Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): Joining us today from the Scottish Fiscal Commission (SFC), we have the confusingly but happily named John Ireland, who is the chief executive, and Professor Graeme Roy, who is the chair. Hello, Professor Roy, and hello, John. We are really grateful to you both for making the time to join us today. It will be really helpful for our deliberations on our statute. Professor Roy has agreed to make an opening statement, but any opening remarks are welcome. Thank you both very much.

Professor Graeme Roy (Scottish Fiscal Commission): Can you hear us OK, Convener?

The Chairperson (Mr O'Toole): We can all hear you.

Professor Roy: Excellent. Thank you so much. It is a real privilege to give evidence to the Committee today. I will say a bit about who we are and some of our reflections about our independence and how we are set up, which could be useful for the Committee's work. We have followed the work of the Northern Ireland Fiscal Council quite closely since it was established in 2021. Our teams have worked quite closely with council staff in developing some of our work on longer-term fiscal sustainability.

I will talk a bit about our legislation. The Scottish Fiscal Commission Act was passed through the Scottish Parliament in 2016, and we became a statutory body in the following year. Since then, OECD has reviewed us twice, building on the principles that it recommends that fiscal councils follow. Those principles are well worth considering. Indeed, in the very first review of the Scottish Fiscal Commission, the OECD explicitly looked at how our Act supported our work.

As I said, I have approached this session by thinking about whether there are any insights from our legislation and wider experience which may be helpful in your scrutiny of your own Bill. I will focus on three issues: independence, remit and external review.

The first of these, independence, is the priority and the most important for any fiscal institution to carry out its work without political interference or pressure either from devolved or national government. This is, for me, the essential prerequisite for any independent fiscal institution.

Independence covers a number of dimensions. It is not just the independence of the institution but the independence of its members, including how they are selected, clarification about disqualification to be appointed and the term length. One difference that I noted with our own legislation on council members is the involvement of the Scottish Parliament in our appointment process and in dismissals. Our commissioners are appointed by Scottish Ministers following approval by a vote in the Scottish Parliament. Similarly, commissioners can only be dismissed by Ministers following a vote of the Parliament. The involvement of Parliament adds another check to the Government's role, and my observation is that it also helps to foster ownership of our activities, not just in government, but also by Parliament and its Finance Committee.

The Chairperson (Mr O'Toole): Just on that —. Go ahead, Graeme. I will ask that question at the end.

Professor Roy: OK. Great. Thanks. Another element of our independence concerns the resourcing of the council. It is not mentioned in our own legislation, but our first framework agreement with the Scottish Government included an element of multi-year funding, with a clear settlement for the year ahead and indicative settlements for the following two years. You will be aware that the UK Treasury now gives the Office of Budget Responsibility (OBR) a rolling three-year settlement, and our last external review suggested that we consider a similar approach.

A further element of independence concerns information. Having access to the information required to do the job that you want any fiscal institution to do is essential. It is helpful to include a statutory right of access, as is done in your Bill. From time to time, it is helpful to remind people of this provision.

Finally, I note the explicit statement in the Bill:

Ministers, Departments, the Assembly or the UK Government. This matches a similar statement in our legislation and one that is reflected in our two operational agreements with government.

The second theme, beyond independence, is remit. I am not going to say too much about the proposed functions of the council, but I am very happy to discuss these in questions. We can talk about our forecasting functions if that is helpful. One thing that I would say is that the inclusion of a general power to publish reports on public finances in Scotland has been very helpful to us over the years as we developed our work. I see that a similar function is included in your Bill. We make use of that power here to publish our fiscal sustainability reports and also to have flexibility to expand our commentary on any fiscal issues beyond the set-piece fiscal events.

Finally, there is the third issue of external evaluation. We have gone through two such evaluations. I found them both to be really valuable exercises. The first one was after two years as a statutory body. We thought that that might be too early at the time, but actually, it was not. Two years allowed us to make a start without anything being set in stone. I see that your Bill proposes the first review within the first year as a statutory body. That could make sense. Our role changed when our Act was passed in 2016, from approving the Scottish Government's forecasts to doing those ourselves. It took us time to establish these new responsibilities. That is a more substantive change in function than you envisage with your council.

I hope that these remarks are helpful, and I am more than happy to take any questions. John and I will do our best to answer them.

The Chairperson (Mr O'Toole): Thank you very much. That was very helpful. As always, members, please indicate should you wish to ask a question.

I have lots of questions. First, is it right to say that the Scottish Fiscal Commission was born out of discussions around the Smith commission?

Professor Roy: The original debates around the Fiscal Commission were part of a broader debate in the Parliament, more generally, that if Scotland were to get greater fiscal power, under a revised constitutional settlement, an independent fiscal institution would be a key pillar in the institutional governance make-up that would be needed. Essentially, the Smith commission and then the fiscal framework, which underpinned the fiscal elements of the Smith commission, were the core drivers for the creation of the Scottish Fiscal Commission.

The Chairperson (Mr O'Toole): Unlike here, a part of the stimulant or catalyst for creating the Fiscal Commission was a determination, which was ultimately agreed by the UK Government and the Scottish Government to devolve more fiscal powers to the Scottish Government and Parliament. That is simply an observation. There is no consensus here by any means, and it is not even a clear policy intent. We are setting our Fiscal Council up before that happens.

Thank you for looking at our legislation, despite your busy schedule, so that you can give a comparative view of your statutory underpinning. Is it fair to say that your relationship with the Scottish Parliament is more directly legislative than what is proposed in the Northern Ireland Fiscal Council Bill?

Professor Roy: Yes. I have a couple of quick comments. The transfer of fiscal powers was a motivation, and that has clearly been significant to the Scottish Fiscal Commission, given its important role in forecasting devolved taxes, income tax and social security. Our more recent work has looked at questions around long-term fiscal sustainability and public spending. A lot of those powers were already in place in the Parliament, and having an independent fiscal institution to do that analysis in an impartial way, with the right to access government data and engage with the Parliament, has been beneficial.

