Official Report: Minutes of Evidence

The Chairperson (Dr Aiken): Sir Robert, can you hear us?

Sir Robert Chote (Northern Ireland Fiscal Council): Yes, I can. Thank you.

The Chairperson (Dr Aiken): OK. Hi, everybody else. It is like being amongst old friends. You should never start a Committee meeting, particularly of the Finance Committee, with a bit of apology, but, as you can imagine, fewer of us are here in person today. A few of us are on StarLeaf. You will have noted from the media that the sitting yesterday went on a bit longer than usual, as we were dealing with new licensing laws in Northern Ireland, but we are ready for your evidence and are delighted that you are here to talk to us.

Esmond, I know that you need to be away, at 4.30 pm, is it?

Dr Esmond Birnie (Northern Ireland Fiscal Council): No, a bit earlier than that, probably at about a quarter to four. Apologies.

The Chairperson (Dr Aiken): Robert, will you lead off?

Sir Robert Chote: Yes. Thank you very much indeed, Chair, and my apologies for not being with you in person. I had hoped to be, but I am afraid that it is down to the test-and-trace app, which has left me self-isolating for a few days. I am afraid that it is from the front bedroom again.

It is a great pleasure to appear before you and to be asked to undertake this role, especially in the company of my three distinguished colleagues on the call today. I certainly hope that the council will be able to work to the benefit of everybody in Northern Ireland, including everybody on the Committee, by bringing greater transparency to the region's finances, and we certainly see our relationship with the Committee as key to our impact and our accountability.

As you know, I came to this job having spent a decade spent running the Office for Budget Responsibility (OBR), and you have just been speaking to Richard. Three years of that was spent chairing the OECD's network of fiscal councils around the world, and I spent roughly the same time as a member of the external advisory panel of the Parliamentary Budget Office in the Republic. One lesson from all that experience is that there is no one-size-fits-all model for these sorts of institutions, either in their remit or their structure. We need to be humble about that and also be willing to learn as we go along. There may not be a common model, but there is certainly a shared motivating spirit and a transparency of speaking truth, as we see it, to power and of acting independently and impartially in the face of any political pressure that we might face in this context, be it from the Executive, the UK Government, or even from your good selves.

As you know, we have been given some draft terms of reference by the Executive based on New Decade, New Approach (NDNA), but they are relatively brief, so we thought that the sensible thing to do, as we started our work, was to talk to a wide range of stakeholders about how exactly to flesh that out and where people see the strengths and weaknesses of the management and reporting of public finances at the moment. We sent you a summary of what we have heard so far.

There are issues that people have consistently raised so far. The first is the importance that they place on the council's independence, politically speaking, both in substance and in appearance so that it reassures the public that you are getting professional judgement, not politically motivated output or wishful thinking. Secondly, there is a real need to educate people, including people who are involved with it, like yourselves, on a day-to-day working basis, about exactly how public finances work in Northern Ireland and what the moving parts and the non-moving parts are. In some ways, that is as important as the particular reports that we have been asked to provide under the terms of reference. Thirdly, from speaking to people, we get a sense of their frustration with the variable and unpredictable timetabling of the Executive's Budget process, which you have already been talking about, and that is down, in no small part, to the timetabling of the decisions in London that determine the block grant. However, it is also down to the Executive's own decision-making mechanics. That clearly complicates the question of the most sensible timing at which to produce the reports that we have been asked for so that they are of the most use to you and to others. We will want to reflect on that as we hear from more people in the consultation process.

I am sure that, in time, we will come to — you have already been speaking about it — the importance of underpinning legislation for bodies of this sort. Looking at the lessons from other countries, that legislation needs to be clear on, but not unduly prescriptive about, remit. The OBR ran into some difficulty with that when there was a change of heart about exactly what sort of reports should be produced and when, and how to disentangle that from the primary legislation. Of course, the legislation also needs to safeguard the independence of the institution, particularly, as you have already discussed, through procedures for appointments and dismissals, through the funding of the institution and through rights to information from government and rights to publish.

I will leave it there with that rough summary. I am absolutely delighted to be in the role. I am very grateful — indeed, relieved — for the warm reception that the idea of the council has received to date, and I hope that we can live up to some, if not all, of the expectations that people have of us.

The Chairperson (Dr Aiken): OK. I will kick things off. Thank you very much indeed for your comprehensive report. It is safe to say that there is not a lot in it that surprises any of us.

I have already tackled the Finance Minister about this in the House, but what sort of engagement have you had with him and the Finance Department? We are into the last year of the mandate and have gone through numerous budgetary cycles and all the other differences that we have at the moment. We have had the Estimates and the various forecasts and so on. What engagement have you had already?

Sir Robert Chote: The sound is cutting in and out slightly, so I apologise if I mishear you. The engagement so far has been very much about the mechanics of setting up the institution. Before accepting the job, I had some initial discussions with the Minister, the then permanent secretary and departmental officials about what they were looking for in the institution. We covered many of the issues that, I suspect, we will cover today: the importance of legislation and access to information etc. Since then, there have been the practical issues of ensuring that we have people to do work for us. We are in the early days, and nothing is underpinned by legislation yet. We had a discussion about a chief of staff and some other staff to begin working with us. There are also communication issues to do with preparing websites and the like.

The Chairperson (Dr Aiken): Are you getting any pushback on that or are people being fairly open?

