Report on an Independent Fiscal Council for Northern Ireland

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Together with the Minutes of Proceedings, Minutes of Evidence and Written Submissions Relating to the Report Ordered by the Committee for Finance to be published 9 July 2021

Mandate 2017-22

2nd Report NIA 113/17-22

Contents

• Powers and Membership
• List of Abbreviations and Acronyms used in the Report
• Executive Summary
• Summary of Recommendations
• Introduction
• Committee Approach
• Acknowledgements
• Key Findings and Recommendations

Appendices

• Minutes of Proceedings (extracts)
• Minutes of Evidence
• Written Submissions
• Memoranda and Papers from the Department of Finance
• Background Papers
• Research Papers

Powers and Membership

Powers

The Committee for Finance is a statutory departmental committee established in accordance with paragraphs 8 and 9 of Strand One of the Belfast Agreement and under Assembly Standing Order No 48. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Finance and has a role in the initiation of legislation. The Committee has 9 members including a Chairperson and Deputy Chairperson, and a quorum of 5.

The Committee has power to:

• consider and advise on Departmental budgets and Annual Plans in the context of the overall budget allocation;
• approve relevant secondary legislation and take the Committee Stage of relevant primary legislation;
• call for persons and papers;
• initiate enquiries and make reports; and
• consider and advise on matters brought to the Committee by the Minister of Finance.

Membership

The Committee has 9 members, including a Chairperson and Deputy Chairperson, and a quorum of five members. The membership of the Committee is as follows:

Dr Steve Aiken OBE (Chairperson)

Mr Keith Buchanan (Deputy Chairperson)

Mr Philip McGuigan

Mr Maolíosa McHugh

Mr Jim Allister

Mr Matthew O'Toole

Mr Pat Catney

Mr Jim Wells

Ms Jemma Dolan

List of Abbreviations and Acronyms used in this Report

Executive Summary

A key aspect of the governance of Northern Ireland is the budget development and agreement process. The Committee for Finance believes that the current budget processes are unsatisfactory, with documentation lacking in appropriate levels of granularity and/or aggregation and presented in a timescale which does not lend itself to a reasonable level of review by elected representatives. The Committee also contends that the inappropriate timing of budget debates prevents the Assembly from fulfilling its role of scrutiny and challenge. The above has led to a perception of a lack of transparency and poor governance.

The Committee hopes that an independent Fiscal Council for Northern Ireland will address any real or perceived governance and transparency challenges facing the Executive's existing budget process.

The Committee believes that legislation should be brought forward at the earliest opportunity to establish an independent Fiscal Council for Northern Ireland as a body corporate with: an independent board (appointed in line with the Public Appointments process); a circumscribed multi-year budget and appropriate level of secretariat support; powers to compel information from Ministers, departments etc. similar to those available to the Scottish Fiscal Commission; the discretion to report on (largely) any fiscal factors that it chooses relating to Executive (and non-Executive) income and the resources or expenditure deployed by the Executive; and a requirement to produce an annual authoritative multi-year expenditure budget analysis and forecast report. This report is to be laid in the Assembly and presented to the Finance Committee and debated in the Assembly in the early autumn regardless of whether the related Westminster or Executive processes are running late and which will illuminate the budget process for MLAs and the public and perhaps inform Executive decision-making in respect of final public expenditure plans.

Summary of Recommendations

The Committee recommends that legislation should specify that the Fiscal Council for Northern Ireland should:

1.1 Scrutinise, challenge, report and forecast in respect of all aspects of the Executive's public expenditure including Annually Managed Expenditure (including particularly all aspects of social security spending) and all existing income streams for fiscally meaningful periods i.e. 3-5 years or longer.

1.2 Scrutinise, challenge, report and forecast in respect of all aspects of cross-departmental spending including particularly the extent to which spending achieves or might achieve Programme for Government outcomes for fiscally meaningful periods i.e. the period of the Programme for Government or 3-5 years or longer.

1.3 Undertake forecasting and reporting with a view to: informing the understanding of MLAs as they scrutinise the budget development process; ensuring the engagement of the wider public with that process; and helping the Executive to improve the quality of its fiscal information.

