Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): We are going to get a briefing from Jonathan McAdams and Sir Robert Chote. I expect that members will want to ask questions. I think that we have communicated to our colleagues on the Fiscal Council that we may also ask about the broader fiscal picture with regard to the Northern Ireland Budget, and the fact that there is a high-profile UK Budget coming up in exactly one week's time. Without further ado, we welcome, as always, Sir Robert and Jonathan to the Committee and ask Sir Robert to make an opening statement.

Sir Robert Chote (Northern Ireland Fiscal Council): Thank you very much indeed, Chair. It is a pleasure to be with you, and apologies not to be able to be with you in person. I do not think there was a great deal that I wanted to say by way of introduction beyond the fact that the Bill is nicely structured and addresses many of the key issues that you would hope and expect to be addressed in setting up an institution of this sort. We are helped by the input from the OECD on good practice for these sorts of institutions, and the Bill is largely consistent with that. There are some areas where you can make arguments that you could tweak in particular respects.

It is important to bear in mind that we are not a typical Fiscal Council or independent fiscal institution in the international context in a couple of senses, one of which is that, for most of the other institutions, the preparation of macroeconomic and fiscal forecasts, or, alternatively, the scrutiny of the governing authority's fiscal or economic forecasts, is a key part of the role. That is not a key issue for us because of the way that the Executive are funded and the preponderance of the resources coming from the block grant rather than tax receipts for which there is a close and reliable relationship with what is going on in the macroeconomy at any given time.

The second relatively unusual feature is that the legislation and operation of the organisation need necessarily to be prepared for a variety of actors being in charge of the Budget, whether it is the Executive, the Northern Ireland Office or caretaker Ministers and Northern Ireland Civil Service accounting officers. There may, for example, as a result of that, be questions about whether you are scrutinising a Budget or you are commenting on the absence of a Budget. Those things can be important as well. As we have discussed before, there is a need to be flexible. You might be dealing with more Budgets than you expect in a given time, fewer Budgets or no Budget in a particular period. It is just something that you have to recognise. We have dealt with most of those circumstances over the four and half years to date. You cannot rule out the possibility that you would have those in future.

Some of the key things that you would be looking for are transparency around the appointment process for members of the Fiscal Council and access to information. Both of those are important as well. I am delighted to report that the relationship that we have had with the Departments that we have been seeking information from — not just Finance but other Departments — has been one in which everybody has been very helpful and has provided information where there has been information to provide. Again, you want to avoid legislation that would have the unintended consequences of making something that works reasonably well work less well. I do not think that the Bill trips over that wire in any obvious fashion.

I am happy to leave it at that and take any questions that you might have.

The Chairperson (Mr O'Toole): Thank you very much, Sir Robert. I will ask a question about the Bill, and then I might ask some questions about the broader picture. Members can do so as well. I will not take an unbelievably hard-line approach to enforcing a split between the two.

As to the Bill, we have heard, including from the Irish Fiscal Advisory Council, to which we spoke a little while ago, about the need to future-proof for political scenarios that you cannot foresee. In one way, people might say that the unforeseen political scenario in Northern Ireland is not necessarily the composition of the political parties in power, because that has been relatively unchanged for quite some time. Obviously, consociationalism and power-sharing means that most of the Assembly is, or can be represented in, an Executive. The uncertainty is around whether there is an Executive in the first place. That said, though you might not, at the minute, be able to foresee a situation in which a Finance Minister of any party is hostile or sceptical of the Fiscal Council, it could happen, even if, at the minute, it is broadly benign.

Is there not an argument, therefore, for just tightening up in a couple of areas where the Bill gives quite a lot of latitude to the Department? One, for example, is on the staff. At clause 13, in Part 2, it says that the terms and conditions of staff are determined:

Obviously, in the absence of a surety of independence elsewhere in the legislation, other than that there will be a Fiscal Council, that is a bit lax. Should we not be looking to tighten that up, and give you guys a little bit more independence?