John might want to say a bit more about the relationship with the Parliament. We have a very close and engaged relationship with the Parliament. I mentioned its additional role in appointments, and that is significant. We also give regular evidence, particularly to the Finance Committee, on data needs, evaluations of our budget forecasts. We have a very close relationship with the Parliament. We see our role as not just a statutory responsibility because our day-to-day activities inform the work of the Parliament.

Mr John Ireland (Scottish Fiscal Commission): Our relationship with the Parliament comes from a number of places. In part, it comes from the Act, which, as Graeme has said, has provisions about appointments, which have a double element that involves both our Parliament and our Government. Also, at the time of the Holyrood report, the Smith commission and our establishment, the Scottish Parliament reviewed its budget-setting process. We were very involved in those discussions, which led to another recent agreement between the Government and Parliament that wrote our role into the process. Our first OECD review recommended much closer links with the Parliament, and that enabled those to be set up. It enabled the Parliament to say, "Even though it is not in the legislation, we want you to do the work on fiscal sustainability". The role has developed, partly because of the legislation, but for other reasons as well. That is why doing early reviews is helpful, because it allows the relationship to be cemented between Parliament and the Fiscal Council.

The Chairperson (Mr O'Toole): I guess that one of the most important manifestations of your reporting structure and how you are set up is resources. How are your resources allocated? Who provides your budget?

Mr Ireland: That is set out in our framework agreement. For every public body in Scotland, there is a framework agreement between it and Scottish Ministers setting out the basics of the relationship between the two. Our framework agreement specifies that we have a rolling three-year budget of sorts: we ask for funding over a three-year window, and the Scottish Ministers give us a firm commitment for the year ahead — that is included in the annual Budget Bill — and an indication of the funding for years 2 and 3. That is a rolling window, in line with OECD principles, which suggest having that in place in order to stop the Government from cutting funding immediately. There is a recommendation, in the most recent OECD review, that we strengthen that and move to having not just a one-year budget plus two years' indicative budget but three years of actual funding. That is the way in which the new Chancellor of the Exchequer has agreed to fund the OBR. I get the sense that that approach is much stronger than the approach that is proposed in your Bill.

Being a separate, public body, our finances are distinct and separate from those of the Government. The Government give us an allocation, and it is up to us how we spend it. That is enshrined in legislation. There is a similar provision in your Bill, I think.

The Chairperson (Mr O'Toole): Unpack that a bit more for us, if you would, Professor Roy or John. You are a body corporate, completely distinct from the finance department of the Scottish Government, the precise name of which escapes me — there is a specific clause about that in your Bill. That department does not set your budget; there is a framework agreement, and you have some guarantee of multi-year funding. From that perspective, you are saying that you have more independence and surety than is provided for in our Bill.

Mr Ireland: That is a fair statement, yes. We are formally a corporate body, and we are part of the Scottish Administration. That means that we are not part of the Scottish Government, but we are civil servants — staffers. That gives us quite a lot of independence from the Government. It gives us independence of funding and independence in how we use our budget. Ultimately, however, we are dependent on Scottish Ministers agreeing to fund us to a certain level.

The Chairperson (Mr O'Toole): Although I am sure that this would not happen, is it theoretically and legally possible, therefore, that a Minister could say, "I am just not going to give you a budget"? Obviously, there would be consequences for that, but, legally, there is nothing to prevent that from happening.

Mr Ireland: Absolutely. There is an alternative way of doing it. For example, our audit body, Audit Scotland, is set up differently. It is set up to be funded by the Scottish Parliament.

The Chairperson (Mr O'Toole): Indeed, yes.

Mr Ireland: In that case, the Parliament controls the purse strings. Audit Scotland is still subject to political control, but a different sort of political control.

Those are the different models. The OECD basically looked at all those bodies across the world, and roughly half are funded by the Executive, as we are, and half by the Parliament. It is 50:50.

The Chairperson (Mr O'Toole): It is 50:50 in terms of the number, but do you have a view on which model is preferable? It may be 50:50 in terms of the number of fiscal institutions throughout the world that are funded by Governments and the number that are funded by Parliaments or legislatures, but is it six of one and half a dozen of the other when it comes to the outcome of each of the models, or do you think that one is better?

Mr Ireland: Our model works better for us because the fact that the staff are civil servants means that we can operate in the same labour market as Scottish Government analysts and offer our staff a strong career path. The Scottish Government's track record for funding us has been very good; we have not had arguments about funding, and they have, basically, given us what we asked for, so far — one cannot bank on that. It has worked well for us in practical terms. One could envisage circumstances in which it would not work well, but one could also envisage circumstances in which Parliament controlling it would not work. It has worked well for us, practically, and we like it, but I think that it is very much a judgement call.

The Chairperson (Mr O'Toole): It is fair to say —

Professor Roy: Can I just say —?

The Chairperson (Mr O'Toole): Go ahead, Graeme.

Professor Roy: I was going to add to that. This is where the links on the funding are important to the other aspects of the independence in the Bill. For example, because we have that reporting to the Finance Committee, I have been quite clear that I am more than happy to always answer that question from the Finance Committee about our funding. We go along to our Finance Committee every year and give an assessment of governance and how activities are going. As I am an independent commissioner, if I were ever to have any concerns about how we are being funded or how we interact with the Government, that is the point at which I would raise those concerns. That is transparent, and there are checks and balances involved. As John said, the benefit of being within that broader, Scottish Government aspect is that it is quite useful for smaller organisations because they do not have to do absolutely everything themselves. We get that. We get the benefits of being in there, but we also have that independence, which is, ultimately, the most important bit.