1.4 Develop a Memorandum of Understanding (MoU) with the Northern Ireland Audit Office (NIAO) in order to avoid the possibility of any duplication of activity by both bodies.

1.5 Give consideration to the longer term development of a facility to forecast future devolved tax incomes and Northern Ireland-specific macro-economic matters, subject to the agreement of the Assembly.

2.1 Be permitted to publish a report on any fiscal factor relating to Executive (and non-Executive) income and the resources or expenditure deployed by the Executive including the significant costs of legislation.

2.2 Be permitted to draw comparisons between Executive expenditure decisions or Executive fiscal policies and those of similar jurisdictions.

2.3 Be permitted to comment on the effectiveness or likely effectiveness of Executive efficiency measures and to recommend such measures.

2.4 Generally demur from commentary on party manifestos.

2.5 Be required to produce annual budget analysis and forecast reports covering a fiscally meaningful period and timed to usefully inform the Assembly's scrutiny of the budget.

3.1 Have a right of access at reasonable times to any relevant information particularly from departments and Non-Departmental Public Bodies that the Fiscal Council may reasonably require for the purpose of performing its functions.

3.2 Have the right to require any person – particularly Ministers and officials - who holds or is accountable for relevant information to provide at reasonable times any assistance or explanation that the Fiscal Council may reasonably require for the purpose of performing its functions.

3.3 Publish an annual data statement commenting on the quality of information provided and any gaps in data, information or explanations of assumptions or methodologies which the Executive shall address.

3.4 Permit the Fiscal Council to devise MoUs with key partner organisations such as HM Treasury, DWP and the OBR etc..

The Committee further recommends that consideration also be given to amendments to the Northern Ireland Act by the UK Government in order to require reciprocal co-operation between HM Treasury, DWP and the OBR etc. with the Fiscal Council for Northern Ireland.

4.1 Have a chairperson and a board which shall be appointed by the Minister using the Public Appointments process.

4.2 Have sufficient resources to permit the chairperson and board members to allocate commensurate time to their roles in the Fiscal Council. These resources to be specified by the Fiscal Council and confirmed by the Assembly within 5 years of the passage of the relevant legislation.

4.3 Have a multi-year budget which is sufficient to undertake the Fiscal Council's work programme and which shall be subject to change only with the agreement of the Assembly - possibly the Committee for Finance.

4.4 Where it has a secretariat, require these staff to report to the board of the Fiscal Council, which shall recommend their pay and conditions in line with the requirements of Managing Public Money NI and subject to the agreement of the Assembly. The Department of Finance Treasury Officer of Accounts will be required to comment to the Assembly in respect of the value for money associated with the relevant pay and conditions.

5.1 Require the board of the Fiscal Council to have appropriate competence in fiscal and economic scrutiny and particularly experience relating to an understanding of Northern Ireland public expenditure.

5.2 Require the board of the Fiscal Council to employ its own secretariat with an appropriate level of expertise such that reasonable efforts are made to minimise associated non-essential costs.

5.3 Produce an annual report and accounts which shall be audited by the Northern Ireland Audit Office.

6.1 Lay any report which it has prepared before the Assembly as soon as reasonably practicable and within 30 days of preparation and that it may publish reports in such manner as it considers appropriate.

6.2 At least once in every 5 years, appoint a suitable and independent person or body, subject to the approval of the Assembly, to review and prepare a report on its performance of its functions during the period and it must arrange for the report to be laid before the Assembly.

6.3 Should engage with other independent fiscal institutions (IFIs) across these islands in order to share best practice and positive learnings.

7.1 Produce an annual report on past Executive expenditure and including a multi-year forecast of Executive expenditure and income which shall be published in a manner and at a time which will inform elected representatives and public debate on the budget scrutiny process, regardless of delays to the Westminster budget process or deliberations at the Executive.

7.2 Be required to appear before Assembly Committees particularly in respect of its annual multi-year budget analysis and forecast report.

