Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): We will now have an oral briefing on Zoom from Scherie Nicol. Hi, Scherie, thank you very much for joining us. We really appreciate that Scherie has joined us and the very detailed response that we had from the OECD. Scherie is the lead on independent fiscal institutions (IFIs) in the public management and budgeting division, which is in the directorate for public governance in the OECD. Before we begin, I will say that Scherie has indicated that, given the constraints around the OECD's role, she is participating exclusively in an official capacity. Her participation is, obviously, not a waiver of the privileges of the OECD, which is an international organisation, and she will not be able to answer any questions that do not pertain to work of the OECD or questions that are on confidential information, so it is important to put that on the record. I have set all that out, and I am sure that our members will not ask such questions in any case.

Thank you very much, Scherie. If you are able to give us an opening statement summarising both your view of the Bill and the evidence that you provided to us, that would be really helpful. I assume that you can hear me.

The Committee Clerk: I do not think that she can.

Ms Scherie Nicol (Organisation for Economic Co-operation and Development): I am sorry. Were you waiting for me? I was —.

The Chairperson (Mr O'Toole): Only for a moment or two. Thank you very much for joining us. I do not know whether you heard, but I gave an introduction to —.

Ms Nicol: Sorry, I did not hear that.

The Chairperson (Mr O'Toole): No problem. I will not go over it again, but I outlined the OECD's role as an international organisation, some of the contexts of and constraints on the independence of the OECD and caveats in your evidence.

Thank you for joining us today and for the written evidence that you provided to us, which has been most helpful for the Committee and, I am sure, will be helpful for our Assembly more broadly as it considers the legislation. As you will be aware, the Fiscal Council has been in existence since 2020, when it was agreed as part of a political agreement that restarted our institutions at that stage. It has existed, largely successfully, and has built public trust. Thankfully, it is being put on a legal, statutory basis. As the gold standard expert on independent fiscal institutions, we really appreciate the OECD's giving us its views.

If you are able to do so, we would welcome an opening statement. Feel free to summarise your perspective on our Bill and your work on IFIs more generally.

Ms Nicol: Thank you very much for welcoming me to give evidence on the Northern Ireland Fiscal Council Bill. We are delighted to be here, because we have a long experience of working with member countries across the OECD in designing effective, independent fiscal institutions, guided, of course, by the OECD's principles for independent fiscal institutions, which were published in 2014. Those set out the global standards for the independence, mandate, resources and transparency of those institutions.

The role of fiscal councils is becoming even more critical in today's context. Across OECD countries, Governments are facing unprecedented challenges and budgetary pressures, from ageing populations and rising health costs to the climate transition and defence spending. Those challenges demand the rigorous and independent scrutiny of public finances, and Northern Ireland is not immune to those pressures. The Fiscal Council plays a crucial role in empowering public and political understanding and debate of those long-term fiscal pressures, helping to ensure an informed debate and more sustainable decision-making.

The Bill has many strengths, and I can highlight a few of them. We are happy to see that the Bill sets out clear statutory functions with strong provisions, granting the Fiscal Council clearly defined responsibilities and autonomy in setting its own work programme. We are also delighted to see strong transparency provisions; for example, the mandatory publication of all the council's reports, which will help to build trust and credibility. Access to information is another area of strength. The Bill provides a statutory right of access to government data, which is essential for effective scrutiny. As well as external evaluation, the requirement for periodic independent reviews is a positive feature that will really help to maintain the council's standards and relevance over time.

Of course, as with any legislation, there is room for improvement, particularly in aligning the body more closely with OECD principles and strengthening its impact and trust. I would like to highlight three areas where the Bill could closer align with OECD principles. The first is the appointment of leaders. The Bill does not contain explicit safeguards to ensure that appointments are made on a non-partisan and merit basis. Although we know that appointments will be made in line with a code of practice, which is a secondary document of the Office of the Commissioner for Public Appointments for Northern Ireland, those merit-based criteria are not in the legislation. However, they would provide more meaningful protection against politicisation. Their absence risks undermining the appointments process and opens the door to potential political influence.

