the council members. It is really what you envision the office, the council and its mandate to be that will determine that.

Mr Allister: Thank you for your informative paper. I am interested in the background that you are looking for in members of a fiscal council. I ask that because the interim council that has been appointed seems to be comprised exclusively of economists, whereas I would have expected people with public expenditure experience to be key. Have you any view on that?

Mr Cameron: Yes, I can give you exact statistics. You are right that there are a lot of academic economists. Around Europe, 63% of council members are from universities, 34% from central banks and 30% from Ministries of Finance. That does not add up to 100% because they reflect past appointments. There are lots of ways that you can look at it. It is good to know how the sausage is made, so finding somebody from the Ministry of Finance who knows where the bodies are buried can be good. That is not necessary, and sometimes it is good to have alternative perspectives and bring new ideas and oversight into the council.

In relation to economics versus other social sciences versus practical experience, I think that you are right: economists are very over-represented on the councils. The Republic of Ireland has had that discussion. We talked to a lot of stakeholders who are starting to say, "Why not get some more diverse backgrounds: people who are into social welfare programmes or have experience with labour unions or representatives of Northern Ireland society?". You have to bring people in, and that will come down to the appointment and shortlist process. I can speak to that as well. Do I have a time limit on these responses?

The Chairperson (Dr Aiken): No.

Mr Cameron: Ultimately, whom you want on the council will be up to whomever appoints them. There are four aspects to the appointment process: a shortlisting and nomination phase; the selection from that shortlist phase; the appointment; and sometimes there is secondary approvement of the appointment. Usually, the council is appointed by the Executive, and secondary approvement is from the Committees or from the Parliament or Assembly, but the initial shortlisting and selection of candidates can be put in the hands of the Assembly.

We like to see open competitions for the nomination and shortlisting process. You can ask different stakeholders; some countries say that all kinds of stakeholders can appoint somebody to the boards. For example, the auditor general might appoint one of the chairs on the council, and the central bank might appoint one. The central bank's selection might get you more economists, but maybe the auditor general's selection would get you an accountant, someone who really knows public-sector accounting is often missing in some of these places. Certainly, we are starting to represent more diverse interests on the councils.

Mr Allister: Is an express knowledge of public accounting practices not vital if you are going to mark the homework of the Department of Finance? We have a budgetary arrangement that is quite opaque. For example, the figures that you are given for various disciplines or Departments are so wide, without any breakdown, that it is hard to know what to make of them. For example, we spend £2 billion on education, but there is no breakdown of how much of that is for preschool, primary or whatever. That, of course, suits Departments — they can shuffle it around as they want — but it does not do anything for transparency or accountability. You need people with some nous about public expenditure to be able to drill down and see why certain things are and are not provided for.

Surely a function of a fiscal council is to visit the issue of efficiencies? In our current Budget, I read nothing about efficiencies. All of this underscores the point that you made that the primary necessity is for independence; there is no point in having nodding dogs on this. That takes you to the key issue of who appoints them. A fiscal council needs to be an effective machine and not just a rubber-stamping operation. How you get to be an effective machine rather than a mere rubber stamp or cover for government is surely the critical issue.

Mr Cameron: I can make a couple of points on that. The OECD principles say that the technical skills and expertise should be specified in legislation. Therefore, if you think, as you are drafting this, that, in Northern Ireland's case, you need someone with a background in accounting, you could specify that at least one council member has to have an accounting background. Speaking personally, I studied economics at university and grad school. In the first couple of years on the job, I got a lot of public accounting experience and did courses on it. I have found that the accounting experience is probably much more valuable to the role than some of the economics that I learned. It is very much

.

On your point about efficiencies, you can see business leaders appointed to the board, especially in small countries where the population of candidates from the economics sphere for the roles is not large. That could kind of hit that area. You could have industry representatives. The kind of background is up to you, but you should include in legislation specifically that they have to have expertise in public finance, economics or accounting, if you see fit.

Mr Allister: If you were on that council or chaired that council, what would be your first 100 days' objective?

Mr Cameron: That is a good one. Let me see; I have to be careful. That is a very personal question, but it is about a council establishing an independent identity for itself. Some leaders have said that, if you are put in prison, you should pick a fight and prove yourself strong right at the beginning. That is one approach, although I do not know whether it is a good one. Some have chosen to demonstrate their independence by coming in very strong at the beginning. That is an option. Others have been more about building relationships with the Government. You can maintain your independence and non-partisanship and all that good stuff while forming useful relationships with Governments.

You will have to work with Governments, and you will need information access and relationships with them. If you come in and pick fights, sometimes you can burn the bridges that you will need to do your job. Come in and get good talent to work for you, good staff. Set up the reports, and do a good job with them. The reports speak for themselves. Criticisms of the council can get politicised, especially early on. Someone might dismiss the analysis as partisan or not independent, but, if your reports are solid, you can say, "Point to the report and prove that this is partisan or not independent". If they cannot, the reports should speak for themselves. It is really about making sure that the analysis in the first 100 days or the first year is solid so that you build your reputation, which your office will coast on for the rest of the years.