Introduction

1. The New Decade New Approach document (published January 2020) made reference to the establishment (by July 2020) of an independent Fiscal Council for Northern Ireland. The Fiscal Council was to provide independent scrutiny and expert advice to the Executive and the Assembly on fiscal and budgetary matters including spending proposals, with a particular focus on sustainability. Additionally, the Fiscal Council was to provide independent monitoring and reporting on the Executive's performance in delivering the Programme for Government. The membership and terms of reference of the Fiscal Council were to be agreed with the UK Government.

2. The Minister of Finance, in an oral statement to the Assembly on 12 March 2021, announced the establishment of the Northern Ireland Fiscal Council (NIFC) indicating that it would be a permanent independent body which would bring greater transparency and scrutiny to the public finances.

3. The NIFC was established on a non-statutory basis with the Terms of Reference (ToR) developing and legislation to follow which would set out the relevant appointments processes and interactions with the Assembly as well as the arrangements for external review by the Organisation for Economic Co-operation and Development (OECD). The Minister indicated that this initial iteration of the NIFC would not comment on individual Executive policies or examine alternative policy scenarios.

4. The Minister appeared to advise that the ToRs of the initial iteration of the NIFC had been agreed with the UK Government. It is not entirely clear whether revisions to the ToRs and any new legislation determining the membership of the NIFC etc. will require the agreement of the UK Government.

5. The Minister also indicated that the NIFC would:

• prepare an annual assessment of the Executive's revenue streams and spending proposals and how these allow the Executive to balance their budget; and
• prepare a further annual report on the sustainability of the Executive's public finances, including the implications of spending policy and the effectiveness of long-term efficiency measures.

6. A timescale for the production of both reports identified above has not yet been provided. It is understood that the NIFC has undertaken an informal consultation with stakeholders in respect of its work programme; its current ToRs and the need for additional legislation in order to secure its independence, discretion etc.. It is anticipated that the NIFC will publish a report on its informal consultation along with a work programme during the summer of 2021.

7. It is also understood that in order to inform the NIFC report and to assist the Department of Finance in its belated consideration of related legislation, a report on the role and nature of an independent Fiscal Council for Northern Ireland from the Committee for Finance is required.

8. It is not the Committee's responsibility to undertake a policy development function on behalf of the Department of Finance. However, the Committee felt that it was important to ensure that a key promise, made as part of the New Decade New Approach agreement, is kept in this mandate in respect of improving the governance of the Northern Ireland Executive by establishing a truly independent Fiscal Council for Northern Ireland.

9. Under these unusual circumstances, Members agreed to continue their consistent practice of measured and proportionate scrutiny while also being helpful to the Minister and his Department. The Committee therefore agreed to bring forward its own special report – this document – on these matters and in line with Standing Order 46(7), prior to the anticipated publication of the NIFC report.

Committee Approach

10. In developing its approach to the scrutiny of policy in respect of an independent Fiscal Council for Northern Ireland, the Committee had regard to the recommendations of the OECD in respect of the establishment of IFIs in many other jurisdictions. IFIs appeared to have become much more popular following the global financial crisis and are often critical to restoring public confidence in governmental financial decision-making as well as enhancing the understanding of fiscal matters by elected representatives and wider society. The OECD had identified and published a number of strong principles which underpin successful IFIs – these are summarised below.

Local ownership

11. The OECD contends that in order to be effective and enduring, an IFI requires broad national ownership, commitment, and consensus across the political spectrum. The IFI should reflect the country's political framework and the available professional capability.

Independence and non-partisanship

12. IFIs should be non-partisan and independent and should have no part in normative policy-making. The OECD argues that its membership should have fixed terms set in legislation and independent of the election cycle and be based on professional competences not political affiliations.

Mandate

13. IFIs should have the scope to produce reports on their own initiative but their work should also be linked clearly in legislation to the budget process and perhaps also to the costing of major proposals and the development of fiscal projections. IFI legislation should define the above and also set out the kinds of reports that it can produce and who may request such reports.