There are ways to strengthen that. For example, qualifications for members could be included in the legislation, as is the case in many pieces of enabling legislation for fiscal councils. Those qualifications could be for expertise in economics, public finance or familiarity with the Budget process. Another option could be to introduce a secondary approval mechanism, such as a review of the appointments process by a parliamentary Budget Committee, in order to reinforce a non-partisan appointments process.

The second area is operational autonomy. There are areas where the council's operational autonomy is somewhat constrained in the Bill. For example, while the council can employ staff, the terms of that are subject to approval by the Department of Finance. That limits the council's ability to independently manage its human resources, which is essential for maintaining its impartiality and responsiveness. Experience in OECD countries has shown that such a provision can be used as a vehicle to constrain the operations of those institutions. That area could be reconsidered in order to safeguard the council's ability to conduct its mandate.

Financial independence is similarly compromised. At the moment, the council's running costs are included in the Department's overall estimates rather than being a distinct budget line. Not having a distinct budget line means that the council is more vulnerable to political pressures. We recommend separating those out so that any reduction in the body's budget can be clearly identified in the annual budget process. Another way of providing protections is to have multi-year funding commitments, which we can see in other independent fiscal institutions. That would provide stability and reduce the risk of political pressure.

The third area is stakeholder engagement, including parliamentary engagement. At the moment, the Bill does not provide a formal mechanism for the council to engage with Parliament or the public, and there is no provision for responding to requests for analysis from Assembly Committees or individual Members or for broader engagement with stakeholders such as media or civil society. Embedding those responsibilities in the legislation could enhance the council's relevance, support parliamentary scrutiny and promote fiscal transparency.

Overall, it is clear that the legislation was developed with OECD principles for independent fiscal institutions in mind, which we are happy to see. However, elements of the Bill rely on external processes and non-legislated practices in order to maintain adherence to those principles in a number of areas going from merit-based appointments to operational autonomy. A concern with that is that, while those practices may appear to be solid now, without formal legislative backing, they could remain vulnerable in a different context. Recent experience across OECD countries has shown how quickly established practices can change when circumstances shift.

I welcome the opportunity to discuss those and other points in more detail with you today.

The Chairperson (Mr O'Toole): Thank you very much, Scherie. That was really comprehensive. Members, as always, indicate for the purposes of asking questions.

First, at the end of your statement, you mentioned the drift in some independent fiscal institutions from what is called established practice — by that, I think that you mean custom and practice that are not mandated in legislation — in certain contexts in a way that, I presume, you found worrying. Can you give the Committee a couple of examples of where specific, important things have not been set down in law as they were only, as it were, convention and that convention was, for one reason or another, then undermined or ended?

Ms Nicol: One example that is easy to highlight is from Argentina, where the parliamentary budget office has the budget and the legal ability to hire a number of staff. However, it has to get approval from a committee in Parliament in order to do that. When that legislation was put forward, it was not envisaged that that would be a stumbling block to hiring at the parliamentary budget office, but, in reality, it has become a big stumbling block. The office is very constrained in its ability to fulfil its mandate because it is not able to get parliamentary approval for the staffing that it is legislated to have. What you see there are processes that were envisaged to act quite smoothly at the time of the legislation but to which political circumstances have really brought about a change that is not working in practice.

We have seen other such examples. In Canada, an initial budget was promised but was not delivered later on. The Canadian parliamentary budget office published a report in its early days that was particularly badly received by the Government at the time, and the initial budget that had been promised was not delivered later on because of the extent to which they were unhappy with the hard-hitting assessment of the institution in its early days. Where practices are not embedded in the legislation but come through other processes, people think, "There is no reason why they wouldn't operate smoothly"; however, there are plenty of reasons why they could begin to not operate smoothly if the political circumstances changed.

The Chairperson (Mr O'Toole): OK. That is helpful. There are many other areas that you have welcomed. It is not for the OECD to endorse the Bill, but you have said that it is broadly compliant with the IFI recommendations. However, one area about which there are some reservations is operational autonomy and, specifically, recruitment. To be clear — you may want to say a bit more about this, because you mentioned it in your opening remarks — one worry might be that any doubt about the council's ability to recruit on its own terms would instantly compromise its independence. There may be a possible chill effect on the person whose day job is overseen, as it were, by the host Department. Will you set out some of those concerns in a bit more detail?