Sir Robert Chote: There are various aspects where you can argue that you can frame these things more or less tightly. One example would be being clearer about what information you are entitled to and when. The danger with that is that it is quite hard to foresee the circumstances, and, if you do not have good working relationships and try to maintain them with the people with whom you exchange information, you can get into situations where, if you have a very tight definition in the legislation, one can still satisfy the requirements of that legislation to the letter and yet do so in a way that is unhelpful and not conducive to the efficient running of the process. That happened, for example, in the case of the Spanish Independent Authority for Fiscal Responsibility, a very fine example of a fiscal council, where, if memory serves me correctly, it ended up in a difficult relationship with Spain's equivalent of the Department for Work and Pensions, which satisfied the request to provide the information that they were asked for, but it literally turned up as a big pile of printout in a way that was completely difficult to use.

Yes, I am sure that there are ways in which you could tighten up those sorts of requirements around the margins, but, at the same time, you have to be realistic that, if the working relationships are not working, no matter how tightly or well written the legislation is, everybody is still in a difficult position, and that, again, highlights the importance of such entities as this Committee to say that things need to be approached in the proper spirit and to the letter. If there are proposals to tighten up aspects of that area, I would not stand in the way or suggest that it is not a good idea. However, as I said, if working relationships are not working, you can write all the legislation that you like but things are going to be difficult, and the public are not going to be as well served as they could and should be.

The Chairperson (Mr O'Toole): You are probably bored answering me on what I am going to ask next — I have asked you about it before. It is on the subject of economic forecasting and whether the Fiscal Council should have the duty or obligation to produce an economic forecast or reflect a composite of other robustly constructed economic forecasts. For the record, is it your view that the Fiscal Council Bill should definitely not have that provision and, therefore, the council should not get into that area, or is it your view that, based on your current work programme, it is not essential? Is it that it is inadvisable, or that it is currently not essential but may be something that we could reasonably insert?

Sir Robert Chote: You have to distinguish between the fact that you might think that it is a useful and interesting thing to know about the evolution of the Northern Ireland economy versus the fact that this is a Fiscal Council that is focused on how the Budget is performing, how it is balanced and the long-term sustainability issues there. The fact is that the vast predominance of the large proportion of resource — money — that flows into the Budget, in resource and capital etc, comes from the block grant, with the historical component of adjustment by the Barnett formula. That is not driven by the developments in the macroeconomy. The major source of tax revenue comes from the regional rates. There is, in a sense, some link with the macroeconomy there, but it is rather an indirect link, reflecting the way in which things are valued. It would not be adding anything to your ability to do the core job of commenting on and explaining the Budget process here, because no large amount of money flows into the Executive's coffers that is dependent on the performance of the economy.

That is not to say that there might not be other reasons why you might think that knowing more about the performance of the Northern Ireland economy is a good idea, but that is something that can be done equally well by outside entities. Having, very happily, spent 10 years with responsibility for macro and fiscal forecast at UK level — after 10 years as a journalist and time spent at the Institute for Fiscal Studies mocking other people's attempts at doing those things — I feel that taking on that role and entering into all sorts of debates about how good or how bad the forecast is looking etc, would potentially subtract rather than add to the credibility of the institution. The relatively tight focus is appropriate. It is not simply that we would love to do it but do not have the resources. It would change the body into a very different sort of institution and could have unintended consequences in its credibility in commenting on the things that we are supposed to be commenting on.

The Chairperson (Mr O'Toole): That is clear. I appreciate hearing your view. One of the arguments made by lots of people about our policy conversation — not just the fiscal conversation — is that, regardless of whether you agree with greater fiscal devolution, more tax powers and more local levy responsibility, not enough of our policymaking is geared towards economic outputs, because the incentives for local Ministers are not connected to economic outputs. Even if there were no fiscal devolution, it would be better if Ministers were more accountable for the economic impact of the decisions that they make, good or bad, on, for example, skills policy.

I am asking you to speculate, so you can tell me to go away if you like. Is there any way in which we could use the Bill to engender a bit more conversation on the economic impact, as well as the fiscal impact, of policy decisions? We do not really talk about the economic impact of the decisions that we make here, so there is not enough political incentive for people to make decisions on that basis. Is there anything that we can do, using the Fiscal Council, to encourage a little bit more of that?