Sir Robert Chote: There has been none whatsoever so far. The Department has been very keen and has not pushed back on anything that we have asked for. We are just starting to get discussions under way with the Department about what a memorandum of understanding (MOU) between it and the fiscal council might look like. As in the UK, that will, essentially, in a boiled-down form, provide a template for memoranda of understanding with other Departments. The very early draft is commendably good and is not ringing any particular alarm bells for me, which is good news.

Needless to say, the test will be when we start to ask for more information over time. If there are two things that my counterparts in other fiscal councils have worried about or complained about most over the 10 years that I was involved with them, it was the funding of the institution — of course, every public body worries about adequate funding — and access to information. A legal right of access to information is very important; it is one of the OECD principles to which, I hope, this institution is committed. I know that the Department of Finance is committed to this institution and this framework matching those principles as far as possible. However, you also need political commitment to provide that, and you need Departments to have the resources to provide you with the information that you need with the timeliness, quality and detail that you ask for and to be able to help you with the questions that you have about it. Nothing that I have heard so far leads me to worry about that, but it is not lost on me that when other institutions get into difficulty with their Governments, it is often over those issues.

The Chairperson (Dr Aiken): We have a Financial Reporting (Department and Public Bodies) Bill going through at the moment, which will bring the various Departments into alignment in how they make their financial reports. However, the Committee is asking whether that will include the whole gamut of Northern Ireland Government expenditure and whether it refers to arm's-length bodies. I note your point that people need to be educated about the budgetary process; however, I am beginning to think that the people who need to be educated about that first are in the Civil Service itself. There is a real lack of coherence in reporting standards across the piece there. I am beginning to have concerns that we are trying to put through legislation for something that should be standard operating procedure in Departments. Should the memorandum of understanding be just with the Department of Finance, or should it be with the Executive Office because of the mandatory coalition that we have in Northern Ireland?

Sir Robert Chote: The model adopted with the OBR is that it has a memorandum of understanding with those Departments with which it has the greatest interaction: the Treasury, Revenue and Customs and the Department for Work and Pensions. Other Departments are encouraged to observe the same principles that underpin it.

The issue here is that it is perfectly sensible to start off with an MOU with the Department of Finance, and then an interesting question would be whether you could take away the Department of Finance-specific bits of it and have something concrete for other Departments. Many fiscal councils have memoranda of understanding with Governments; they are important and useful. What we ended up doing with the OBR was — once you have tested it out and seen how it works in practice — boil down the key sets of expectations on both sides of the relationship into a page or so, not least because people turn over in Departments and move jobs, and, in the UK context, some of them come in with an instinctive reluctance to share information. There needs to be a simple guide to say, "Let us not waste time with you pushing back on that, because we are entitled to this and we always get it". Therefore, much of it is about embedding a good working relationship. If you get down to dispute mechanisms over whether "section 1.4(b)" is or is not being fully observed, you have lost the battle.

The Chairperson (Dr Aiken): This week, I have already pushed the Minister of Finance on when the legislative framework will come through to put the council on a statutory footing. One of the key things that has come out of the evidence that we have already received, and, indeed, your briefing note as well, is about getting that onto a statutory framework as quickly as we can because of Northern Ireland's — I hate using the word — "unique" circumstances. In the Northern Ireland context, we want to see openness and transparency as quickly as possible. The question is how quickly we need to get that onto a statutory basis. My perspective — I will be quite honest about it — is that it should happen as soon as humanly possible. However, we are operating within a tight legislative framework.

It is fundamental. Key to it is trust. The reason that we have always pushed for an independent fiscal council is to develop trust, openness and transparency to break through those principles. When would you like to see it on a statutory framework?

Sir Robert Chote: The OBR was put on a statutory basis within a year or so of its being set up. It was set up in May 2010, and I took over as chairperson in October 2010. The legislation started making its way from the House of Lords, probably in late autumn, and finally achieved Royal Assent in April. How quickly it gets through depends on how much people want to debate the substance of it. The main area of debate in both the Lords and Commons was independence and, for example, whether the Charter for Budget Responsibility gave the Government too great powers to interfere with that independence, and so the legislation was tweaked to remove that suspicion.

Clearly, it would be desirable to have it done before the end of the mandate before things get snarled up there. I would rather that it was right than super-quick. However, there are other models. Hopefully, one could make progress on that relatively swiftly. There are other models to look at and, importantly, the OECD principles to draw upon. Hopefully, not much blue-sky thinking should be required on the principles behind it, although there may be issues about how to tailor it to the idiosyncrasies of Northern Ireland's legislative process, if I might put it that way.

Mr O'Toole: Thank you, Sir Robert, Maureen, Esmond and Alan. As I have said on behalf of my party to all of you in different contexts, we welcome the establishment of the fiscal council and your appointments to it. It is a very positive innovation and one that we hope to shape in a constructive way.

I have a few questions, not necessarily aimed at anyone in particular. First, NDNA has not exactly been a sacred text in its delivery, but the language that was agreed was not exactly pored over. In the terms of reference, you draw from New Decade, New Approach two broad requirements. One is examining revenue streams and spending proposals, of course, and it finishes with a statement on how revenue streams and spending proposals allow the Executive to balance their Budget. I am interested in people's views on the phrase "balance their budget" in the context of how Northern Ireland funds itself and is funded. This is a genuinely open question. Is it useful to talk about a balanced Budget in Northern Ireland's context where we have seen that most of the funding comes via the block grant and, certainly recently, there have been many, many moments of in-year reprioritisation, in-year monitoring and further Barnett consequentials throughout the year? Is a balanced Budget really meaningful as a concept in that context?