Ms Nicol: Essentially, our concerns about hiring staff are that the institution itself, the Fiscal Council, should have full autonomy to hire staff and set the conditions for those staff, such as, for example, salary and other employment conditions. At the moment, the Department of Finance has a role in approving that. It is abnormal to see that in the OECD context. I worry about the extent to which that exposes the council to having to continue good relations with the Department of Finance in order to have sustainable staffing. I would like to see greater operational autonomy in the council's ability to hire staff and set terms for its staff, giving it the confidence to undertake hard-hitting work if it needs to without the Department of Finance being able to show retribution by limiting its ability to hire staff or give them the terms that would enable it to function effectively.

The Chairperson (Mr O'Toole): A lot of that is set out in the schedule to the Bill. I hope that this question is not too broad, but what would good or better legislation look like?

Ms Nicol: By the schedule to the Bill, I assume that you mean the Bill itself. I will go to the right section. For example, paragraph 13 of schedule 1 says:

I am not sure why the Department would need to approve those terms. That seems to unnecessarily constrain the autonomy of the Fiscal Council.

The Chairperson (Mr O'Toole): That is helpful. Related to that, one of the points that has been raised is, effectively, about who sets the budget. Correct me if this is wrong, but, in broad terms, internationally, there are two models. The first is where the legislature sets the budget, in the way that, for example, the Congressional Budget Office does. The second is where the Executive set the budget, which is the Office for Budget Responsibility (OBR) model. Does the OECD have a specific preference for one of those models over the other, or is it the case that either is fine but both have to have significant safeguards when it comes to independence?

Ms Nicol: The honest answer is that we do not have a preference. There is much more diversity in practice than in the characterisation that you gave. Some institutions — I am thinking about those in, for example, Estonia and Austria — are funded by the central bank. That is not necessarily a model that would work in the Northern Ireland context without a central bank, but there are countries, such as Portugal, in which other institutions, such as the audit body and the central bank, have an oversight role.

There are other countries, such as Ireland, in which the budget is set out in legislation rather than being the responsibility of the Government or the Parliament.

The first thing to say is that there is a variety of funding models out there. The most important thing for us to have is transparency around the annual funding of institutions, such as having an individual budget line set out in the annual Budget. To ensure their independence, we like budgets to be treated in the same manner as those of other independent bodies in a country, such as audit offices. Think therefore about the Northern Ireland context and about how the budget for the audit body is set. We would like to see the Fiscal Council have that sort of autonomy and independence.

The Chairperson (Mr O'Toole): You would rather that its budget be set more like how the budget is set for an audit office.

Ms Nicol: Yes.

The Chairperson (Mr O'Toole): Am I correct to say that you think that the Fiscal Council should have more forecasting powers? As you know, this is a devolved region of the UK. The overwhelming majority of resource is raised locally but granted via the block grant. There is a limited amount of fiscal devolution. All the parties have some degree of interest in fiscal devolution, but some are more committed to it and thus prioritise it more than others. Do you think that more economic or fiscal forecasting powers should be given to the institution?

Ms Nicol: My starting point is that the mandate and functioning of the institution should be determined by the local context. The OECD does not advocate standardised functions across institutions but, rather, that the institution provide helpful functions to strengthen the oversight of public finances in the country. With that in mind, there are a number of considerations to be made in the Northern Ireland context. It is common for fiscal councils to undertake forecasts. There are 12 independent fiscal institutions across the OECD that undertake independent forecasts, while 21 institutions assess the reasonableness of government forecasts. Those institutions are national rather than sub-national, however, which provides a different context for Northern Ireland. You have to think about whether there are any other economic or fiscal forecasts produced at present. If there are not, does that mean that there are gaps in your ability to scrutinise the Budget? If there are gaps, do you have concerns about the independence and reasonableness of those forecasts that the Fiscal Council could help address? If I were in your shoes, those are the sorts of questions that I would be asking in order to determine whether it would be appropriate for the Northern Ireland Fiscal Council to have that function.