Sir Robert Chote: The balance is probably still in favour of having a relatively tight —. To take a concrete example, our report on NI Water highlighted the fact — this is not a point that has been made uniquely by us — that one of the consequences of the current funding arrangements is the widespread belief that it is an impediment to industrial and residential development, particularly, but not only, around Belfast, and that it has a detrimental impact on the economic performance and potential of the region. Devoting an awful lot more effort on the part of the Fiscal Council to try to quantify that in a meaningfully robust way would, I think, be quite a challenge; there are other people who are equally well able to do that sort of thing. If there is an interest in having more input to that, there is the possibility of commissioning that sort of work from people who are already looking at the Northern Ireland economy more generally. Bolting a large regional macro function on to the Fiscal Council, as it stands at the moment, is not necessarily the best way of scratching that itch, even if it is a legitimate itch.

The Chairperson (Mr O'Toole): OK. It is still an itch, so, although I very much appreciate your answers, they have, unfortunately, not completely salved that itch. That is a conversation for another day, or others may ask about it.

I have one final point to make before I get to broader UK matters and how they pertain here. On the question of where the Fiscal Council's budget is set, Sir Robert, while scrutinising the Bill, the Committee has had a lot of discussion about two broad models of how the budget is set and where funding independence lies. The two models are the congressional budget model, in which you are funded and monitored by the legislature. There is a question over whether we could do that here via something like the Audit Committee, and there are definitely significant challenges with and arguments against that approach. The other model, which is in the legislation as drafted, is basically that the Department funds it.

Even within the latter model, there are other safeguards. We had an evidence session with the Irish Fiscal Advisory Council prior to this session. It has a form of safeguard, although it is not complete, which is that that fiscal council is, in a legal sense, funded by the Department, but it is outside the estimates process and is, therefore, effectively, funded separately. I am aware that you do not want to advocate too much, but is there an argument for having something like that in the Bill?

Sir Robert Chote: That is not a hill on which I would die. When the Office for Budget Responsibility (OBR) was being created, we had a similar debate on whether it should, effectively, be funded in the same way as an agency of the Treasury, or whether it should be funded more like the National Audit Office, for which Parliament has not a Public Accounts Committee but the Public Accounts Commission, which is a separate body that is responsible for setting Budget and broad strategy etc. My view is that, even though the OBR was essentially a watchdog over the Treasury, the way in which the OBR and Treasury had to play nicely together in order for the budget process to work meant that, actually, the resources that the OBR needed were, ironically, more likely to be safeguarded by a clear line with the Treasury than by a line through Parliament, where the focus on how well it was working in practice would not necessarily be so pronounced.

There are, in Northern Ireland, different sorts of models for the institutions that are not funded directly through the process. It has to be recognised that we are a public body on which £600,000 or so a year of public money is spent, so you cannot take it completely out of the political purview. In many countries, the most important thing is transparency around the budget so that, if there is a squeeze, you can identify it: if the Government say, "We are funding them as perfectly generously as we always were", but that is not the case, it should be straightforward to demonstrate that and appeal to the court of public opinion that that is important.

As in the OBR, clearly, you would like to have a multi-year budget, but a multi-year Executive Budget is needed for there to be a meaningful multi-year budget for the Fiscal Council. At the OBR, certainly, we looked for relative clarity on what it would get in each year of a spending review rather than just saying, "It'll come out of the overall Treasury pot in amounts yet to be determined"; that level of granularity is important. We will, hopefully, have a fully articulated multi-year Executive Budget, in which case it would be sensible for there to be a similar time horizon for looking at the Fiscal Council's budget, but, in the absence of that, there may be formal obstacles to such an approach.

I do not have a strong view on whether the Fiscal Council budget should be more oriented through a process outside the mainstream Executive Budget, whereas I had strong views on that at the OBR level. Jonathan may have a more informed view, having seen more of it from the inside.

Mr Jonathan McAdams (Northern Ireland Fiscal Council): From an operational perspective, clarity on the budget is just as important as how much is in it. We do not necessarily expect special treatment, and any of the models that you describe can work provided that the relationships are there, but clarity on what moneys we have for next year is especially important because the team is so small. With a team of five or six, a small budget change could mean that we can no longer afford as much resource, and a difference of one or two members of staff would be significant.