Resources

14. The OECD contends that the resources allocated to IFIs must be commensurate with their mandate in order for them to fulfil it in a credible manner on a multi-annual basis. This includes the resources for remuneration of all staff and, where applicable, management council members. All of this should be published and subject to scrutiny so as to avoid any appearance of political influence.

Relationship with the legislature

15. The OECD advises that IFI reports should support parliamentary scrutiny including submission of reports in a timely manner in order to inform parliamentary debate and including public appearance before committees to answer questions. OECD suggests that this relationship should be clearly set out in legislation regardless of whether the IFI is established by the executive or as a function of the parliament.

Access to information

16. The OECD suggests that legislation should guarantee access by the IFI to government information in respect of budget information (and related methodology and assumptions) and expenditure. The IFI's resources should be sufficient to pay for analysis e.g. by government actuarial services. Any restrictions on access to government information should be set out in legislation.

Transparency

17. The OECD contends that there is a special obligation on IFIs to operate transparently. Thus all reports and analysis should be published in the IFI's own name and be made freely available – release dates should be formally established and should be linked to but not dependent on the key dates in government's budget process.

Communications

18. The OECD argues that IFIs should develop their own effective communication channels from the outset including the media, civil society and other stakeholders.

External evaluation

19. The OECD contends that IFIs should develop a mechanism for external evaluation of their work by international experts e.g. OECD. This might include review of selected pieces of work; annual evaluation of the quality of analysis; a permanent advisory panel or board; or peer review by an IFI in another country.

20. The Committee felt that notwithstanding the obvious and proven validity of the OECD approach, there was unlikely to be a single "one size fits all" approach to the establishment of an IFI and this might particularly be the case where the IFI served a sub-national purpose as would be the case in Northern Ireland. The Committee therefore agreed to seek written and oral evidence from a number of IFIs in other jurisdictions as well as from key fiscal governance organisations in order to explore the applicability of these OECD principles to Northern Ireland. Owing to the short timescales, the Committee agreed to limit itself to 7 related oral briefings which were as follows:

• OECD – 5 May 2021;
• Institute for Fiscal Studies – 5 May 2021;
• Scottish Fiscal Commission – 12 May 2021;
• Irish Fiscal Advisory Council – 19 May 2021;
• Oireachtas Parliamentary Budget Office – 19 May 2021;
• Office for Budget Responsibility – 9 June 2021; and
• Northern Ireland Fiscal Council – 9 June 2021.

21. The Committee commissioned Assembly Research to provide much-needed background research. The Committee also sought the views of statutory committees of the Northern Ireland Assembly.

22. The Committee considered a draft of the report at its meetings of 23 June 2021 and 29 June 2021. The Committee ordered that the report should be published at its meeting on 7 July 2021

23. Minutes of Proceedings are at Appendix 1. The Minutes of Evidence of the oral evidence sessions are included at Appendix 2. Written submissions are included at Appendix 3. Departmental papers are at Appendix 4. Links to background papers are included at Appendix 5. The relevant Assembly Research paper is included at Appendix 6.

Acknowledgements

24. The Committee wishes to record its thanks to all those who gave written and oral evidence often at very short notice.

Key Findings and Recommendations

Governance and Transparency

25. The Committee agreed that a key aspect of the governance of Northern Ireland was the budget development and agreement process. Members indicated in no uncertain terms that the current budget processes are unsatisfactory. It was indicated that existing documentation – the Estimates and the Budget Bills – are impenetrable, featuring very large amounts of information with inappropriate levels of granularity and/or aggregation and presented on a timescale which does not lend itself to a reasonable level of review by elected representatives. Members also referred to the absence of explanations in respect of key fiscal assumptions and underpinning methodologies.

26. Members also referenced the inappropriate timing of budget debates which tend to take place after decisions have been made and thus prevent the Assembly from fulfilling its role of scrutiny and challenge. The Department has contended that delays and timing issues often originate at Westminster or are owing to political disagreements in the Executive and are thus unavoidable.