The Chairperson (Mr O'Toole): That is really helpful, Scherie. I will now bring in other members. They have been waiting patiently.

Ms Forsythe: Thank you very much, Scherie, for joining us today. Thanks for your detailed submission, which is really helpful. We have had a lot of questions about the detail, but to see a lot of those same questions coming from outside the Committee is reassuring, because it means that our questions must be in the right territory.

Something that comes across quite strongly is the need for the Northern Ireland Fiscal Council to be independent. It is new, and we have an opportunity to learn lessons and strongly establish its independence from the outset. It comes across that our Department of Finance almost has three different functions. It has its core business. It also operates as our effective Treasury function, and there is an element of its being the shared service for Civil Service staff and for recruitment.

There are almost three strands to its work.

I feel as though that is clear in the head of those in the Department of Finance who drafted the legislation, but it is not clear when one looks at it blind from an external position. I think that that has come across loud and clear from what you are saying, and from my understanding of it, that, where we are referring here to the Department, there needs to be a very clear definition when the legislation means a certain part of the Department. That needs to be set out in the Bill, because, where it talks about the Department, it states "the Department", but I can see from reading it and from knowing about the Department's workings that it means the Department's Treasury function, not its core departmental business. That is what has given rise to a lot of the concerns. As you say, it is really concerning that, taken at face value, there may be undue political influence, and that is not in any way what we want to have here. I am just trying to tease out what you think. As I said, the Department has a Treasury function. If aspects of that to do with approving remuneration and the budget were set out in the Bill to show that it was the Department's Treasury function that was approving that, do you think that that would be sufficient, or should it still be approved externally, such as by the Assembly or a Committee?

Ms Nicol: Thank you for clarifying that. I was not aware of that in the Northern Ireland context. I will say that, even if the Bill were to specify that it was a particular part of the Department of Finance, I would still have concerns, largely because I assume that those parts of the Department sit under the same Minister. If the Minister therefore makes the ultimate decision on those different aspects, it will not necessarily be unheard of or unsurprising if concerns, for example, in one part of the Department of Finance ended up overriding a decision in another part and feeding into the overall decision that the Minister of Finance makes in a particular area. Ultimately, that would still concern me. That is my first comment.

My second comment is this: secondary approval is helpful not just from an independence perspective but from a buy-in perspective. That is something that we witnessed in Scotland. I think that the people who gave evidence to you from the Scottish Fiscal Commission (SFC) mentioned that as well. When the Budget Committee in a Parliament has skin in the game and has the secondary approval of the leadership, for example, that means that it has bought into the leadership choice, and that helps the institution have an impact in Parliament. I guess that what I am trying to say is that, even if you did not doubt that the Department of Finance would ever have any ulterior objectives, there are still benefits for the impact of the institution through having secondary approval in place for leadership appointments and other aspects.

Ms Forsythe: Absolutely, and on both sides. It effectively gives a Minister a bit of cover. If the Fiscal Council were to moot an idea, some Ministers might not want to approve it, because it would look as though they had bought into a particular political decision on charging, taxation or whatever. I really appreciate your comments on that.

I have previously said that appointments need to be based on merit and that recruitment should focus on that. Appointments should be made on the basis of status alone. People should not be hand-picked to do the job for a particular reason, be that to have a particular view of the economy, of the economic position here or of the politics here. I am very keen that appointments be merit-based. Would you expect the ins and outs of that merit-based recruitment process to be in the legislation? Is that the norm?

Ms Nicol: It is interesting that you ask that, because, when I looked back at our assessment of the Scottish Fiscal Commission appointments process, which is quite similar to the one proposed for the Northern Ireland Fiscal Council, I realised that I had been inconsistent in my assessments of the Northern Ireland Fiscal Council Bill and the Scottish Fiscal Commission Bill. I tried to understand from where that inconsistency had come. Essentially, what I had said was that the appointments process in Scotland was a strongly independent process but that, in Northern Ireland, it was not so. I then realised that the Scottish process had a secondary approval in place, and that is what gave the guard rails to the fact that the qualifications were not set out in the legislation in Scotland.