I will go back to the previous question, Chair, although you will probably not thank me for doing so. There is an operational side to requiring an additional function, given the risk that that would dilute resource. If we were to have additional functions — this is my pitch — we would want them to be adequately resourced so that they do not dilute the work of the council members and the staff team.

The Chairperson (Mr O'Toole): Absolutely.

Mr McAdams: That is my plea.

The Chairperson (Mr O'Toole): We would not force you to construct a macroeconomic model and run it several times a year without extra money.

I will bring in members in a second, and we will have a chance to come back to the multi-year budget, but, Sir Robert, given that you highlighted your long experience at the OBR, it is important to ask for your view on the commentary that, it is fair to say, there has been on the iterations of the UK Government's forecast and other information going back and forward between the OBR and the Treasury. The OBR has recently been subject to controversy and comment. Have you been surprised by what we have seen of the OBR and its iterative process of getting policy measures from the Treasury and producing updated forecasts? It has been dragged into a prominent place in public debate, and that is going on right now, as we are still a week away from the Budget statement. That is really unusual and probably suboptimal.

Sir Robert Chote: There are two aspects to that. What one has read most recently in the newspapers about the evolution of the Budget through the lead-up to the statement is the sort of briefing that, in my time, certainly, one did not get. It is not for me to say — indeed, I do not know — where such kite-flying has come from on elements of policy that the Government are or are not thinking of or where public commentary has come from on how the OBR forecast may have moved from the first round before the Budget to the second and third rounds.

Generally, that is not helpful. I suspect that, in calm reflection afterwards, the Government may conclude that it was not particularly helpful for them on that occasion either. There is a good reason why you have a flow of information in private while the Government are making up their mind and the OBR is looking at and refining the forecast. Not having that speculation makes life easier for everybody. It is a salutary reminder to people that, if you have, as we have in this situation, essentially three rounds of OBR forecast that you then shut down, and two rounds when it is affected only by the policy measures, you can get movements even on that short-time horizon.

I assume that the OBR, at the time of each forecast, has to take a view on, for example, how expensive it is for the Government to borrow — so, gilt yields — and on what is happening in other financial markets. There has been quite a sharp fall in the price that the Government have to pay to borrow in the last of the forecast rounds before it is closed down. Therefore, the Government's perceived room or lack of room for manoeuvre may have moved around. However, that is a feature and not a bug, because your debt interest bill does indeed depend on day-to-day movements in financial markets. That is source of volatility and uncertainty when you are trying to put the Budget package together, but it is a fact of life and not a failing of the OBR.

There is a question that looks across fiscal events more broadly. Forecasts will move up and down, because of new data, new judgements and new movements in financial markets, from a Budget to a spring statement to a Budget to a spring statement. You really do not want taxation and public spending decisions to be as variable as that and to need to move up and down with quite the same frequency. The problem is that, if you have clear fiscal rules against which you have a very small amount of room for manoeuvre, you are vulnerable to a natural movement up or down in the forecast — which, again, is a feature and not a bug — that appears to leave you with no grounds to make it up or spare resources. Governments need to think carefully about the interaction between the fiscal rules that they set themselves and the inevitability that the OBR forecast will move up and down.

The OBR is not forcing the Government to raise x or y amount of taxation. The Government set themselves fiscal rules, and the OBR produces a forecast and assesses whether the Government are on course to achieve the fiscal rules. It is, rightly, for elected Ministers to decide, if the OBR says that you are not on course to keep to your rules, whether to change the policy, change the rules or just say, "Actually, I'm content for the forecast to show that these rules are being breached, because I'd rather wait and see how things look in another six months". The Government can take any of those options within the legal framework, and should be happy to explain to the public whichever choice they take.

The Chairperson (Mr O'Toole): That is very helpful, and we may come back to that. I do not know if this is an interest to declare, but I should say that I worked in the Treasury press office when Sir Robert ran the OBR. I had the joy of getting the OBR's updated forecasts and responding to them.