27. Members also referred with some frustration to the persistent use of single year budgets by the Executive indicating that this limited the opportunity for Members to compare expenditure timelines with forecasts, over a number of years. The Department of Finance has argued that this was an inescapable consequence of practices in Westminster. That said, it was also noted that single year budget information is sometimes supplemented by some departments with information to their committees on multi-year forecasts/bids, albeit these forecasts/bids are subject to correction.

28. The majority of the Committee felt that a single year budget process where Members often struggled to understand precisely what was being voted on and where it sometimes appeared that the Committee was being coerced into limiting its scrutiny in order to prevent the risk of public services running out of money, was unacceptable. The majority of Members asserted that the limitation of the Assembly's scrutiny of these important matters represented a perceived challenge to good governance and risked the possible perception of a lack of transparency.

29. The Committee hoped that a Fiscal Council for Northern Ireland would address the possible governance and transparency challenges facing the Executive's existing budget process.

Legislating for a Fiscal Council for Northern Ireland

30. The Committee felt that in order to: allow for the full appreciation of the roles and responsibilities of an independent fiscal institution; capture the unique circumstances of Northern Ireland; and recognise the likelihood of future developments, consideration should be given to the following 7 dimensions of the Fiscal Council for Northern Ireland, namely: function, discretion, powers, independence, competence, credibility and Assembly engagement. The Committee also felt that these dimensions should, in line with OECD principles, be protected in legislation.

31. The Committee's findings and recommendations in respect of legislating for a Fiscal Council for Northern Ireland are discussed below.

1. Function

32. Members were greatly impressed not only by the professionalism and the breadth of the remit of the Scottish Fiscal Commission (SFC) but also by its pivotal role in the governance of public finances in Scotland. The SFC not only scrutinises the government's finances but it also devises complex multi-year fiscal forecasts which the Scottish Government is generally obliged to use. Its work involves consideration of anticipated income from devolved taxes (including VAT and aspects of income tax) as well as demand for social security. Additionally, the SFC provides economic projections including predicting variations to on-shore Scottish Gross Domestic Product and forewarning of Scotland Specific Economic Shocks. Members noted that where the SFC forecasts differ from that provided by the Office for Budget Responsibility (OBR), there can be substantial medium term consequences for the Scottish Block Grant. Members also noted the transformative impact that the increased devolved fiscal risk and responsibilities for taxation and spending have had on devolution in Scotland.

33. Members considered with interest the work of the Oireachtas Parliamentary Budget Office (PBO). The PBO evolved from a non-statutory provision in 2015 to being established in legislation in 2018 in the Republic of Ireland and has a special relationship with the Oireachtas Committee on Budget Oversight. PBO documents provide detailed analysis of the Main Estimates and public expenditure proposals. Members felt that the PBO analysis is considerably more granular and understandable than current provision by the Executive. The PBO's work doesn't appear to include forecasting and is more budget-related as compared to the higher level economic forecast-driven information provided by the Irish Fiscal Advisory Council (IFAC). Members noted that IFAC publications also often included challenging and relatable commentary which could equip reasoned criticism and thus inform fiscal policy improvement. Members asserted that the above represented a clear and measurable advantage for elected representatives in that jurisdiction.

34. Witnesses to the Committee commented on the importance of forecasting and analysis over a fiscally meaningful period – that is to say usually at least 3 to 5 years and in some cases much longer. It was even indicated by a key witness that a legislature will be relegated to being "along for the ride" if the budget process is limited to a single year. Members strongly supported the concept of multi-year analysis and forecasting in order to enhance understanding by elected representatives of complex expenditure decisions.

35. Members noted particularly how the work of the SFC, PBO/IFAC and the OBR had substantially improved the understanding of elected representatives and the engagement of the wider public in public expenditure matters. The Committee was also surprised to learn of the related and demonstrable improvement to the quality of fiscal information within governments e.g. in respect of the understanding of the VAT implications of a collapse in the housing market in the Republic of Ireland, following the work of IFAC. The Committee noted also the OBR's challenge function in respect of the assessment of income from the devolved Welsh Rate of Income Tax. Members concluded that informed external challenge was key to the necessary improvement of Executive fiscal processes.