The Chairperson (Mr O'Toole): Of course, you have the added independence, which is not in our Bill, when it comes to appointments. Is it you, Professor Roy, as chair —? Is the appointment of the chief executive subject to approval by the Parliament, or is it just the members of the commission, as it were?

Professor Roy: The commissioners are appointed by Parliament, but the chief executive and all those appointments will be typical Civil Service appointments.

The Chairperson (Mr O'Toole): OK.

Mr Ireland: The Civil Service appointments are controlled by the commissioners.

The Chairperson (Mr O'Toole): Yes, OK. Fair enough. That makes sense.

There is a line in your Act that caught my eye because it is slightly different from what we have. Obviously, you have additional powers, which, because of limited fiscal devolution, we do not yet need. We do not need lots of forecasting powers around revenue, for example. There is a description about the "reasonableness" of the actions of Scottish Ministers. You are asked to make a judgement about:

What does that mean? I know that there is an entire universe of jurisprudence on the word "reasonable", but what does it mean in your world?

Mr Ireland: That is a narrow section. It refers to the reasonableness of the Government's borrowing plans. The Scottish Government can borrow on resource and day-to-day expenditure to cover forecast error. The Government have a limited power there, but they can do that. They also have slightly more generous, but still quite limited, powers on capital borrowing. With each fiscal event, we are required to say, "We think that the assumptions that the Government are working on are reasonable and make sense" and also that the borrowing plans coming out of that are sensible. Basically, it just requires us to make a judgement on those borrowing plans, but, because the Government's powers are quite limited, it is, on the face of it, a very limited requirement. However, we have used that to say, "Well, look, the extent of how much you need to borrow depends on your spending plans", and that allows us to think about the Government's spending plans in general as well. In our forecast publications, we tend to produce a narrative about spending plans, how they sit relative to funding and the gap between the two. It is very much in that sort of space. It is relatively constrained.

The Chairperson (Mr O'Toole): The word "reasonableness" also appears when it comes to:

You have given us a useful explanation there.

My other question is about forecasting. Section 2 of your legislation obliges you to produce forecasts on the devolved taxes and other, as it were, ascertainable revenue, such as VAT and income tax. When it comes to VAT, you are making a forecast of Scottish VAT receipts over a five-year period. We do not yet have anywhere near the level of fiscal devolution that Scotland has, and we may never have that, but I have asked whether we should bake in at least the power to do economic forecasting. Is it correct that you are also obliged to create a GDP forecast, excluding oil and gas?

Professor Roy: Yes.

The Chairperson (Mr O'Toole): One argument made back to us has been, "We don't think it's worth the Northern Ireland Fiscal Council's doing forecasting of GDP or economic forecasting yet", in part because there is no political agreement, or even defined policy, on further fiscal devolution. Do you find the economic forecasting bit of your job useful for other work, in addition to just the devolved taxation piece?

Professor Roy: I would say so. Essentially, we forecast the taxes and social security elements that are devolved. That is devolved taxes and also income tax because, even though that is not devolved, in the sense that it is still collected by HMRC —

The Chairperson (Mr O'Toole): The power to set it can be varied.

Professor Roy: — it is part of the devolved public finances. The Smith commission recommended that VAT be devolved, but it has not been. It was only ever planned to be the assignment of VAT, rather than the actual devolution of VAT. In other words, we would estimate a proportion of the revenues that would have been collected from VAT in Scotland, and that would flow into the Budget. We will, maybe, come on to that. The assignment of VAT immediately gets into some quite technical issues about how you measure how much VAT has been collected in Scotland when you have, essentially, businesses operating all across the UK. It has proven to be very technically difficult to do, and that has largely been delayed. We await further details from the Government about when, and whether, that would ever come in.

We also, as you say —

The Chairperson (Mr O'Toole): Sorry. To crystallise that for the purpose of our record, you, basically, forecast Scottish VAT receipts, even though there is no current plan to devolve VAT to Scotland.

Professor Roy: We do not do them every single time; we do an illustrative estimate, because that, ultimately, is something that could come down the line. We do not, for example, do really deep-dive forecasts into what we do around income tax etc, which would have an impact immediately on the next year's Budget.

One of the reasons why we were, essentially, set up to forecast on the economy was explicitly linked to the fiscal framework, which had in its original draft for Scotland a mechanism that would unlock additional borrowing flexibilities in the instance of an asymmetric shock, which is where, essentially, there was a difference in the forecast for ourselves and the OBR for the UK that suggested that Scotland was in a different economic position in the cycle compared with the UK. That was done in the initial fiscal framework. It was, largely, reviewed as being not that effective, and the borrowing flexibility increased anyway, so that no longer exists in the detail of the fiscal framework.

However, the benefit of being able to forecast the economy independently, and to write up the outlook for the economy, is really important for several reasons. First, it is a regular independent stress test of how the economy is doing, which is quite important; it gets that regularity in there, it gets Parliament talking about it, and it improves public debate. Secondly, it means that we do not focus only on GDP. By having to forecast GDP, you then look at things such as earnings, living standards and unemployment, which facilitates a much broader debate about wider public policy. We might not take it into public policy, but the fact is that there is a big evidence base there that people can use. The third bit is about that evidence base. By looking at not just quarterly GDP but things such as demographics or climate change, we can provide an evidence base that other people can look at and say, "Well, there's the really big challenge in Scotland of an ageing population. We now have this robust set of data from the Fiscal Commission. How do we then feed that into the work of Public Health Scotland or government, or the scrutiny of Parliament?".

That evidence base, from the work that we do on the economy and in forecasting and doing projections, generates a lot of benefits beyond simply being asked to do it for an asymmetric shock element, which no longer exists.

The Chairperson (Mr O'Toole): On the point about resourcing internally and your staffing complement for forecasting, is it possible to say how many additional people you have working on that, or is that difficult to disaggregate? How many people would you not need were you to strip out your economic-forecasting responsibilities?