Sir Robert Chote: I will speak briefly and then ask colleagues to pitch in. In the context of the relatively limited borrowing powers that the Executive have, the reference to balancing the Budget makes sense in a way in which, in the UK context, it would be much more ambiguous in the context of whatever set of fiscal rules you had on how big the Budget deficit should be and what your objective for the medium-term path of debt and the deficit was. You do not have that same freedom, and, therefore, as I think you were discussing with Richard earlier, you do not have the same need for, or presence of, fiscal rules to guide people on how that will be managed. It is much more a question of how you allocate departmental expenditure limit (DEL) spending within the envelope that is implied very largely by the block grant, with some additional top-ups to that and the relatively modest contribution from rates. The borrowing powers are pretty limited by the standards of

so, in that sense, talking about a balanced Budget does not seem to be an unreasonable framing of the constraints within which the Executive have to operate. Would Esmond or Maureen like to chip in?

Dr Birnie: Thanks. I agree with what Robert has said. Clearly, this is different from balancing the Budget and the fiscal frameworks of the Republic of Ireland Government, the UK Government and so on. We are a region that relies largely, although not entirely, on a block grant. However, it is useful to consider, as far as we can, what the pressures are, even in the short run, to spend and compare that with the actual amounts of money that are available to spend. Of course, such considerations become even more, in a sense, apparent when you come to the second point in the terms of reference about long-run sustainability.

Mr O'Toole: Thank you. That is helpful. To follow on, we talked a little bit in our session with Richard Hughes about the Charter for Budget Responsibility. Obviously, Robert, you are the world expert on that. We discussed the fiscal mandate that has been contained within that and the fiscal rules.

I go back to the question of whether "balancing the Budget" is a useful phrase. Would it be useful to construct something that approaches a fiscal rule or a balanced Budget rule that acts as an overarching test for the Executive? If so, what might that look like?

Sir Robert Chote: It is quite hard to draw the parallel. Fiscal rules in the national Government context are quite often about where you want the public finances to be in the medium term. You are sending people a signal about getting from a situation in which typically you are starting with a Budget deficit and may be worried about the overall Budget deficit, the Budget deficit on current spending or the profile of the debt:GDP ratio. Essentially, what is a good place to get to and over what time horizon should you aim to get there?

That process does not always work. In the period that I was running the OBR, the UK Government got through a good many fiscal rules that failed, either because of economic and fiscal shocks that came along or changes in political preferences. The degree to which financial market investors, for example, would now be particularly impressed by the next set of fiscal rules that come along, whatever they are, and see them as being a meaningful anchor to expectations of where the public finances will go is debatable. They are useful in the UK and national context, in part because they are a way for the Government to signal what they think prudent and good management of the public finances looks like. In the Northern Ireland context, however, the constraints in place, and the necessary short-termism that is thus imposed, do not make that particularly helpful.

The medium-term question is more around the sustainability issue. For example, are there long-term spending pressures and, in particular, are there spending pressures in Northern Ireland that would move "needs" differently from the way in which they would move in the rest of the UK and therefore impact on what Northern Ireland would get as a consequence of the operation of the Barnett formula and the block grant anyway? There would also be questions about whether the UK Government were going to go for a programme of retrenchment that would change the outlook for the block grant. There are also issues around welfare, revenue and spending, but the benefit of putting rules around the overall magnitude of spending and receipt, when essentially you require a balanced Budget in the shortish term, with only relatively limited wiggle room on the borrowing side for cash-flow management, is not obvious.

Mr O'Toole: OK. That goes back to the point about the fiscal council being a body that is mostly examining how the Executive perform within the relatively narrow ways in which they receive funding, which, as you mentioned, are fairly narrow areas of revenue-raising and the block grant.

I am going to ask you a broader question about the fiscal commission. Although it is operational and is starting tentative consultation, we are a very long way from there being, for example, any change to the Executive's borrowing or revenue-raising powers. Given, however, that that is a more live possibility because there is a fiscal commission, should we be thinking about building headroom into your legislation to allow you to have a more expansive role should that become necessary?

Sir Robert Chote: The role that the council will have to fulfil in steady state is going to depend in part on what the commission recommends and whether the Executive and the Assembly wish to proceed with that. You can either put the room for manoeuvre in the legislation at the start-up phase or, if there is going to have to be other legislation to implement greater devolution, do it at that point. In any event, you want to end up in a position in which the legislation is commensurate with the task that you are expecting the institution to fulfil.

I go back to your earlier point. You are right that we are not doing the same medium-term forecasting and therefore using forecasts to assess consistency with medium-term fiscal management, in the sense of how big the Budget deficit should be, where the debt is going etc. Scrutiny of the near term and sustainability is still important, particularly perhaps in the near-term report. Understandably, the Department of Finance's Budget documents focus on the Budget as a process of allocating DEL. The fiscal council will have an important role to play in putting that into the broader picture, because of the fact that it is not just DEL spending that matters in Northern Ireland. There is also annually managed expenditure (AME). Where AME is being spent — in welfare and elsewhere — and how the funding mechanism for it works is a lot less looked at. On the income side, there is a role for it in explaining to people how the block grant and the AME grant works, in explaining the importance of the periodic non-recurrent, non-Barnetted additional sources of money from the UK Government, in explaining the rates income etc. It is important to put a Budget presentation that is, understandably, focused on the allocation of DEL into the broader revenue and spending picture. Alan may like to comment on the way in which the Budget process works in the Republic and whether that direction fits.