Sir Robert Chote: The word "joy" is carrying a lot of weight in that sentence, I suspect.

The Chairperson (Mr O'Toole): You say that, Sir Robert; I could not possibly.

Ms Forsythe: Thank you, both, for joining us and for being available to us throughout this process. We have been fortunate to get detailed and insightful evidence. I have two main areas of concern. One is the discretionary element in the Budget, which has been raised by a couple of people. The Department having closer control takes away the Fiscal Council's discretionary powers and, potentially, the perception of independence. However, I am more concerned about the way in which appointments are set out in the legislation. We are very fortunate to have you both sitting there; you are excellent, and we really appreciate that. The legislation, however, reads as if the Department can appoint anyone to those posts. No merit-based, competition element or other requirements are set out. I am a little bit concerned about that. What are your thoughts or feelings on it? Is there anything that needs to be built into the legislation by way of additional subclauses, guidance or whatever? We want to guarantee that it will always be of this high professional standard.

Sir Robert Chote: There are two issues there. The first — it will be same with the OBR — is that there is a process for public appointments, with rules that people need to be appropriately qualified etc. There is a question mark as to what confidence you have in the rules that apply generally to all appointments, of which these appointments would be one category, or whether you feel that there is a need to be more specific or prescriptive here. The OECD's guidelines, if I remember correctly, specify to a greater degree what skills or capabilities are required. I can understand that those are important things. There may be countries where, essentially, mates of senior Ministers have been appointed to such institutions, which would fly in the face of that. I am not sure that putting it into the legislation that the person needs to have a particular expertise in public finance would resolve the problem, if people are determined to act in that way. I am not necessarily convinced that being more prescriptive about the sort of people who you might want to appoint is a terribly good idea.

The other issue is the role of the Assembly and the Committee in either agreeing to or having a veto over the people who are proposed for those bodies, or having the opportunity to comment on them or speak to them in advance. As you probably know, in the case of the OBR, the Treasury Committee in Westminster has a formal veto over appointments to the Budget Responsibility Committee, which comprises the job that I held and those of two other people. That was seen as being a useful bolstering source of reassurance on that front, whereas, typically, in other appointments, people may be asked to appear before a Committee and talk, but there would not necessarily be a clear veto. Again, that is not a hill on which I would die, on either side, but, if you felt that it was appropriate to bolster it in that way, that would be consistent with the approach that is taken at the OBR.

I would be more wary about an approach whereby there is a set of eight characteristics that you are looking for in everybody that you appoint to a body such as this. If you have a committee of more than one person, it is inevitable that those people will have a greater degree of expertise and interest in some areas than others. In the way in which the Fiscal Council is constituted at the moment, there are Northern Ireland-based people, alongside me from elsewhere in the UK and Alan Barrett from the Republic. That is a good and helpful mix, but I would be cautious about writing it down in legislation that it has to be that way. Again, with the transparency and knowledge that an appropriate process is going on, it is appropriate that the Committee should ask, "Is this is the correct balance of people?", so that are you sure that you are being given the right mix. I have been fortunate and content with my colleagues as council members and with Jonathan and his staff team.

Ms Forsythe: Thanks very much. There is definitely room for something to be put in. The OECD was quite critical of that as it sits. It came up in the evidence session. I have said previously that our Department of Finance has two strands: its operational functions and its Treasury function. If you do not understand the operation, the fact that it is one Department makes it seem even more conflicted. Looking at the OBR, there is definitely something —.

Sir Robert Chote: Arguably, it is less conflicted than in the case of the OBR, because the Department of Finance is less powerful relative to the Treasury in London. You might argue that the Treasury is able to pull more strings, whereas, as you rightly point out, in addition to its being your Finance Ministry, the Department of Finance is one Department in a coalition, and you do not have the first-among-equals relationship with the other Departments to quite the degree that exists at Westminster.

Ms Forsythe: There is definitely a whole lot to think about there. I really appreciate hearing from you today.

Mr Kingston: Thank you, Sir Robert and Jonathan, for your time today and for your written submission. It is useful to hear and read your comments on the wording of the Bill. I think that it is fair to say that you are content with the Bill's wording. Is there anything on which you would make a case for amendments to the Bill's wording, or are you broadly content with the wording?