Mr Ireland: Our economy team consists of two people, with input from a third member of the senior management team (SMT). It is a relatively small team. We built our macro model for Scotland in EViews, which is a standard software package. It is straightforward to run the economy forecasts, but it is a also scarce skill set, so it is hard to find the people to do it.

The Chairperson (Mr O'Toole): Indeed. OK, that is extremely useful. When it comes to devolved policies, we barely ever, in our policy debates, end up talking about the economic consequences. We sometimes talk about the fiscal consequences — i.e what something would cost — but we rarely talk about what it would raise, because we raise very few revenues, and we rarely talk about economic consequences. For example, the Communities Minister announced the JobStart policy the other day. There is clearly some merit in that, and there are also questions to be asked about it. As he was saying in the Chamber, however, any economic benefit that that generates for Northern Ireland will not come back to us directly. There is an argument for making the actual economic consequences of decisions more a part of our debate. That is my observation. Thank you very much.

Ms Forsythe: Thank you, both, for joining us today. When we are building something new, it is good to have the opportunity to learn from others. We really appreciate your taking the time to speak to us.

One of my concerns around the Northern Ireland Fiscal Council Bill is about making sure that the body sets itself apart with enough independence. You spoke to that a little bit today: the way that you sit is a little bit like our Audit Office or the Northern Ireland Public Services Ombudsman (NIPSO), which report to the Assembly through our Audit Committee rather than sitting within the Department of Finance. I have concerns that our Fiscal Council will be seen as another branch of the Department of Finance. As the Chair said, we want to make sure that we afford the council enough powers to capture wider economic and societal outcomes. That is everyone's intention, and we do not want the legislation to place limits on it.

Your framework document is from 2019. Do you keep that under live review? Do you get feedback on what is going well and what is not? Have you had any amendments since your Fiscal Commission came into play? I hope that we will have our council in the best shape possible, but I am just thinking about how things might evolve over time. I am keen to hear how things have gone for you since your commission was established.

Mr Ireland: It is interesting that you noted the date of the framework document. Our Act was passed in 2016; we were set up in 2017; and, as you said, the framework agreement was not signed until 2019. The reason for that was that we were very clear that we wanted our multi-year funding settlement to be set in that framework document. That explains why there was a delay in publishing the framework agreement.

We are in the process of revising the framework document. A lot of the stuff in the document is procedural, and we are tweaking that. The major thing that we are thinking about, however, came from our most recent OECD review, which recommended that the multi-year agreement on funding should be strengthened to improve our independence. The conversations that we are having with the Scottish Government now on the framework agreement are about how we can improve and strengthen the multi-year agreement in line with the OECD review recommendations. Those conversations are in progress.

Ms Forsythe: Are your framework or guidelines referenced in your legislation?

Mr Ireland: All public bodies in Scotland are required to have a framework document. It is covered by public bodies legislation rather than our Act.

Ms Forsythe: It might be worth teasing out what that means for us.

I was interested in your comments around trying to isolate the figures for just Scotland when you talk about things like VAT. It is an important point. So many of our companies operate throughout the United Kingdom, in the Republic of Ireland and further afield, and extracting the figures is difficult. Is there a formal or informal way in which you and all the fiscal bodies, at Westminster and elsewhere, profile work together to get the picture across the United Kingdom? Should we be considering that working relationship, as the Northern Ireland Fiscal Council is formed? It would be good to get reciprocal reporting on a number of those things.

Professor Roy: I will say a couple of things, and then John might want to add some bits.

We do not take a view on what taxes should be devolved. Once taxes have been devolved, we take a view on what we should look at. The debate about which taxes are, from an administrative point of view, easier to devolve versus ones that are more difficult, is a step before it comes to us. Things like property taxes — our land and buildings transaction tax — was, from an administrative point of view, relatively easy and straightforward to devolve in the sense that there is a geographical boundary to measure it in. It is similar with income tax. It is a bit more complicated, but all taxpayers in Scotland now have an "S" in their tax code, whereby, if you live and work in Scotland, you are identified as a Scottish taxpayer. When you get into the business tax world — for example, corporation tax, VAT on consumers and also on spending more generally — measuring it gets more difficult. The issues around VAT assignment are still being worked through as to whether it is possible to come up with a robust estimate of how much VAT is being collected within a geographical boundary.

On the point about working with the other fiscal councils, as you can imagine, it is a unique club of people who work in this area. We have a really good working relationship with the OBR, which also does work for Wales, and with colleagues in the Northern Ireland Fiscal Council. We get together regularly to discuss areas that we are working on, and we learn from them. For example, as I mentioned, we have learned quite a bit from colleagues in Northern Ireland about the work they have been doing on long-term public spending projections linked to demographics. We have learned from the OBR on the work around climate change. There is a bit of interaction, and we share ideas and issues as they come up.

Ms Forsythe: It is good to hear that you are working together. What is your view on whether there should be some sort of formal recognition of the need to work together? Even the fact that you are initially working together is welcome.

Professor Roy: We have much more formal arrangements with government around data access. We have more areas, through our protocols and our statement data needs, not so much in the

councils but more with government, where we will set out what we need to do our work. It comes back to the important point about an institution's independence being what is written down but also how that institution behaves and acts. One of the most powerful things that we do, to protect our independence but also to get what we need from government to do our work, is that, every second year, we publish a statement of data needs. We then go and give evidence on that to the Finance Committee. That, essentially, sets out what we need to do our job. Because it is public and because we engage with the Committee, it becomes a really good way for us to get the information that we need. The Government could tell us to go away or not respond to it, but, because it is done quite publicly and as, "This is a genuine ask. This is what we need", we find that it works as a really effective mechanism to get the data and insights that we require to do our job.