Professor Alan Barrett (Northern Ireland Fiscal Council): I agree with all the points, but I will add a comment on part of your earlier question, Matthew, about the interpretation of "balance". The words that have come up in our deliberations include "prioritisation" and "trade-offs". It is a slightly different take on "balance". We have discussed what balancing a Budget means in a standard national context, or even in a subnational context, with significant tax-raising powers. This is a little bit different. Nevertheless, one of the issues that has come up in consultations is the sense that issues of trade-off are not as explicit as they might be. In one of the discussions, I drew a parallel with the administration of public finances in the Republic of Ireland. In the days when we were getting a lot of EU spending, there was a sense that the EU money that was coming into Ireland was a bit like the block grant that was going from Westminster to Northern Ireland. It was grant-type money. Of course, we were raising our own revenues through taxation. Often, there was a schizophrenia in the discussion around those sorts of things. There was agonising over the allocation of the money that we raised through taxation but, it seemed, less agonising around some of the block grant money that was coming from Brussels. It was almost like free money, or something like it. We have been teasing out some of the issues and trying to get to a situation in which the allocations will be looked at more forensically, and in which the fiscal council will then hopefully play a role, not in making policy prescriptions about what should be happening but in trying to illuminate the sorts of trade-offs that are envisaged.

Mr O'Toole: That is really helpful. Thank you. The point about illumination is well understood. Is it fair to describe the way in which you seem to be seeing the two broad products, or thematic work streams, as, first, offering a near-term presentation, which is an annual Budget presentation to allow the Assembly and, hopefully, the public to understand how the annual Budget works, and, secondly, what is effectively a version of the fiscal sustainability report, with the caveat that it is not a fiscal sustainability report, because we are not a sovereign state with wide-ranging tax-varying powers and our own debt?

Sir Robert Chote: That is broadly right. We need to suck it and see somewhat, give those things a try and then look at them and see how useful people find them. Many of the same sorts of themes as that distinction on the sustainability come up with the fiscal sustainability report in the UK context.

You might expect that that report would probably do an overview and then pick out a specific topic in a particular report. Health would stand out as a very obvious early one, because of the nature of some of the medium- to long-term pressures and because of its relative importance in the Executive's DEL Budget.

It has always been clearer to most of the people to whom we have spoken what those sorts of sustainability issues are, as distinct from where we can best add value on the more short-term reviewing of the Budget process. It is probably a report on what we see in the draft Budget that will, as Alan said, try to tease out and illuminate some of the choices that are made in order to put the DEL numbers and rates into the broader context of the bigger spending revenue picture and, as Esmond said, to tease out some of the pressures in the near term as well as the long term. The aim, as we have said, with both of those is that we would hopefully precede the report with some sort of first publication as a guide to the way in which the Northern Ireland public finances operate. We can piggyback off that and use it as a foundation from which the other reports can follow and then be revised over time.

Mr O'Toole: OK.

The Chairperson (Dr Aiken): When can we expect the dummies' guide to Northern Ireland public finances?

Sir Robert Chote: That will depend a bit on resources and on how we proceed with the stakeholder engagement process but, hopefully, over the summer or as early as possible after everybody comes back from their summer holidays, if we can.

Mr Catney: Thanks to Sir Robert, Alan, Esmond and Maureen. I am so excited that we have the fiscal council and that it is moving forward. Coming from a business background, I wanted to be a member of the Finance Committee in order to bring our recommendations through to government. Everything seems to be rushed, as I have said before. There have been five Budget Bills or something, and I do not know how many of them have had their progress speeded up via accelerated passage. The information seems to move so fast that it is very difficult to keep ahead of it.

You have suggested that legislation could support the fiscal council's independence. I am looking at all your appointments. When your report comes out, will we be able to challenge the figures and put our own twist on the report?

Sir Robert Chote: When we produce analysis, the aim will be to explain. It will be to show our working, to use an exam analogy. It is, in part, using that sort of analysis to ask where the numbers have come from and what the assumptions are that underpin them so that people can look at the analysis and make use of it. If, however, they take a different set of assumptions and different views, they can see how important those would be to the conclusions that you have reached.

The question of how much time there would be to consider and ponder the stuff that we produce is part of the broader issue that you have raised about the unpredictability and the quite often squeezed nature of the Budget consideration process. What we can do with a draft Budget will have to depend in part on what the gap between the draft and the final Budget looks like and whether it is going to be more useful for us to provide something smaller and quicker, because that is what the timetable is demanding, rather than something larger. We will have to see how that operates in practice.

It is not our job to come up with policy recommendations. We may have things to say about process etc, but, hopefully, it is raw material that can inform you and public debates more broadly.

Mr Catney: That is really what I am after. I want us to come up with our own ideas, but, in order to do that, we need to have that information at our disposal. I really look forward to your report, and it will hopefully come sooner rather than later. Thank you, and well done.

Sir Robert Chote: Thank you for expressing your excitement. That is a word that I rarely hear. [Laughter.]

Mr Catney: Listen, Sir Robert, you want to be on this Finance Committee. Anything that gives me a bit of information is great. [Laughter.]

