Impact case study database

4.1. Pathway to impact

Through a long-term consistent strategy of engagement with communities of policy making, economic forecasting and institutional design, Professor Leith and colleagues forged three principles from the underpinning research to shape policy and practice. First, the Scottish Fiscal Commission should be fully independent from the Scottish Government. Second, it should support fiscal sustainability. Third, the SFC, and its operating Fiscal Framework, should enable policy makers to respond flexibly to shocks. This third principle is the key insight from the underpinning research: the point of fiscal councils is to ensure unbiased fiscal forecasting and enhanced credibility in support of policies which mimic what we believe to be optimal policy. This is in contrast to the non-credible fiscal rules which have been adopted and, just as quickly, abandoned in the past.

4.2. The creation and evolution of the Scottish Fiscal Commission

Ahead of the SFC being established, Scottish Government forecasts and their underlying methodologies were not independently scrutinised. Initially, that scrutiny was the central role for the SFC when it was created as a non-statutory body in June 2014. However, following the independence referendum of the same year, additional borrowing and fiscal powers were granted to Scotland. As a result, the remit of the SFC expanded and its status changed from non-statutory to statutory body in 2017. This change was acknowledged by the SFC becoming a member of the OECD’s group of recognised Independent Fiscal Institutions (IFIs). At this point the SFC assumed the role of official forecaster for Scotland. This marked a step change in Scotland’s economic policymaking.

The initial link in the chain of impact was the involvement of Professor Leith in calls for a fiscal council to be created for Scotland. The body of research explicitly underpinned Leith’s written evidence [5A] to the Finance Committee of the Scottish Parliament, which was relied on in supporting their recommendation that the SFC be created (confirmed by the official report and transcript of Leith’s oral evidence **[5B]**). For example, the report relies on Leith’s definition of the role of the SFC, ‘The objective of an independent fiscal body is summarised by Professor Campbell Leith as being “…to allow for short-run flexibility in a way that adherence to fiscal rules may not allow, but to ensure that this does not jeopardise long-run fiscal solvency.”’

Upon the formation of the SFC, Leith was then invited by the Finance Minister to be one of three founding members (Commissioners) of the SFC (confirmed by the Committee’s assessment of Leith’s nomination **[5C]**). The fact that Leith was appointed as a founding Commissioner provides evidence that his vision for the role of the SFC was accepted by the Scottish Government (confirmed by final report and transcript of oral evidence **[5D]**). Leith was then joined by UofG colleague, Professor Nolan, who became a Commissioner in 2016, following the resignation of one of the original Commissioners.

4.3. Informing the Scottish Government’s negotiating position

Professor Leith was also involved in providing evidence to the Scottish Parliament on the appropriate form of fiscal rules for Scotland, which informed their negotiating position in agreeing the Fiscal Framework governing the implementation of further fiscal powers following the Scottish independence referendum of 2014. This written evidence again cited and drew on the published research of the UofG researchers named above [5E]. The final report of the Finance Committee relied heavily on this evidence in formulating its recommendations, which were broadly accepted by the Scottish Government as its bargaining position (confirmed by official report **[5F]**).

For example, the report cites Leith’s view on fiscal rules, “Professor Campbell Leith suggests that ‘fiscal targets should facilitate the use of debt as a shock absorber.’ If the ‘borrowing limit is too low, the effective use of government debt as a shock absorber will be compromised.’ These fiscal targets ‘should apply over a sufficiently long time horizon to allow gradual adjustment to the target and the time horizon should be rolling. The targets should also be set in terms of deficits and not debt’” [5E]. This was used to justify the Committee’s recommendations, “The Committee’s view is that it is clear that the level of borrowing powers for current spending will need to be significantly increased and should be commensurate with the risks faced by the Scottish Government post–Smith. The Committee notes that the precise types of risk Scotland may be exposed to will be determined by the block grant adjustment method which is intended to insulate Scotland from UK-wide economic shocks. At the same time there will also be a Scotland-specific cyclical risk and the Scottish Government will require substantial new borrowing powers to manage this volatility” [5F].

4.4. The design and ongoing development of Scotland’s fiscal framework

In light of the further devolution of fiscal powers, the provision of evidence on how the SFC’s remit should evolve was an ongoing aspect of Professor Leith and Nolan’s roles as Commissioners. This was done formally in both closed and open sessions of Committees of the Scottish Parliament, particularly the Finance Committee (confirmed by official reports **[5G][5H][5I]**). However, Commissioners were also regularly briefed on, and able to influence, the drafting of the legislation which formalised the SFC’s status and remit as a statutory body. Leith and Nolan were also heavily involved in designing the structure of the SFC, as well as its way of operating, as it expanded to a staff of approximately 20 people. Moreover, Professor Nolan represented the SFC on a parliamentary committee, The Budget Progress Review Group, which sought to change the budget process to enhance both the Scottish Parliament and SFC’s scrutiny of the Scottish Budget following the creation of the SFC (confirmed by official report **[5J]**).

The initial evidence Professor Leith gave to the Scottish Parliament made the general case for fiscal councils, but also included specific recommendations for the Scottish context (confirmed by written evidence **[5A]**). In particular, it stressed the need to ensure cooperation rather than conflict with the UK sister body, the Office for Budget Responsibility (OBR). For example from the Finance Committee’s Report [5B], “The matter of the relationship between an independent fiscal body and the OBR was commented on by Professor Leith […] an independent Scottish Fiscal Council could enhance the policy making process by making independent forecasts of variables of sole interest to Scotland. For other items which impact on both Scotland and the rest of the UK, a formal working relationship between the Scottish Fiscal Council and the OBR which aims to produce a single consensus forecast would facilitate the gains from cooperation, without undermining the credibility of either body.” To this end, upon being appointed as a Commissioner, Professor Leith promoted the holding of regular meetings with the OBR to ensure there was a shared reconciliation of their respective forecasts, thereby preventing any differences being exploited politically. Thereafter, Professors Leith and Nolan were in regular contact with the OBR.

4.5. Beneficiaries

The establishment of the SFC has reduced suspicion of politically influenced forecasts, generated trust in its work and enhanced fiscal transparency. An OECD review of the SFC (2019) confirms that, “[it] has been successful in establishing constructive relationships with key stakeholders and has quickly developed a reputation for delivering independent and credible forecasts. The SFC’s independence is underpinned by strong enabling legislation … The SFC has become a voice of authority, and is credited with enriching the fiscal policy debate in Scotland. It has significant engagement with the Scottish Parliament and receives broad media coverage” [5K]. Chapter 5 of the OECD review further evidences the positive impact of the SFC. As Scotland’s official forecaster, it has a direct influence on the parameters of the annual budget and informs MSPs (who between April 2017 and May 2019 made 62 references to the SFC in parliamentary questions). In addition, the OECD found that through its reports, website, social media, press conferences and regular interactions with journalists, the SFC has established significant media impact [5K]. Thus, the ultimate beneficiaries of this impact are the people of Scotland and the evolving devolved governance of the country.