Graeme Roy, Professor of Economics at the University of Glasgow's Adam Smith Business School.

A now former member of the Office for Budget Responsibility (OBR), at a seminar several years ago, introduced their talk by remarking: "If you think you have heard me say something controversial, you must have misunderstood." This light-hearted quip has an element of truth to it. Institutions like the OBR and the Scottish Fiscal Commission (SFC), which I chair, do not set out to grab the limelight or to be controversial.

Unlike monetary policy, where day-to-day policy decisions are typically handed over to an independent central bank, it does of course make complete sense for decisions about how much tax we pay and levels of investment in public services to be in the hands of politicians.

But a robust budget process for decision-making, underpinned by transparency, is a basic ingredient of good governance and policymaking. There is substantial evidence of the value that the public and financial markets place on the process in which budgets are determined, communicated, and scrutinised.

This is where independent fiscal institutions play their part. By setting out clear and transparent economic and fiscal forecasts (including the impact of new policy announcements), they provide much-needed impartiality and rigour to the complex world of government budget setting.

Most countries now have independent fiscal institutions. The OBR was set up in 2010. An independent fiscal institution was a key part of the SNP’s economic framework for the 2014 independence referendum. It was also a central element, agreed by both the UK and Scottish governments, of the required infrastructure to support the implementation of the new fiscal powers recommended by the Smith Commission.

Crucially, independent fiscal institutions can help to dampen wishful thinking. George Osborne hailed the establishment of the OBR as removing "the temptation to fiddle the figures". Personally, I don't agree that there had been much attempt to "fiddle the figures" in the past, but there can – understandably – be a tendency from within any organisation to be overly optimistic about the potential effects of a package of policy measures.

In the UK, before the OBR came along, Treasury forecasts tended to be too bullish. The result was lower tax receipts than expected, higher borrowing and weakened credibility. More broadly, by being detached from the day-to-day policymaking process, fiscal institutions can bring welcome improvements in our broader understanding of key budget issues.

Indeed, here in Scotland, one of the benefits of the establishment of the SFC has been the regular publication of analysis of the Scottish economy at a depth and analytical rigour we have not had in the past. Indeed, an Organisation for Economic Cooperation and Development review in 2019 concluded that “the SFC has become a voice of authority and is credited with enriching the fiscal policy debate in Scotland.” Since the SFC was created, capacity has grown with new investment in data collection and better engagement with businesses, third-sector organisations and agencies.

The existence of independent fiscal institutions can also help focus attention on important debates, including around long-term fiscal sustainability, that may otherwise be crowded out by the more short-term political cycle.

Of course, independent fiscal institutions will say and do things from time to time that can be challenging for all sides of the political spectrum. Their findings might not always match up to the rhetoric being pushed by particular politicians. But by offering an impartial assessment of the likely effects of decisions, better policy decisions can be achieved over time. That is not just good for accountability but for government credibility too.

It is entirely correct, of course, that what the OBR, the SFC and others say is scrutinised and challenged. Given the fiscal pressures and uncertainties that we face, the fact that we can debate issues such as the economic outlook, the impact of climate change on the public finances, or the gains and losses across the income distribution from tax policies, can only help build a consensus for (or at least a better understanding of) the options for reform.

We all gain from the existence of high-quality independent fiscal institutions, particularly during challenging times. Their establishment has been one of the key public policy legacies of the last twenty years. That Scotland and the UK have two of these institutions which are amongst the best in the world is something to be proud of.

This article first appeared in The Herald on 10 October 2022

First published: 10 October 2022

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