Sir Robert Chote: The sentence "You want to be on this Finance Committee" is not one that I had heard yet. [Laughter.]

The Chairperson (Dr Aiken): You might have heard many times already, Robert, that we just want a bit more openness and transparency.

Mr Catney: That is all that I want, Chair.

Mr McHugh: Tá fáilte romhaibh uilig an tráthnóna seo. You are all very welcome this afternoon. In the sense that turkeys do not vote for Christmas, do we really need a fiscal council, given the lack of control that we currently have over our Budget here in the North of Ireland?

Sir Robert Chote: As I say, I have looked at other fiscal councils and worked with people who run a fiscal council in very different countries with different political systems etc. There is no one-size-fits-all model. Their role depends, to a considerable degree, on where power resides in the Budget-setting process, whether there are other institutions of an informal nature that are already in that space, and how important supranational supervision of the public finances is. In almost every case, the biggest contribution that those institutions make is greater transparency and a willingness and a determination to shine a light into the darker corners. Sometimes, things are not being hidden malignly. Rather, it is just that they are quite complicated and glossed over. You do not have a formal role in the process of setting the block grant. The OBR's numbers feed into the setting of the Scottish block grant, but that is not the case here. A number of people to whom we have spoken so far have said that, as a very start, it about getting some explanations and some material for people to explain exactly how all of this fits together. Some of the challenges are around being able to tell a story about what is going on over time. Do you have consistent numbers? When you compare this year with last year and the year before, are you comparing apples with apples and apples or apples with oranges and bananas? There is a lot that can be done by giving people a better information set and enabling them to have greater trust in the fact that those things are being looked at, even if you will not be as deeply embedded in the policy formation process as the OBR and some other institutions of that sort are.

Mr McHugh: I mentioned this in the previous session. What governance structures should we have in place for the fiscal council?

Sir Robert Chote: If you look at the OECD standards, you will see that the first thing is that you will want this to be set up in legislation and not just to exist as a floating departmental advisory body. It is perfectly reasonable for it to be of that form to start with, while it is bedding itself in and learning the ropes, and when you are designing that legislation, but the sorts of things that matter in that legislation are the processes for hiring and firing the key decision makers and the assurance of political independence that that can provide.

You will not set down in legislation how big the institution should be, but you will want to have the institution's funding set in a way that is transparent and is set some years in advance so that, if the Government were to decide to squeeze the institution, as happened spectacularly in Hungary and to a lesser degree in Canada and arguably in Sweden, it is visible and transparent and there can be no debate about the fact that that is what is going on.

The other element, which we have already discussed, has been the right to information from within government: the information that you need to do the job. In some cases, those legal rights are used in anger. In Canada and, I think, in Spain, the fiscal council has taken a Government to court for the information that it required. That is very extreme and, if you get to that point, is a sign of relationship failure, but it is important to have it there as a baseline. There is also the ability to publish within the remits that you have been given without being censored or interfered with by the Government. Those are the sorts of things that you will want to have in legislation. You will want the remit to be defined clearly but not be unduly prescriptive. There needs to be flexibility to allow for not getting exactly right what the two reports a year should really focus on. If you stick it in primary legislation, you are therefore just making a rod for your own back. It is about striking a balance between having a clearly defined job to do and not writing some long description of exactly what every document ought to look like and then stuffing that into legislation.

Mr McHugh: Do you see this Committee as having any role in appointments and the like?

Sir Robert Chote: As you have already discussed with Richard, the Treasury Committee in Westminster has veto power over the appointment and removal of members of the OBR committee, who are effectively the council members. That, as Richard said, is unusual. It has occurred in a couple of other areas, but it is much more of a US-style phenomenon. I do not know whether there are constitutional bars to your Committee's having the same powers in a Northern Ireland context. Personally, I would not have any objection if you had those equivalent powers. Having them has worked fine for the OBR. In some other countries, the appointments have to be approved by a vote of the whole legislature. In some cases, there are committees of the great and the good that then appoint people. There are therefore different models, but the relationship with the Committee is an important one. The appointment model in the UK context has been helpful to the OBR.

Mr McHugh: Thank you ever so much.

Mr Allister: It is good to see you folk again. I have had the opportunity to talk to you about a number of the issues, so I will focus on just a couple of matters. You underscore the importance of access to information being prescribed and enforceable. That would clearly be the case with the local devolved Departments, but do you anticipate having the right of access to information from, for example, the Treasury?

Sir Robert Chote: If legislation is established in the Assembly, I do not think that the Assembly —

Mr Allister: That is right.

Sir Robert Chote: — can force the Treasury to provide us with the information. In the Scottish context, if I remember correctly, the devolution of tax and spending powers was put into legislation first in 2012 and then in the Scotland Act 2016. I think that, in the 2016 Act, the OBR was given right of access to information from the Scottish Government, and the Scottish Fiscal Commission (SFC) was given right of access to information from the UK Government. I suspect therefore that, formally speaking, you, as MLAs, cannot force the Treasury to provide that, but if the commission came up with something that required a legislated fiscal framework in both Westminster and Belfast, those rights having been put in place elsewhere is the opportunity.

Mr Allister: You are absolutely right. The Assembly has no powers to give you access powers to the Treasury, so it may take dual legislation to equip you with those powers. That is important. Very often, in our budgetary discussions in Northern Ireland, we get into pass the parcel a lot — perhaps it is passing of blame — between the local Department and the Treasury. If I were on a fiscal council that was trying to explore some of those issues, I would want to have the power to go to the source for both in order to see what the truth is. You would be considerably inhibited if you did not have, directly or perhaps through the OBR, the powers to access information from the Treasury.