Mr Ireland: Our Act contains a duty to cooperate with the Office for Budget Responsibility. There is a legislative requirement to do that. It is a very simple clause to insert.

Ms Forsythe: Thank you very much.

Mr Kingston: Thank you for your time and for sharing the benefits of your operation in Scotland. I expect that, if you came to work for the Northern Ireland Fiscal Council, you would be frustrated by the restricted financial powers here compared with what you have, given the level of devolution in Scotland. It is important, however, to have that independent body in order to have public confidence in the figures provided by government. I am interested to learn that you provide the official forecast for the economy and for government income in Scotland. How do you avoid straying into the political sphere by not commenting on government policy? Not so long ago, at UK Government level, alarm bells were ringing about a particular government's forecasts. How would you raise concerns without going into the political sphere, if you felt that government plans did not add up and would be damaging for the economy?

Professor Roy: It is a really good question. We spoke about our independence from government and our ability to work in a way that we give our views and our analysis. It is also really important that that independence means that we actually are independent. We have to take that responsibility exceptionally seriously. It is very precious to us. As I mentioned, the independence of the institution is the most important thing for a fiscal council. The onus is on us not to get involved in clear political debates and not to comment on party politics or political decisions, because, if we lose our independence or if the perception is that we have lost our independence, that would be a real challenge. That comes back to being careful about who you appoint; what processes you have in place; your publications; and the process of identifying errors and mistakes that you might make. The independence goes both ways.

I will say a couple of things about how we operate in practice. We only model policies that the Government are announcing and implementing. We do not model hypotheticals from Opposition parties, for example. We do not say, "Well, if you'd done this, you'd have got this outcome". If they want to put 1p on income tax or introduce a new social security payment, we will forecast how much that will cost and what the effects will be on the economy or on revenues. We tend not to comment on outcomes. We will not enter a subjective judgement about whether something is a good or bad outcome. We keep very much to analysis and rigour.

That does not mean that we shy away from highlighting issues. We tend to highlight a particular issue, and say, "This is an issue that Parliament needs to debate". For example, we did a lot of work recently looking at a gap that is emerging between the Scottish Government's social security spending commitments and the funding that is flowing through for that. It is not our judgement to say whether spending more on social security is a good or bad thing. However, what we can do is pose questions and highlight the fact that that will potentially impact on spending elsewhere, that it will potentially lead to difficult choices for the Government, and that the Government might want to think about what their evidence base is for that assessment over the long term. We throw it back to the Opposition parties as well, and say, "If you're going to offer alternative suggestions, you need to think about where the moneys are going to be saved".

We spend a lot of time being careful about the language that we use. We try to highlight issues and offer probing questions that Government and Opposition parties need to respond to, but we are very clear that, ultimately, decisions about policies are up to the Government and the policymakers.

Mr Kingston: Thank you. I will ask one other question, Chair, if I may. In the OECD submission to us, we scored lowly on the merit-based approach of our appointment process. It seems that, pretty much, the members of our council will be appointed by the Minister. It has been highlighted that there is a lack of merit-based leadership and merit-based staff selection. We have had a debate about that. You said, I think, that, in your commission, members are appointed by the Minister but that there is another level of appointment.

Professor Roy: Yes. We have just gone through a recruitment process for commissioners. Typically, I lead the recruitment process. I chair a panel that involves me, relevant government colleagues, someone from the Ethical Standards Commissioner — someone to look after the fit-and-proper test and the principles of public life — and an independent member, who is completely separate from government and the Fiscal Commission. When we have a panel, we advertise, and we have a merit-based interview. After that, I make a recommendation to the Minister. The Minister makes a decision based on that recommendation, but, crucially, the Minister makes a recommendation to Parliament. Typically, the people who have been recommended then give evidence to the Finance Committee and go through almost a second interview stage, after the forward stage with colleagues and me. The Finance Committee makes a recommendation to the Chamber, which votes on the recommendation. The Minister then makes an appointment.

As John said, Parliament's involvement is important, because Parliament can influence the decision. Speaking frankly, as someone who has gone through it, I really valued the process of engaging with the Finance Committee. Given that so much of what we do is about bringing rigour, independence and impartiality to the Budget process, I certainly felt that giving evidence to the Finance Committee and almost getting its blessing or sign-off, which showed that it trusted me to do that, gave me confidence to engage in the work as a commissioner. The Parliament bit is important not only from a process point of view but from a practical point of view as regards how we work as a commission.

Mr Ireland: There are two statutory bases to the process of appointing our commissioners. First, there is general public body legislation, which requires that all board members of public bodies in Scotland are appointed through an open and fair competition. Then, there is the Scottish Fiscal Commission Act 2016, which requires the additional element of parliamentary approval. Thus, there is the statutory basis on which public bodies in Scotland run, which is about open and fair competition, and the additional power that Parliament has to approve our appointments.

The OBR, which is the UK fiscal council, has a very similar same process: an open and fair competition followed by confirmation hearings by the appropriate Select Committee in the House of Commons. It, too, is a two-stage process. Open and fair competition underpins both systems.

Mr Kingston: OK. That was very helpful. Thank you.

The Chairperson (Mr O'Toole): You mentioned commentary on statements made by the Opposition. I am tempted to say, "Asking for a friend", before I ask this question. Are you obliged under law to make commentary on Opposition proposals or the cost of Opposition proposals, or is it just something that you do?

Professor Roy: We explicitly do not do that. Our legislation limits us to commenting and making forecasts only on government policy, so we do not forecast on any alternative policies, be they from Opposition parties, think tanks or even our own ideas. We do not do that at all; we focus explicitly on government.

The Chairperson (Mr O'Toole): You said something about making comment on, or commenting on, Opposition proposals. Is that something that you might do in commentary?

Professor Roy: No.

The Chairperson (Mr O'Toole): I misheard you then.

Mr Kingston: I think he said that they would not do so.