36. The Committee noted and agreed with suggestions from statutory committees that the Fiscal Council for Northern Ireland should scrutinise and report on cross-departmental spending effectiveness including in particular the effectiveness of spending in achieving the outcomes of the next Programme for Government.

37. Members were however less convinced that a Fiscal Council should have any role in respect of the detail of infrastructure or planning matters except in respect of assessing the effectiveness of (or forecasting related to) macro-spending decisions rather than undertaking smaller scale individual project value for money evaluations. Members felt that the latter role sat more readily with the Northern Ireland Audit Office and that a MoU would be required between both bodies so as to avoid overlap and limit duplication.

38. In evidence to the Committee, it was argued that academics and others currently provide economic forecasts for Northern Ireland which may already be credibly used to inform Executive policy. It was also indicated that the NI block grant has no predictable connection to NI economic outputs. Consequently, it was contended that there is no requirement or obvious benefit to developing a further macro-economic forecasting facility for Northern Ireland, at this time. In evidence to the Committee, witnesses suggested that as the Executive has few substantial sources of income or devolved taxes (other than regional rates) and the provision of the block grant has no predictable connection to this income, there is little point in developing a NI-specific tax income forecasting facility, at this time. However, Members accepted that if the Executive was to seek the devolution of other income streams e.g. VAT or a Northern Ireland Rate of Income Tax (perhaps in concert with a reform of business rates), then macro-economic or income forecasting facilities – like those provided by the SFC - might then be required.

39. The Committee agreed that the development of such a facility to forecast tax incomes from taxes which might be devolved in future or in respect of macro-economic forecasting should require a further agreement from the Assembly.

40. The Committee noted that although social security is devolved, the Executive's general adherence to the existing parity arrangements meant that the UK Government generally undertakes to meet all social security demand in Northern Ireland, regardless of other circumstances. This arrangement is expected to continue provided the Assembly continues to adopt all UK Government welfare legislation and administrative systems. Where the Executive and Assembly deviates e.g. welfare reform mitigations, then the costs will fall entirely to the NI block grant. Some witnesses argued that as these deviations are limited, there was therefore little value in Fiscal Council consideration of social security demand.

41. Notwithstanding the above, some Members contended that owing to: the very significant sums involved – i.e. £2.5bn for social security in NI; the different social security claimant profile in NI; issues relating to social security fraud or benefit caps and the significant changes associated with the introduction of Universal Credit and Personal Independence Payments etc. there would be a benefit to consideration of the expenditure profile; comparison with other jurisdictions and multi-year forecasting in respect of social security.

42. Some Members recorded some confusion in respect of the current terms of reference for the interim Northern Ireland Fiscal Council which refer to "an annual assessment of the Executive's revenue streams and spending proposals and how these allow the Executive to balance their budget." It was indicated that as taxation – other than rates – is not currently devolved, the Executive does not receive a great deal of income and therefore can not balance its budget. It was also noted that this wording had been copied from the Fresh Start Agreement which indicated that the Executive would endeavour to balance its budget i.e. ensure its in-year spending did not exceed its in-year resources.

43. The Committee therefore recommended that in respect of function, legislation should specify that the Fiscal Council for Northern Ireland should:

• Scrutinise, challenge, report and forecast in respect of all aspects of the Executive's public expenditure including Annually Managed Expenditure (including particularly all aspects of social security spending) and all existing income streams for fiscally meaningful periods i.e. 3-5 years or longer;
• Scrutinise, challenge, report and forecast in respect of all aspects of cross-departmental spending including particularly the extent to which spending achieves or might achieve Programme for Government outcomes for fiscally meaningful periods i.e. the period of the Programme for Government or 3-5 years or longer;
• Undertake forecasting and reporting with a view to: informing the understanding of MLAs as they scrutinise the budget development process; ensuring the engagement of the wider public with that process; and helping the Executive to improve the quality of its fiscal information;
• Develop an MoU with the NIAO in order to avoid the possibility of any duplication of activity by both bodies; and
• Give consideration to the longer term development of a facility to forecast future devolved tax incomes and NI-specific macro-economic matters, subject to the agreement of the Assembly.