Mr Allister: Thank you.

Mr Catney: Thanks very much, Scott. I am no expert on this. You used the words "who appoints". However, in Northern Ireland politics, I could change "appoints" to "anoints". How do you make sure that you have a person who is completely independent?

You said something about whether we can get that role. Is there a possibility? Are you familiar with our Assembly? Can we hold that on the Floor of the Assembly?

Mr Cameron: I did not quite catch that last one.

Mr Catney: Is there a way that we can get ownership of it as a group of 90 rather than setting it into one Department or, for want of a better word, the Executive?

Mr Cameron: Yes, absolutely. There are models of councils, particularly the parliamentary budget offices, that have a much closer relationship with the legislature. If that is the service that you want and you want to be able to submit requests to the council and have it obligated to respond to you, you could set them up with a much closer relationship with the legislature or even attached to the secretariat of the legislature as long as, again, you have those walls of operational independence.

If you are looking for a council that is more legislature- or Assembly-facing, you could specify that in the legislation. Another way, as you hinted at with the nomination and appointment process, is that, when you are legislating, you could have the shortlisting be approved or come at by an independent process. You could have an independent firm find candidates, and then you, the Assembly, approve them. I have seen models where opposition parties and Back-Benchers get to approve one council member. Really, it is about clarifying the expertise in the legislation so that you do not get a purely political appointment. They need a background of expertise.

Even when Governments of the day get that appointment themselves, they have been good about appointing credible independent voices to the councils, even if it is against their interests. They know that it will make nasty headlines and that the Assembly will get very upset if they appoint an obvious partisan, so they are very good with it. You can specify in the legislation whether the Assembly gets final approval, whether you do the appointing yourselves or whether perhaps the Committee for Finance will have final sign-off on the appointees. When you are crafting legislation, keep that in mind. You can set up terms of reference when designing the legislation so that the Government do not craft it in the way they want to. I am not familiar with your current statistics on representation in the Assembly, but you will want to design the legislation to keep those points in mind.

Mr Catney: Thanks.

Mr McHugh: Fáilte romhat. You are welcome here this afternoon. Thank you for your presentation. Like you, I graduated in economics, and I taught accounts. Notwithstanding that, I find the Budget Bill, the Main Estimates and the like difficult to get my head around at times. Do you see a fiscal council having a relationship not just with Departments and the like but with the general public to help keep them informed, help educate them and help them be presented with information in language that they can understand?

Mr Cameron: That is a fantastic idea, as long as you empower it with the ability to self-initiate reports, or, explicitly in legislation, you can require it to do so. There are lots of options that we can go into or that I can submit later about those types of monitoring reports. I do not know whether the monthly financial statements are coming out right now in Northern Ireland, but the data is there. Even in cases in which the Government are publishing those monthly monitoring statistics, they might not be in a useful format or in a format that people such as you can wrap their head around or that the public can wrap their head around.

It is simple work. It is easier than building macroeconomic forecasting models, but it is equally important to be able to compile all that central revenue fund and expenditure data and put it in a format that you can come to terms with quickly. You do not have a lot of time. Even though you have expertise, you are busy. If the fiscal council can come out with a quarterly expenditure report and it is important for it to do that, you can require that by writing in the legislation that, four times a year, it has to give an update on the spending plans or the spending realisation. That is terrific.

If you give the fiscal council enough staff and a secretariat to do this work — it will all need to be reflected in the resources with which you provide it — as long as you give it power to self-initiate reports, it will probably on its own choose to do something like providing regular updates, as long as it has the resources to do so. If the fiscal council has only couple of staff, who have other obligations, they may not get around to it, but, if you require that report and can give the fiscal council the resources to do it, you should absolutely do that. It is a good idea to give it the power and the resources to do that of its own initiative and without enshrining it in legislation.

Mr McHugh: Go raibh maith agat. Thank you.

The Chairperson (Dr Aiken): Thank you very much indeed for your evidence. You mentioned that you have some examples of monthly monitoring statistics and monthly monitoring reports. Can you forward those to the Committee, please?

Mr Cameron: Absolutely. I would love to. That would be great.

The Chairperson (Dr Aiken): That is something that we would all appreciate, if we are able to get to a point at which we can do that.

Scott, thank you very much for your evidence. Can we please keep the links, dialogue and the rest of it open with the OECD? You have given us an awful lot of food for thought, and just keeping the line of communication open would be very useful. Thanks very much for your time today. Keep safe. Cheers.

Mr Cameron: Thank you. It was a pleasure, and I will be happy to keep the dialogue going.