Professor Roy: We comment on government policies. We say, "These are the trade-offs that you might want to do". Typically — I think that this is the point that you are picking up on — because we work on the Budget, we also make general statements, such as "In order to understand the Government's spending commitments, and if you are going to suggest alternatives, you need to come up with scenarios about where other elements are going to come from". We make general comments to try to improve the quality of the debate, rather than to encourage people to keep totting up and saying, "These are other things that we would do". We do not go into specifics about what that would look like.

The Chairperson (Mr O'Toole): I heard that; I wanted to clarify it. Brian, I will happily put all our policy papers in your pigeonhole so that you can read them.

Mr Kingston: You will have to do your own homework.

Miss Hargey: Thanks very much for the update. Some of the questions that I was going to ask have been answered. My first question is on data-sharing or access arrangements with the OBR. Obviously, we work on an island. We have east-west relationships — we get the block grant from Westminster — but we also have North/South relationships. In your experience, are there additional data-sharing and access issues that we would need to consider in the context of working in an island-based economy, taking into consideration the east-west relationships as well?

I also want to ask about the external review. In March, the OECD report stated that one of the critical functions of your commission is "empowering political and public understanding" of Scotland's fiscal challenges. I have a question around the independence and make-up of the council in Scotland. Do you provide analysis on just fiscal policy, or do you look at equity and social outcomes? That feeds into the independence and make-up of your Fiscal Commission. Is your commission's recruitment representative of Scottish society? Recently, I saw an article in 'The Guardian' about the influence of private schools on British society. People who attended private schools make up only 7% of the population, but they represent over 50% of those in a lot of key jobs in Britain, particularly in decision-making. Since the review, beyond creating a broader fiscal understanding, do you prompt or get society and politicians to think more broadly about equity and social outcomes? How is the commission made up? Do you have people from a workers'-rights background or a working-class background? I would like more information on those aspects of the work, please.

Professor Roy: I will make some general comments, and John might like to come in on the specifics of how we make appointments.

You asked about the data that we get and how we use that data. Obviously, Scotland is different from Northern Ireland: our funding mechanism is driven purely by a combination of the Westminster block grant, devolved taxes and taxes that are shared between ourselves and the UK, which is mainly income tax. The fiscal stuff is relatively limited in that context. We have to do a lot to make the complexities of the fiscal framework work for Scotland. There are a lot of complexities about decisions that are made in England and Wales but have a funding implication for Scotland, and we have to understand those for our commentary and analysis. We might not make those forecasts, but we have to understand the dynamics in order to update our understanding of the overall Budget position.

That broadens out a lot when you start to think about the economy because, clearly, when understanding what factors might impact on the Scottish economy, you do not just look at what is happening in England and Wales. You have to look more broadly across Europe and globally and factor all those in as well.

We tend not to worry too much about data-sharing arrangements because a lot of that is about intelligence gathering and our understanding about how different global effects might impact on us. For example, we have done some work recently about what tariffs might mean for the Scottish economy. We can take global evidence and our own modelling to come up with an assessment about what that means for Scotland.

I appreciate that, in the case of Northern Ireland, it will be much more complex because there are many more links that we would need to understand. Understanding, for example, how the Irish economy might perform over the next few years will have an impact on what might happen

into all that. That is not something that we have to worry about. We will assess what might be happening with the rest of the UK spilling over, but that is largely contained in the work that we do.

On the point about recruitment and how we get our commissioners into that, as John said, we run an open and fair competition. We have a skill set, and, given that a lot of our work is around modelling, forecasting, understanding the tax system and the different elements of that is naturally where our skill set and the job description would particularly focus on.

John said that we will then go through the various formal processes around public appointments to make sure that they are balanced, and we are accounting for various protective characteristics and the like. It is interesting that we have evolved quite a lot as an institution over the past 10 years or so because of our remit.

Initially, when we were set up, the focus was very much on a more academic, economics-type skill set that was embedded into it. For full disclosure, I am an academic economist, and that was very much the focus of the council.

We have evolved a lot, particularly around moving much more to taxation and social security. We have just appointed two new commissioners. I think that the press release is out today, so I can reveal it. I am not going to get myself in trouble.

The two new commissioners are Eleanor Ryan, who has a public finance background, and Justine Riccomini, who has a tax background. We have gone from being four academic economists to being a broader mix of people with an economics background and a tax and spending background. That is largely driven by our skills needs and what we need in order to do our work.

The final piece is more broadly about what we focus on and what we look at. Again, we have moved on quite a lot. Our legislation is quite restricted on things like forecasting the economy, forecasting taxes and forecasting social security. We keep within our lane, and we do not move out of that.

However, a lot of the work that we do around things like fiscal sustainability is moving us into worlds like doing a lot of work around demographics and ill health, which gets into health inequality issues and how to understand those. We have done a lot of work on climate change and understanding the effects of that. We do a lot more things like social security and the impacts of poverty.

To be clear, our remit is very clear about what we do. We are not allowed to look at those issues for a particular outcome. We look at them from a public finance perspective.

On climate change, we are just looking at the fiscal costs of mitigation and moving towards net zero and the fiscal costs of damage from climate change, but we would not make an analysis of looking at climate change per se. Our remit only lets us look at the public finance consequences of that and, similarly, for things like inequality and ill health.

Miss Hargey: Can I come back in?

The Chairperson (Mr O'Toole): Yes, go ahead.

Miss Hargey: Thanks for that update. That is why I ask, because, obviously, fiscal policy can direct social outcomes one way or the other.

What I want to know is whether that is being analysed for the distributional impacts of fiscal policy and how it has an impact in health inequality or, as you say, social security. When you go round again full-circle, it has a fiscal impact on budgets and how they are spent, or, as you say, the climate challenges or those of an ageing population, which is going to dramatically change by 2040 and will impact on long-term planning.