It at least has to be one or the other. The qualifications can be set out in legislation, and that is very common across OECD countries. In Ireland, for example, the legislation states that the candidate has to have:

The Act that established the Slovenian Fiscal Council states that its members:

or budget management. That is in the legislation itself.

I understand that the UK OBR, the Scottish Fiscal Commission and the Northern Ireland Fiscal Council follow a UK model, whereby the public code of conduct is lent on as something that works quite well and is merit-based. That means that the qualifications do not necessarily have to be set out in legislation. That differs from international practice, however, and that is why it raises concerns for me. If you do not have that secondary approval in Parliament, that, unfortunately, also raises concerns for me. There at least should be one or the other.

Ms Forsythe: Thank you very much.

Mr Kingston: Thank you for your paper, Scherie, and for attending online. We had a useful session with the Scottish Fiscal Commission representatives. From my notes, I see that they told us that they had an open and fair competition for the appointment of their commissioner. The kindest things that one can say about our Bill is that it has enabling powers and that it is a bit short on detail about how things will happen. It simply states that the Department will appoint members. I note that, in schedule 1 to the Bill, there is a page and a half on how people can be dismissed or resign but only one line on how they can be appointed.

The Scottish Fiscal Commission runs an open recruitment exercise for its members. Its representatives said that they have a range of other legislation that applies to how people are appointed. You highlighted that as a weakness when you said earlier that there is "room for improvement". You referenced something about public appointments that will apply here. The Scottish Fiscal Commission representatives said that they had other, more detailed rules about public appointments. What would apply in our case? I know that I should know that from our end, but what restrictions exist for appointments, or, as things stand, are appointments purely in the hands of the Minister?

Ms Nicol: My understanding is that appointments will have to comply with code of practice for public appointments here. That has functioned relatively well in, for example, Scotland so far. Overall, however, there are several areas in the Bill, not just on the appointments process, in which the Bill is light on detail, because it states that there is another document in which more specific aspects are set out.

Overall, that gives weakness to the Bill, because, if such provisions are not legislated for in the Bill but are instead reliant on public-sector practices, there is a vulnerability to those practices continuing under different government arrangements. It is therefore a call that you have to make.

Across OECD countries, the political situation is now quite volatile compared with that in the past. Fiscal institutions are going to be put under increasing pressure as the Budget becomes central to the debate in the coming years. That will put so much pressure on public budgets, and the messages from those fiscal councils are going to be quite difficult for Governments to hear. They are going to be caught in the crossfire in a way in which they have not been in the past. If I were in your shoes, I would be not necessarily be thinking about how arrangements have worked in the past in other countries such as Scotland but about how I can ensure that, no matter what the political situation in the future is, the institution here is independent and autonomous. The best way in which to do that is to have detailed provisions in the legislation itself.

Mr Kingston: It is clearly something to which we will have to pay more attention. Otherwise, there is a risk of there being too cosy a relationship. If the Minister has the power to appoint and dismiss people, that takes away from the council's independence.

I have a final question. How would you describe what the relationship between the Executive and the Fiscal Council should be, and in particular between the Department and its Minister and the Fiscal Council? Is it a challenge role or a scrutiny role? The council will not have any statutory powers as such. Is its role just to be critical and to examine?

Ms Nicol: It is not as simple as describing it in one word. In many ways, fiscal councils are incredible resources for Finance Departments. I say that because they are dealing with really compelling budget demands from a range of institutions across government. Having an institution that echoes a Finance Department's concerns that, for example, other Departments' budgets are tight, with pressures coming from some areas that mean that it will be difficult to maintain spending in other areas, is helpful for the Finance Department when it is exercising its function of dealing with all the different budget requests from departments.