Sir Robert Chote: That is true. There are two points. One is, as you say, the relationship with the OBR, which, for obvious reasons, I hope and expect will be good. I have already indicated that the more we know about the Northern Ireland-specific bits of the OBR's UK public finance forecasts, the better. The OBR almost published — I am not sure whether it got to the final version of one of the welfare trend reports — a Northern Ireland-specific five-year welfare spending forecast. Hopefully, it will be possible to extract that from the numbers that are already there. We need to talk to the OBR about that.

The other point to bear in mind, particularly in relations with Governments, is that, although it is important to have the legislation, your first port of call is not to go to the courts. Your first port of call is to go to the court of public opinion, to Committees, both here and at Westminster, and to the media to say, "To do our job properly, we need this information, and we are not being provided with it". That can be quite powerful, before —

Mr Allister: Ultimately, though you do need the clout of legislation?

Sir Robert Chote: — you get to summoning the lawyers. That is a very rare outcome in the operation of these institutions.

Mr Allister: Yes, but it is by the very existence of the ultimate power to go to statutory enforcement that, very often, you do not have to go there. The power exists, and people know that you can have recourse to it. I am worried about that grey, or blank, area between a Northern Ireland fiscal council and the Treasury. I think that that needs to be properly assessed and tended to.

Sir Robert Chote: The other thing, short of legislation, that you can do is a memorandum of understanding (MOU), which does not have the same force but, again, takes the form of an agreement on the basis of which you can say publicly, "They said that they would be willing to provide this, and they have not done so". There is no legal recourse but it is, nonetheless, a powerful tool.

Mr Allister: I still struggle somewhat to understand, in circumstances where our finances are based on a Northern Ireland block grant, what you will find to do, because it is not a question of balancing budgets or anything else in that regard. Within your ambit is something I raised with the Office for Budget Responsibility: there is, perhaps, useful work to be done on the excessive spend on welfare in Northern Ireland of £5 billion per year. Have we got proper anti-fraud provisions? A fiscal council could usefully explore that. Is that in your ambit, as you see it?

Sir Robert Chote: It is not clear that that would, formally speaking, fall within the remit. The idea that we would have the expertise to judge the level of fraud and error in the welfare system — in the UK context, the Department for Work and Pensions estimates that and the National Audit Office looks at it. The OBR does not take a bottom-up primary view of it. If, as Richard Hughes said, the Government announce new policies or they say that they are going to spend x amount on more people to deal with that particular aspect of fraud and error, the OBR would ask, "Are you talking them away from somewhere else, meaning that the fraud and error is just going to pop up in a different place?" You can ask those sorts of questions. You can also probe, as best you can, whether the Departments and the Audit Office are finding different rates of fraud and error in different places. Is there an empirical basis on which to believe that a higher number of pence per pound is lost through fraud and error in one part of the country versus the other? How robust those numbers would be, given that, by its nature, fraud and error is hard to quantify with huge precision, remains to be seen. It is not that sort of forensic auditing function. We are not resourced in either skill or number of people for that, but there are ways in which you can shine light on that and encourage people to bring you evidence on those sorts of areas.

Mr Allister: We know that, as a starting point, welfare spend per capita is much higher in Northern Ireland.

Sir Robert Chote: Yes, and obviously that partly reflects employment rates, relative wage rates, younger age structure etc. There are a variety of explanations for the differential welfare bills, and differential fraud and error could be one of those.

Mr Allister: If you had the power to produce own-initiative reports, given the straitjacket of our fiscal situation, what do you anticipate you would do such reports on?

Sir Robert Chote: We would need to look at it over time and see what the demands are. An obvious area — this comes under the sustainability report umbrella — is health, given the proportion of Executive DEL spending that it accounts for and, as Richard described, the nature of demographic and non-demographic pressures there. When we get to the first sustainability report, health spending will be a very strong contender for the first special topic report.

Mr Allister: What are you looking for there?

Sir Robert Chote: An explanation of why the level of spending is where it is at the moment; whether the allocation of it looks different from other parts of the UK and why that might be; whether there are particular reasons to believe that pressures over time are likely to be more powerful or less powerful. That matters particularly under the Executive funding process. There are upward pressures on health spending everywhere. Upward pressures on health spending in England and Wales are frequently acceded to, and you see additional money put into the UK's health budget, and we may see more of that later this year. That feeds through to the Barnett adjustment to the block grant. A particular area of interest would be whether there are reasons to believe that those pressures are of a different nature or a different speed in Northern Ireland than in the rest of the UK, given that that is what is likely to drive the block grant decisions. Would Maureen or anyone else like to add to that?

Ms Maureen O'Reilly (Northern Ireland Fiscal Council): Apologies, I could not get on for a while there. I could hear you but I could not see anything.

Just to reiterate, health is the obvious one. The other is probably education. The point of the fiscal council would be to demonstrate where the money is spent. That in itself will tell a big part of the story. That is the basis and the starting point. That is where the emphasis has been throughout the consultation so far. That is the case with political parties and throughout the wider consultation. As Robert said, those issues will emerge over time as part of the sustainability piece. Behind that, there are issues around the ageing population and the different demands, depending on what scenarios we look at. That will come over time. The initial focus is obviously on just trying to explain how things are at the moment.