That is why it feeds into the question of how representative is the Fiscal Council. I do not say that we do not need academics and those with financial expertise, but it is also looking more long-term at social policy or workers' rights issues. It is ultimately going to have an impact on the economy, fiscal policy and managing budgets.

Is work being done on that, or has any of this come up in the OECD review of the SFC to make sure that those distributional impacts on the economy are being looked at? Obviously, when you see the whole issue of immigration and all that, it is important because it is part of the public debate that the public are informed of those issues. That was one of the areas that came up in the review of the SFC back in March, making sure that the public and the politics have a greater understanding of fiscal challenges. However, I do not think that that can be detached from the social challenges that are presented. How do we make sure that we are informing the public and what greater role could a council like yours, and the one we want to put on a firm statutory footing, do to ensure that it is representative of society out there, more broadly, in order that we can buy them in and inform them?

That was one of the things as well: how do you consult them? Obviously, the only people — I imagine — who engage with you are academics or those involved in business. How do you engage or consult with the wider public, in building public awareness and confidence in what you are doing? How do you disseminate information? Is it produced in an easily-read type of document, which community workers, trade unions and Joe Public can lift and absorb?

Professor Roy: It is a really good question. I would say a couple of things to that. We are limited in the remit of what we work on. You might want to think about what you want a Fiscal Council to do? There is merit in having a Fiscal Council that, in some ways, is quite narrowly targeted on doing a small number of things. That means that you can really be clear about your independence, what you should be doing and what is straying outside your area.

I have a couple of things that I would say in answer. The OECD recommended this, and we are very clear that we need — in part, recruitment of our commissioners was designed to do this — to open up broader conversations and move into areas of real, genuine interest. Climate change is a really good example of that. We practically said that we think that climate change is really important for people to understand in the public finances. Therefore, we are going to do work and look into it. Poverty and inequality are the same. We are very much open to that. Even though we have to remain in our lane, we are moving into those areas and considering how we can facilitate a conversation about that.

The broader point, and this is something that you should perhaps bear in mind and consider as part of this Bill, is: how much of this has to be done by a Fiscal Council, and how much is done within the broader public-policy architecture which exists in the country?

Therefore, while we might not do explicit work looking at some of the policy agendas in all the different areas, what we do is to very proactively partner similar bodies and institutions which are working in that area. Therefore, we will go out and engage with local government. We have various commissioners in Scotland such as the children's rights commissioner. Our colleagues were at an event in the last week on human rights budgeting. We engage with trade unions, third-sector organisations and think tanks. We go, talk to and engage with all these organisations. We are not the experts in those areas, so what we do is bring our expertise to talk about public finance issues to then, hopefully, help and fund their work, and they are the better ones to go and take that work forward in particular areas.

Within your thinking about what you want from your Fiscal Council, it is important to think about what other aspects of the landscape you want to have in place so that you can actually address all the various issues that are looking for, be they on the economy, business, human rights budgeting, tackling poverty, social inclusion or climate change. The Fiscal Council can be one part of it — it does not have to do them all — but it is about how it then supports the various activities that it does. That is one thing that the OECD recommended: we do much more, engage more, communicate more and get out there a bit more and talk about that work, but, ultimately, we are not the experts in talking about climate change or an aspect like that.

Miss Hargey: Thank you.

The Chairperson (Mr O'Toole): Are you happy enough, Deirdre? Yes. I will just say that obviously, if we or the Minister want to put those things in the Bill, they could be put in the Bill. If any member wishes to table an amendment to put those additional powers in the Bill, that could then be debated. It is worth noting that.

Mr Tennyson: Thank you for the evidence so far. My question builds on where Deirdre left off. You have talked about the way in which the role of the Scottish commission has evolved over time. You have looked at issues like climate change and gone above and beyond in your engagement with the Scottish Parliament. Scottish legislation obviously contains provisions that allow the Government to modify the commission's functions. Has the commission ever made proposals, or has there been any public debate in Scotland, on additional functions that could or should be added? I am conscious that, in Northern Ireland, we would have an opportunity to do that now at this stage.

Professor Roy: Do you mean about the remit of the Scottish Fiscal Commission and what we do?

Mr Tennyson: Yes.

Professor Roy: Typically — John might know about the broader debate — we tend not to get involved in the debate about asking for more things, largely because, again, it is about protecting our independence in that regard. We would not tend to say that we want reform in a particular area, because, ultimately, it is for the policymakers to do that. We do whatever our legislation sets out. We respond and then we pick up any tasks or what we have been commissioned to do.

A lot of the changes that have happened have largely come, as John mentioned, through, essentially, our growing organically as an organisation. We have a line in our legislation — I am not sure of the exact wording, but I think that it refers to "fiscal factors". We can comment on fiscal factors. That is what we have been able to use to develop our work on climate change and fiscal sustainability. We did not need to change the legislation, but we can actually then use that organically, again, through our independence and engagement with committee, and demonstrate value for the Government that we can move into those areas. Ultimately, it will be up to the Government to decide whether they want to change us in any way, and, if they want to do it, to push back through a change in legislation and Parliament's voting for that. We tend not to — well, not "tend"; we do not get involved in that. That would be against our independence.

Mr Ireland: Our formal remit has been changed once. It was a minor change to tidy up some of the original legislation with regard to the social security spending that we had to forecast. You can change some of those terms by statutory instrument. That happened. It was a very minor but useful change. We talked to the Government about that because the original legislation was a bit clunky. It was quite a small change. Our de facto remit — what we actually do — has evolved, as Graeme was saying, over time, but that has principally been on the back of the two OECD reviews. The first OECD review recommended that we start work on long-term fiscal sustainability. The finance committee picked that up and also made the same recommendation. We used the powers that Graeme described to start that work. The later OECD review made a similar recommendation about looking at more spending analysis.

