Comment: Unmuzzle the Scottish tax powers watchdog

ACONTENTIOUS issue surrounding those pending extra tax and spending powers for the Scottish Parliament is scrutiny over the exercise of these powers, their implications, consequences and effects.

ACONTENTIOUS issue surrounding those pending extra tax and spending powers for the Scottish Parliament is scrutiny over the exercise of these powers, their implications, consequences and effects.

A prime raison d’être for more control over tax and spending is that this would enable the Scottish administration to improve the performance of Scotland’s economy.

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But who will be monitoring that performance? And will this scrutiny be sufficiently independent of government to win public trust?

Other prominent issues will be the measurement of government spending, borrowing and debt; whether variations in tax levels and rates will achieve what the administration intends, and what might be the behavioural effects on taxpayers of changes in the tax take.

These measuring and monitoring responsibilities will be undertaken by a revamped Scottish Fiscal Commission (SFC) – Scotland’s version of the UK Office for Budget Responsibility. The existing SFC is hardly up to the task, with a part-time directorate of just three people and a derisory budget of £20,000.

An early issue for the Scottish Parliament will be the arrangements for appointing the head of the revamped commission and its members. Is it right that the Scottish Government should make the appointments to the very body set up to act as watchdog of its activities and performance?

A report on these issues will soon be delivered to the Scottish Parliament’s Finance Committee by Ian Lienert, an international expert in public financial management. Many submissions to the committee have raised concerns about the lack of independence in the Scottish Government’s draft proposals. Among the critics are the Scottish Property Federation, Audit Scotland, the Institute of Chartered Accountants in Scotland, the Chartered Institute for Public Finance and Accountancy and the Royal Society of Edinburgh.

Last Thursday this simmering pot boiled over in Holyrood where both Labour and Conservatives took First Minister Nicola Sturgeon to task on her plans for the new SFC.

Jackie Baillie, Scottish Labour’s public services spokesperson, said the experts had made clear what was being proposed is not independent. “With significant new tax and economic powers coming to Scotland we need a truly independent financial watchdog rather than a toothless lapdog.”

Sturgeon insisted that the bill to be introduced in the Parliament “includes robust measures to protect the commission’s independence”. It will have “an independent role in scrutinising and evaluating the approach that the Scottish Government takes to forecasting and the financial matters that fall within its remit.

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“The detailed account of the forecasting approach that we take will be published, the Fiscal Commission’s independent evaluation of that report will be published, and any changes that the Government makes in response to the Fiscal Commission’s evaluation will also be published, for total and complete transparency.”

But how is the managerial independence of the proposed new commission to be secured and its continuing independence guaranteed? It was initially proposed that the SFC chair should be nominated by the Government and subsequently approved with a veto right by the Parliament.

But it can hardly be right that the Government gets to nominate its own independent watchdog. My suggestion to Lienert when we met at the Parliament last month was for a nominating troika of qualified people outside of Government – Audit Scotland, perhaps, Fiscal Affairs Scotland and a top accountancy professional – to draw up a shortlist of nominees which would then be submitted to Parliament for approval.

And when it came to helping to ensure that the Scottish Government sticks to its spending, borrowing and debt projections, I suggested as a possible sanction that the Government be obliged to adopt a letter-writing obligation similar to that imposed on the Bank of England. Whenever there is a significant deviation from the inflation target, the Bank has to write a letter that explains how the deviation arose and how it intends to correct it.

Under such an arrangement, the Scottish Government would be obliged to give a public alert when its spending and borrowing targets were in danger of being breached – and required to spell out how it intended to make good the deviation.

Among submissions received by the Finance Committee, that from the Institute of Chartered Accountants of Scotland was particularly damning. If the SFC is to be an independent body, it wrote, “then it is debatable whether this is accomplished by setting up a body within the Scottish administration, and over which Scottish ministers may exert significant influence by stating what reports are required, being involved in appointments, and being able to put forward statutory instruments which may change the functions of the Scottish Fiscal Commission. Whilst the proposed statutory structure may result in the commission being directly accountable to the Scottish Parliament rather than being accountable through Scottish ministers, this does not provide an independent commission… Based on the draft legislation Scottish ministers could exercise considerable influence over the Commission.”

So much for the early skirmishes in this battle before the guns go off over the legislative process and drafting. It is vital to ensure that the Scottish Government with those new tax powers is held to independent account and that the public has trust in the arrangements. Watch this space. «