Mr Allister: Sir Robert, would part of your interest be looking for, and assessing the success in obtaining, efficiencies in government?

Sir Robert Chote: That is one of the areas that is framed relatively vaguely in the brief that we have been given. As you can see from the response letter that we sent through to you, we asked people to say which long-term efficiency programmes they thought that we ought to focus on most. There was a sort of generalised silence as people tried to think of the ones that they would point us to in that direction — arm's-length bodies etc.

Mr Allister: That might suggest that there is not great appetite or thought when you live in a scenario of block grant funding.

Sir Robert Chote: I will leave you to draw that conclusion. You are not the first person to say that in a response to us.

Mr Allister: I take it that your council would not be shy about saying that sort of thing, if that is what you found.

Sir Robert Chote: We will not be shy about saying anything that we find. We are not a policy-recommending body. That will not prevent us from saying something, on occasions, particularly around where we think there are obvious ways that processes can be improved upon. It is not for us to make the judgement as to whether too much or too little is spent on a particular area. That is ultimately a political choice. If there is clear evidence that we can point to that says that a particular category of spending is delivering much weaker results in one part of the country than elsewhere, and we can see, probably from the work of other people, that there are explanations for why that might be, then shedding light on that is exactly the sort of contribution that we could help to make.

Mr Allister: Final question: how should we judge your success or failure?

Sir Robert Chote: This is pretty much the same answer that I gave when I was asked that question when I started at the OBR. At that point, I said, "Do not judge us on the precise accuracy of our forecasts", which is fortunately not an excuse that I have to get in early here. Do people feel that there is more information about the way in which the Government are spending and raising their money? Do people have a greater understanding and a greater trust that the figures that they are presented with are based on good professional judgement, not on politically-motivated wishful thinking? Have we managed to bring more light to the shadier areas of public finance? That is what I tried to achieve at the OBR, and it is what I think that we can hope to try to achieve here.

Mr Allister: Thank you.

Ms Dolan: Thank you, and thank you all for coming here today. You will be glad to know

quick. Do you

?

Sir Robert Chote: I am terribly sorry; I am getting a lot of feedback. Can the Chair repeat the question for me?

Mr Wells: I could not hear the question either.

Ms Dolan: That is OK. It does not matter. I can email it to you.

Sir Robert Chote: Was it something about full-time or part-time?

Ms Dolan: Yes.

Sir Robert Chote: About whether I should be full-time or part-time?

Ms Dolan: Yes.

Sir Robert Chote: I am perfectly happy on the basis of the part-time role that I have been given at the moment. It is clearly a very different role from the full-blown forecasting operation that I had to run when I was at the OBR. The honest answer is that you have to get the institution up and running, you have to start producing the outputs, and then you see whether the resources are adequate to the task. If they are not adequate, whether the best way of spending the marginal pound is having more of council members' time versus more staff support will, I am sure, be an open question. The short answer is that we have to get on with the job and see. It is another reason why not putting things like the Budget too inflexibly into legislation, because we are learning as we are doing, is quite important.

Ms Dolan: OK. That is fair enough. My other question could have the same answer. What is your view on having a maximum period of service for the chair and council members?

Sir Robert Chote: I think that that is perfectly sensible. In the UK context, I served the two five-year terms that I was permitted to serve. Leaving aside the particularities of a fiscal council, spending more than a decade running an institution is probably not in your own best interests or, indeed, in the best interests of the institution that you are running. While I would cheerfully have carried on, it is probably good for me and good for them that I was not allowed to. I refer you to the US political process as well.

Ms Dolan: No problem. Those are my questions. Thank you, Chair.

The Chairperson (Dr Aiken): Thank you very much indeed, Jemma.

Sir Robert, I have just one final point. The idea of doing a comparative study — obviously, Health immediately stands out because it is 51% of our budget. Many people would say that Northern Ireland governance is essentially the Department of Health with a few other bits tagged on. One of the issues that we have is, bearing in mind the block grant, do we get value for money for the services that we have? The comparator with what is delivered across the rest of these islands is quite an important piece of work that may need to be done before we start doing deep dives into particular departmental areas. I only say that because I appointed a Health Minister, but that is neither here not there.

We need to understand whether we are getting effective governance for our block grant at the moment. Of course, I do not think that anybody can put hand on heart and say we are achieving the best value for money, or whatever it is, or even a comparator to do that as well. I do not even think that we know the delta of the difference between what we deliver in, let us say, our education sector and what is delivered in the southeast of England, Wales, Scotland or wherever it happens to be. Even that degree of analysis is quite important. Some of the discussions that we are beginning to see now are about what is going to happen after the next Assembly elections and moving on to the next stage, by which time we really hope that the independent fiscal council is fully embedded into the process. That is a piece of work, I suggest from this Chair, that we would probably like to see before we delve down into a particular area. First, find out how far we are away from everywhere else, then we can look at individual sectors. That is just an observation.

How do you see the interrelationship between the fiscal council, the fiscal commission, this Committee and, in wider terms, the legislature? You have already taken quite a lot of evidence. I have already talked to you separately from a party perspective. How do you see that interrelationship and that triangle working?