Mr Tennyson: That is helpful.

I want to move to your budget and how you are funded. Often, in Northern Ireland, at times of fiscal constraint, Departments will be told to prioritise their statutory responsibilities. Have you ever felt or faced any pressure to focus only on those statutory functions that are set out in legislation, as opposed to those additional pieces of work that you are taking forward?

Mr Ireland: Each year, we have a conversation with the Government about how much money we are asking for, and part of that conversation each year takes account of the efficiency savings. As we have developed, we have needed less resource to do forecasting work, because our models have become bedded in. We have transferred that resource to our initial function and have thought carefully about efficiencies and the redeployment of staff. So far, the Government have been very reasonable and have not pushed back on how much we have asked for, particularly for those additional functions. The climate in Scotland is tighter this year. We have not gone through our funding process for this year, so that is yet to be seen.

Professor Roy: I will add two things that are quite important. Part of the point is that it is a trade-off between having a budget that comes directly from the Government or having a budget that is separate from that. I have always been quite relaxed about the Budget coming out, because, as a public finance body, we understand the public finance climate — or we should — so we understand the challenges that exist there.

My second point is that, ultimately, accountability is important for us. We have to demonstrate value for money by doing interesting things and contributing value. That really matters when we give evidence to Committee and get feedback from the Government. A subtle but important point that John mentioned is that, while we get the total amount of our budget from the Government, it is entirely up to us to decide how we spend it; it is not for the Government to determine how we do that. An important part of being an independent fiscal institution is that we can, essentially, determine how we want to spend that money. If we want to do x or y — for example, if we want to do more or less on communications — it is ultimately our decision. We do not have to report to the Government on what we do.

Mr Tennyson: Thanks for that, that is useful. The Scottish legislation includes a duty to cooperate with the Office for Budget Responsibility. What does that look like in practice? Is that mostly cooperation on economic forecasting? What does it entail?

Mr Ireland: It does not so much entail the economic forecasting, but more the devolved taxes. The OBR has a responsibility to forecast all taxes in the UK, including devolved taxes in Scotland. Basically, we share our models and working. We even do forecast runs for the OBR on things such as Scottish property taxes and Scottish domestic rates. That is very much the cooperation from us to them. In return, they share information with us on their social security forecast, and some of the background and legal material that they have for how the DWP works helps us in the forecasting of social security.

Mr Tennyson: That is useful. I am not sure whether there is an equivalent provision in our draft Fiscal Council Bill. Thank you for that.

The Chairperson (Mr O'Toole): No, there is nothing explicit in it. There is not a specific provision.

Brian Kingston wanted to come back in on something else, I think.

Mr Kingston: Yes, briefly. When we were talking about the appointment of the commissioners, you set out a lengthy process. The framework document from 2019 is quite brief: it just says that they will be appointed by Ministers, with the approval of the Government. Our draft Bill just says that the members of our council would be appointed by the Department. Was the appointment process in your original Bill as brief as you have laid out that it was, or does it give more detail about having an open and fair competition? Was that process added later, by the Government?

Mr Ireland: No. There is other legislation in Scotland that covers all public bodies. That covers the appointment process for members of public body boards in Scotland. That stuff outlines the open competition. All our Act does is to add the requirement that ministerial appointments have to be approved by Parliament. We can talk to the Clerks about that, if that would be helpful. We could find the other piece of legislation and try to get it to the Committee, if you would like that.

Mr Kingston: That would be helpful so that we can see that there are statutory requirements in the appointment process.

Mr Ireland: OK. We will do that.

The Chairperson (Mr O'Toole): Thank you very much. I have one final, slightly cheeky question. It is not specifically around the statutory provisions or the respective Bills. A lot of what we have been scrutinising since last February is our new fiscal framework, which, in some ways, is modelled on or is a successor to the Smith commission process and the Holtham commission process in Wales. Obviously, the Scottish Fiscal Commission is a product of Smith and all of that. What do you make of the debate, to the extent that you have followed it — you might not have a view — that we are having here? We are in a debate about the calculation of need. There is still some form of ongoing conversation between the Department of Finance here and the Treasury specifically about how agriculture spending is accounted for in a calculation of need. We have a slightly different model of, for example, land ownership and family farms. I do not know whether you have any specific observations to make. I am not asking you to provide an alternative calculation of Northern Ireland's relative need, Professor Roy, but are there any observations that you would make from Scotland on what you see here?

Professor Roy: I have some general comments. The one thing that is quite clear about devolution across the UK is that, although lessons can be learned from the fiscal frameworks, they are always going to be quite different because of the different contexts and issues. There are similarities in devolution between Scotland and Northern Ireland, but there are also quite significant differences. There are also quite significant differences economically, which we touched on earlier, between North/South as well as east-west. The economic conditions look radically different. There can be some learning from fiscal frameworks, but some differences, too.

The debate and the motivation around the fiscal framework for Scotland was all driven by how the Scottish Parliament might get greater fiscal autonomy, and what additional tax and social security powers could be devolved. Need was not an issue at all. It never comes up as a particular issue in that context. I appreciate that, in Northern Ireland, it is quite different; it is much more about that assessment of need. That is where it is quite different between the two systems. For example, we do not really do anything about the assessment of need; we take the Barnett formula and the allocation as given, and then we do our analysis on the back of that. We do not do an analysis of whether it should be bigger or smaller.

The Chairperson (Mr O'Toole): That is helpful. Thank you for giving us an interesting and also diplomatic view, which is good. That is a useful skill in your role. Thank you very much. Professor Roy and John, we really appreciate your giving us evidence. Your time is very valuable, and you have made time for us. You have also given us lots of food for thought, which will help us. Thank you very much. We really appreciate it. I am sure that we will engage on other matters, as we do with our colleagues at Holyrood on an ongoing basis. Thank you so much.