Sir Robert Chote: The answer is that we are content. As we have just discussed, there are perfectly legitimate judgements to be made about whether you want a greater or lesser degree of additional reassurance around the appointment process, the role of Committees etc, but I do not have any particular anxieties about the wording. Jonathan may want to come in on that.

As I said, the particular challenge for drafting in this context relative to the OBR is that a key role is to comment on how the Budget is working, whether it is being balanced and how, and whether it is sustainable, given that that Budget can be run by the Stormont institutions, by the NIO or, as we have seen, by caretaker Minister/accounting officer combinations. As we come towards the end of the calendar year, we all hope that we will see a draft Budget, ideally a multi-year draft Budget. However, there can be situations — hopefully there will not be — where that does not materialise. It is as important for the Fiscal Council to say something and provide information to you at that point as it is for it do so at a point at which there is a Budget.

The line that I have often used is that, after six weeks in this role, I learned to stop asking the question, "How does this normally work?", because people often said, "'Normally work' is bit of a category mistake here". Therefore, it is important to frame the legislation in a way that recognises the flexibility in the different ways that the Budget process can move and the uncertainties around the calendar. There are no alarm bells ringing for me that the Bill is entirely designed to have a system in which the Executive are in the driving seat and everything is done bang on to the letter with the appropriate amount of notice of consultation and so on. There is scope for the Fiscal Council to comment, to write and to send information to you and others at the points at which it appears most useful to do so, not necessarily on a particular timetable whereby it needs to do something x number of days before or after some other event, given that knowing how or when that event will materialise is a lot easier in other countries than it is in this jurisdiction.

Mr McAdams: Sir Robert mentioned the Budget publication, its timing, whose Budget we are commenting on and whether we are commenting on a Budget or the lack of a Budget. One other point that we have raised in our evidence is around the thematic and general sustainability reports. We said that the wording in clause 4 was not straightforward. I thank the Committee for referring that back to the Department and for sharing the Department's response with us. We are content with the understanding that we now have from the Department. To put it on the record, our understanding is that the Fiscal Council can choose between general and thematic reports on a year-to-year basis, depending on what seems the most useful or most relevant, but that there will be a hard, catch-all clause whereby we must do two general reports every decade. That seems reasonable to us. We are happy with where that has got to, and we thank the Committee for clarifying that for us. It has ended up in a good place.

Sir Robert Chote: Drawing a line between what is a thematic report and what is a general one is not completely straightforward. You could argue that all of the work that we did to try to explain the issues around the Holtham formula, relative need etc is either thematic or a general view of the adequacy of the resources and, therefore, sustainability. Even making that distinction is not entirely straightforward. However, we have not felt constrained in being able to talk and write about the things that we think are most useful at the time. That clause gives us the flexibility to continue to do so.

Mr Kingston: A lot of our Bills contain enabling powers and then things get added later. Clause 5, for example, states:

Does the Bill increase your powers and your scrutiny role? Secondly, do you think that it will be sufficient to have a challenge function? Will you be able to speak out if you are concerned about how Departments, and the Executive generally, are spending public money?

Sir Robert Chote: I do not see any particular difficulty as regards the council having the right to speak out or the right to publish what it wants to publish without it being muzzled by a Department or Departments, or, indeed, by the UK Government if we are in a situation in which the UK Government are setting the Budget. The Bill is reassuring on that front. When working relationships have broken down or become difficult in other such institutions, access to information is the area in which things have become more difficult. The idea of being able to fall back on legislation is, generally, helpful, but it will not surprise you that it is pretty rare for fiscal councils that have legal rights to information from their Governments to use those rights in anger and, for example, pursue them in the courts. I am aware that that has happened in Spain and Canada. If you have to go to the court or higher authority to enforce those rights, you are already in a very difficult position, and the relationships will have broken down. That is not a good environment.