That could be very helpful for the Department of Finance here, but when it is not necessarily making decisions that are in the short- or long-term interests of citizens, that also needs to be highlighted. There is the classic example of pre-election Budgets, where there are giveaways and decisions made that would not necessarily be made at other times. Those need to be called out by independent institutions, as do other decisions that go against the interests of citizens in the short term and the long term. Such messages will be difficult for the Department of Finance, which is under political pressure, to hear. That is why I say that the Department is not going to love the Fiscal Council or hate it. It will probably love and hate it in equal measure, and that is what one wants to see happen in a healthy, functioning democracy.

Mr Kingston: Thank you. That is great.

The Chairperson (Mr O'Toole): No one else has indicated to ask a question. I have a couple of final points to make, Scherie, before we thank you and bid you farewell. They relate to specific requests from the legislature. Under clause 2, which is titled "Main functions", the Bill sets out that the Fiscal Council has to publish Budget assessment reports and fiscal sustainability reports and lay them before the Assembly. Other than that, the Bill is not specific about the rights of the Assembly, including the rights of this Committee. Are there specific things that could be included in the Bill, such as rights of request or a reporting line — separate from the budget reporting line and the question of line management or ownership — for the Fiscal Council as a body reporting to the Assembly, as well as to the public and to the Department? Could we include more in the Bill? If so, what kinds of things might we think about including?

Ms Nicol: I will give examples of provisions in other countries. I mentioned Slovenia earlier. Its Fiscal Rule Act mandates ongoing parliamentary engagement by the Slovenian Fiscal Council to include regular presentations to be made to the National Assembly and discussions to be had on fiscal policy, planning and implementation in the Assembly.

Other countries have in legislation that their fiscal council has to appear before the legislature at certain times of the year. For example, Chile's Autonomous Fiscal Council has to appear before the Joint Budget Committee in the months of May and October each year to provide formal reporting to Parliament. There are also some areas in which fiscal councils are mandated to respond to requests from Committees or from Members. It would therefore be worth at least considering whether there is something in place here that promotes regular engagement with the Assembly and whether you want to specify a set number of appearances by the Fiscal Council before the Committee that deals with the Budget each year, or at least tie it to budgetary events. Finally, you may wish to consider how, ideally, you would like the Fiscal Council to respond to requests from Committees and from Members. The Committee may wish to think that through as part of its process of looking at the Bill.

The Chairperson (Mr O'Toole): OK. That is really helpful.

Ms Nicol: I will supplement that by saying that the Canadian Office of the Parliamentary Budget Officer takes requests from certain Committees to prepare research reports and legislative costings. That is the type of work that Committees can ask such institutions to undertake.

The Chairperson (Mr O'Toole): I have one final question, which is about the Fiscal Council's independence. The burden of the response that we got from the Department, which we sent to you, rests on a mixture of Cabinet Office guidance and that in 'Managing Public Money NI', which is a devolved Northern Ireland document. In a sense, the Department is adhering to guidance that relates to arm's-length bodies in general rather than to watchdogs. I know that the OECD probably does not endorse or use the term "watchdog", but, for the purposes of the vernacular, the Fiscal Council has a kind of watchdog function, which differs from a function that is to be done at arm's length but not necessarily by a body that has scrutiny as its primary function.

As I say, when it comes to the question of independence, they say that, basically, this is consistent with how arm's-length bodies are done — they are non-departmental public bodies rather than non-ministerial Departments. Those are very UK terms, but I am sure that, because of your experience, you will understand the distinction. I do not want to come out and ask, "Do you buy that?", but do you buy that?

Ms Nicol: It goes back to what I said about leadership appointments. There are certain elements of the independence of the institution that are reliant on guidance documents that exist outside the legislation. While those may have worked sufficiently in the past, there is always the possibility that they will not work sufficiently in the future. Political context can change, so the strongest way to guarantee the independence of the institution is to put those aspects in the legislation of that institution.

The Chairperson (Mr O'Toole): OK. That is very clear. No one else has indicated that they have any questions at this point. Thank you very much, Scherie. That was extremely helpful and comprehensive evidence, and we have all benefited from it. I put on the record our thanks for that: thank you. We may be in touch with you again, because you have proven to be such a helpful evidence-giver.

Ms Nicol: Thank you very much.