Sir Robert Chote: In the steady state, it is going to be a bilateral relationship between us and the Committee. I see the Committee, just as I did with the Treasury Select Committee in the Westminster context, as being an absolutely key stakeholder. You are amongst the most informed people with questions to ask about the things that we are supposed to be looking at that we will be willing to find. As I always used to say to the Treasury Select Committee in London, we should be accountable to and responsive to the Executive and the legislature but independent of both. However, that is an important relationship, and we will be wanting to talk about whether you think that we are delivering news that you can use, as it were — analysis that is helpful, and, of course, in the form and timescales that you need for Budget consideration.

On the relationship with the fiscal commission, they are separate tasks. I have spoken to Paul about that. There are models from Wales and Scotland about the sorts of programmes of work that the commission will undertake. I am sure that some of that will be familiar, and it may have different ways that it wants to do that. There may be a shared usefulness of our initial introductory guide work that may also be helpful in feeding into what it is doing. There may be scope there for using resources effectively.

In the longer term, when the commission ceases its work, there will be a pool of informed people who have been working in this area whom I shall be looking greedily upon for the longer-term funding and resourcing of the council. In the near time, there obviously needs to be a division of resources. I suspect that we will have more capacity in the steady state than we will while the two of us are operating in parallel. However, it is not our job to be telling the commission what to conclude. One thing that I would be keen on is that, if the commission has proposals for greater or different forms of devolution, it gives thought to the task that that would then leave for the council, and indeed you and the Department of Finance, to deal with in managing that process thereafter. I look forward with great interest to seeing where it goes with its discussions and then what you, on the political side, do with whatever recommendations it comes up with. Obviously, in the meantime, we will be keen to share information and expertise and avoid duplication as far as we can.

The Chairperson (Dr Aiken): Maureen or Alan, do you have anything to add?

Professor Barrett: A quick one, Chair, if I may, and it is on your question about the relationship between the fiscal council and the Finance Committee, drawing on my experience when I was on the Fiscal Advisory Council here in the Republic. We would write and release the reports, do a launch and discuss the reports at that time, and always got good coverage. Typically, a couple of weeks later, we went to the Oireachtas Finance Committee and then the Budget Committee. It was through the interrogation that a lot of the issues in the reports were brought to life and illuminated, and there was often a second round of media reporting of our reports in the context of the Committee's questions. Obviously, we keep talking all the time — education and informing is an important part of the role — so, if I can put it back, it is almost like a challenge to you and your colleagues on the Committee. It will be up to you to come along and ask us the interesting and engaging questions that will keep the media interested in our joint work. To go to one of Jim Allister's questions on what success looks like, there was a media interview of a Minister that began with, "The Fiscal Advisory Council has said x. How do you respond?" It is that idea that what you are saying will be considered authoritative and challenging. I think that those are some of the dimensions along which success can be measured, and, as I said, maybe the next time that we are talking to the Committee, you will remember the challenge that we are setting, which is to engage and ask us the questions that illuminate

The Chairperson (Dr Aiken): Alan, that is quite interesting, because I remember, every time that the report came out in Dublin, we went either to the Irish Business and Employers Confederation (IBEC) or to one of the other numerous briefs that were being held. There was a big role for what I call informed civil society and that degree of engagement. That is the bit that I think that we also need to develop here in Northern Ireland. There needs be that sense that, when the report is published, it is of significant importance and it receives that analysis. Like me, Alan, you will have gone round the numerous breakfasts. You will have gone to the IBEC breakfast, the PricewaterhouseCoopers one, the Ernst and Young one — you will have done the whole thing. The reality was that that was part of the landscape, and you knew exactly the time of year when that was going to take place. You knew the engagement with the political process that was going to happen beyond that, and it was very much fixed in the timetable to do that. Again, that created the sense that the scrutiny was coming and that all the work had to be done beforehand to be able to get to that point. I sense that we are a very long way from that yet, and that is why we need to get the building blocks in and get it on a statutory basis so that we can actually get this process rolling. I think that that is a very valid point, Alan. I see a significant role for what I call wider civil society in Northern Ireland as well as us, and people becoming really latched on to this being the thing that we need to keep on looking at because this is the degree of scrutiny and understanding that we need to have. We need to be able to hold truth to power, but, equally, we need to be able to do it in an informed way. I think that that is one of the important pieces that we need to see.

Ms O'Reilly: Linked in with that and with what Jemma said earlier about the term of the council members and, indeed, the staff, we are at very early stage. We will be building up, hopefully, an awful lot of expertise. There is a tendency to

build up the expertise and someone moves, so it is important that investment is made and is given time to come to fruition so that we can make better-informed decisions and we are able to help in that whole process going forward. You are probably asking whether I am talking myself into

but, in a sense, it has to be given time to build up that level of expertise, both in terms of the council members and the staff.

The Chairperson (Dr Aiken): Sir Robert, Alan, Maureen and Esmond, who has gone away, thank you very much indeed for your evidence session and for everything that you have done. We have a lot of work to do. The sooner that we can get this up and rolling, the better. I am really looking forward to reading the handbook. Maybe I can have the second copy after you have presented it to the Finance Minister.

Finally, when we are talking about the MOU, given the unique relationship that we have in Northern Ireland with the role of the Executive Office and the role of the Northern Ireland Executive and given that, in many respects, the Departments spend their lives working in stovepipes, despite the best efforts to bring it together, I think that it is very important that this MOU is not just with the Department of Finance but is spread out further. I think that that will be very important as we move forward. Thanks very much indeed. Cheers, everybody.

Sir Robert Chote: Thank you very much for your time.