Independence is in the eye of the beholder. You can have in the legislation all the guarantees or safeguards about independence that you like, but the council establishes and makes people believe in its independence through the way in which it does the job day to day, including its willingness to speak truth to power. I am sure that we have said things at times that the Department of Finance or other Departments have found uncomfortable, but we have not been put under pressure not to say those things. We recognise also that, sometimes, for reasons that are entirely benign rather than malign, it is not straightforward for people to provide the information that we would like to have. You have to recognise that you are working in an environment that does not have unlimited resources, whether that is the Fiscal Council or the people from whom you might be asking for information. One of the pleasures of having done the role over the past four and a half years has been how supportive and willing Departments and public bodies, such as NI Water, the Utility Regulator and the Department of Health, have been to provide the information that we need on a realistic timetable. We can never take those things for granted, which is why it is important to have that statutory foundation, but that does not cause me anxiety at the moment. The way in which the Bill is drafted does not cause me anxiety.

Mr Kingston: OK. Thank you.

The Chairperson (Mr O'Toole): I think that we are drawing close to the end of this session. No other member has indicated that they wish to ask questions.

There are a couple of final ones from me. One is on the multi-year Budget more generally. I have just received an answer from the Finance Minister about the timing. I think that he indicated that we could expect it before Christmas. I do not think that we can be certain that it will be before Christmas; I am not putting words in anybody's mouth. The answer, which I will share with members for information, indicates that, following the UK Budget next Wednesday — the Minister does not say whether it will be an hour, a day or a month after it — the Budget, by which he means, I hope, the multi-year the Budget, will be brought to the Executive for agreement. Has the Fiscal Council had much contact from the Department on what is in the multi-year Budget? Have you seen a version of it?

Sir Robert Chote: No. I expect that, as you said, there will, understandably, be a whole lot of decisions that people will not want to take until they have seen the UK Budget and, particularly, whether any positive or negative Barnett consequentials come out of decisions on public spending, such as whether there will be additional resource at UK level to help to address pay issues in the near term or any downward adjustments to the departmental spending total for further years in order to contribute, along with potential tax increases, to strengthening the broader fiscal position. I am entirely unsurprised that everybody is waiting to see what is in the UK Government Budget and to look at what their prospective block grant envelopes will be for the following years.

When it comes to getting Executive agreement on the Budget, as we know, there is a challenge in that the Department of Health has already had to be given authority to spend more than was originally budgeted for. Decisions will, therefore, need to be taken about whether that, plus any additional pressures, can be accommodated from other areas of the current year's Budget or whether you will be overspending. If you are in a situation where you will overspend, that would, other things being equal, imply that there will be a reduction in the block grant for the following year, which could, clearly, complicate the task of reaching agreement on a Budget with a three-year or four-year horizon. I assume that, without knowing what is coming out of the UK Budget and getting a fuller appreciation of what the impact of pay pressures, in particular, will be on the overall Budget position, the Executive's room for manoeuvre is not yet set in stone.

The Chairperson (Mr O'Toole): I am slightly surprised in that, if the understanding of what is coming out of the UK Government's Budget is —. I do not think that we have had any indication that the UK Government's Budget will meaningfully transform the totals that were in the June spending review, so I have kind of been operating under the assumption, which has turned out to be a flawed assumption, that they would have produced a multi-year Budget by now and that, if there were any in-year 2025-26 adjustments — ideally additional Barnett consequentials, which would be great — they would be allocated via a December monitoring round but that the multi-year Budget would be based largely on the totals from the spending review.

Sir Robert Chote: From my standpoint, I do not know how heavily pencilled in, if not yet inked in, the potential plans for that period are. Clearly, as I said, if you are in a situation in which you have an overspend this year that has to be compensated for in a subsequent year, that presents non-trivial planning issues and debates over where the resource will come from. You may be right: maybe much more has been pencilled in and there are just a couple of i's to dot and t's to cross. We are not feeling deprived: we do not feel that we should, by this stage, have been given a lot more information about what a three-year Budget or multi-year Budget should look like. We expect to know that once the Executive have agreed it. The Department is very helpful in providing what useful background it has, but, from even the relatively limited period during which I have been looking at Northern Ireland Budgets, I am conscious of the challenges of getting those things agreed and getting something that everybody is willing to put their names to.

The Chairperson (Mr O'Toole): I have a question to Sir Robert — and Jonathan, if you wish — on the point about the planned overspend that has been agreed by the Executive. The Finance Minister was very keen to point out that it was agreed by the Executive, and that it was not just him who was giving the Health Minister permission. We have overspends and underspends all the time, and we have had situations in which Departments have overspent, particularly when the institutions were down. That led to some of the reserve claim issues that had to be dealt with at restoration.

Most people very much want pay parity to be met. That is a key priority, which has been brewing politically for a long time, but it has not been budgeted in at the beginning of years. Are you concerned about the approach of, rather than budgeting in the pay parity at the start of a year and dealing with the consequence then, effectively saying, in the middle of the year, "We'll stick it on the credit card and worry about it next year"? Of course, "worrying about it next year" means that you have to deal with the challenge of the pay settlement for next year, as well as all the other pressures. Are you concerned about that approach?

Sir Robert Chote: Not necessarily, in principle. If all you were talking about was a £100 million overspend in one Department, there is the question of whether that automatically translates into a £100 million overspend at whole-Executive level. One concern is that, having felt the need to move on pay in Health, maybe you then address similar challenges confronting other Departments that are in charge of other public services. We know that there are other pressures. If that were part of a larger potential overspend problem, the danger is that you get back into having the sort of debates that we have had in recent years about how best to approach that.

On the pay parity point, there is the fundamental issue that, if the UK Government give an x% increase in pay, and provides extra money for that in respect of the departmental expenditure limit at a UK level, given the way that the Barnett formula works, that will not generate enough money for the Executive, all other things being equal, to give the same percentage pay increase in Northern Ireland, because the public sector is larger and the pay mix is less favourable. Therefore, there is always likely to be a choice. It is a less severe choice than it was because of the 24% uplift to future Barnett consequentials, but, if you know that the block grant increase resulting from a UK pay deal will not be enough to provide that in parity, unless you find the money from elsewhere in the Executive budget, that fact of arithmetic needs to be faced up to.

If you have a decision to match a pay deal that is not fully financed by the additional Barnett consequentials, that is not a one-off cost, such as for a data breach that you might have to pay for; it will add to the spending pressures in every future year. If you have additional spending pressures in this year that flow through into every other year, the appropriate response is not to borrow from next year to do it in the current year. To go back to our metaphor: that is essentially scratching the itch this year but making the itch itchier in the year to follow. I have a concern about the willingness to have open conversations such as, "If we are going to have pay parity in these sorts of situations, the money has to come from somewhere. It will not come automatically from Barnett consequentials". Are we discussing properly the alternative ways of doing it? Can we get that money from elsewhere in the Executive Budget? Do you need more revenue in order to do it? There is a choice to be made here, and saying that we will fund it by potentially taking some money from next year is just kicking that can down the road.

The Chairperson (Mr O'Toole): That point is well made. One of the questions that we will want to ask on the multi-year Budget is whether any choices are being made to raise more revenue locally; to seek more fiscal powers; or to do anything else that might change the same old, same old fiscal conversation. The Fiscal Council has been a huge part of improving the fiscal conversation here, so thank you very much for that.

No one else has indicated that they wish to ask a question. We may not see you again before Christmas: have a great Christmas, and happy New Year, Sir Robert and Jonathan. Assuming, hoping and praying, if you are religious — we will not go down that road today; that is for other Committees — that we have an Executive multi-year Budget before the end of the year, we would very much like, and expect, the Fiscal Council to be back with us to talk about that Budget at your earliest convenience, ideally early in the New Year. We hope to see you then. If any further questions about the Bill come up in the meantime, we will be in touch. Thank you, both.

Sir Robert Chote: I will join you in your prayers or non-religious supplications that we will have something nice to be able to comment on.

The Chairperson (Mr O'Toole): Indeed. Maybe it will be underneath the Christmas tree for the absolute geeks who do not have anything better to do on Christmas Day. Anyway, thank you, both. We will hear from you soon.

Sir Robert Chote: Good to see you. Thank you very much.

Mr McAdams: Thank you.