2. Discretion

44. The Committee considered with great interest the importance that all witnesses attached to the ability of IFIs to generate reports on fiscal topics at their own discretion. Members noted particularly that the relevant legislation permits the SFC to report on any fiscal factor. This is defined as anything which the Scottish Ministers use to ascertain the amount of resources likely to be available for the purposes of sections 1 to 3 of the Public Finance and Accountability (Scotland) Act 2000 and which covers all departmental spending and contingencies.

45. Members were intrigued to note that the relevant legislation permits the PBO to provide fiscal and economic information, analysis and advice to the Oireachtas which, among other things, may relate to the financial implications of any proposals affecting the public finances. In that jurisdiction, this is taken as including fiscal commentary by the PBO on the manifestos of political parties. Some Members indicated that commentary on manifestos may provide valuable insight into the actual costs of policy commitments and bring necessary realism to policy development. Other Members commented that such a practice might be viewed as routinely and unnecessarily contentious in NI.

46. By way of contrast, the Committee considered the legal constraints on the OBR which prevents both normative commentary on government policy and the consideration of alternative policies. It was suggested that this wide-ranging prohibition might inhibit an IFI from commenting freely on important fiscal matters and making useful suggestions.

47. Members felt that an appropriate balance for a nascent Fiscal Council for Northern Ireland would be to permit a considerable level of discretion – similar to that available in Scotland - in respect of those matters on which it might report, with only some limitations. Members felt that the Fiscal Council should always be permitted to draw comparisons between the Executive's expenditure policies and those of other similar jurisdictions. Members also felt that commentary should extend to the effectiveness (or likely effectiveness) of Executive efficiency measures and the opportunity to always offer related helpful recommendations. That said, Members felt that commentary on party manifesto commitments may appear to compromise the impartiality of the Fiscal Council and should thus generally be avoided.

48. Some Members noted the limited information provided in explanatory and financial memoranda associated with Bills and felt that to enhance transparency, the Fiscal Council should also have the discretion to comment on the financial implications of legislation, where these are significant.

49. Other Members referred to the importance of non-Executive income i.e. EU funding and replacements for EU funding e.g. Shared Prosperity Fund; the New Deal for Northern Ireland funding etc.. It was argued that the Fiscal Council should also report on the impact of the variations in these sources of income.

50. The Committee also felt that in line with the OECD principles, in addition to the discretion to publish reports, there should be a requirement for the Fiscal Council to publish an explanatory report(s) on the Executive's public expenditure proposals covering a fiscally meaningful period and timed to coincide reliably with the budget development process. Members particularly wanted to ensure that the report(s) would inform a timely and useful debate(s), probably in the early autumn, and at the formative stages of the budget process.

51. The Committee therefore recommended that in respect of discretion, legislation should specify that the Fiscal Council for Northern Ireland should:

• Be permitted to publish a report on any fiscal factor relating to Executive (and non-Executive) income and the resources or expenditure deployed by the Executive including the significant costs of legislation;
• Be permitted to draw comparisons between Executive fiscal policies and those of similar jurisdictions;
• Be permitted to comment on the effectiveness or likely effectiveness of Executive efficiency measures and to suggest such measures;
• Generally demur from commentary on party manifestos; and
• Be required to produce annual reports covering a fiscally meaningful period and timed to usefully inform the Assembly's scrutiny of the budget.

3. Powers

52. The Committee noted the consistent emphasis that all witnesses placed on the importance of an IFI being able to compel data and assumptions and to require departments to provide explanations. Witnesses commented that this was an essential and indispensable element of any successful IFI. The SFC referred to the production of annual data statements which sets out its unmet requirements and the successful development of MoUs with key partner organisations such as the OBR, HM Treasury and the Department for Work and Pensions (DWP). Members noted that the PBO lacks the legislative authority to compel information and thus occasionally finds itself limited in respect of the level of information and explanation it can provide to elected representatives. The Committee unanimously agreed that this was a crucial consideration and the SFC model probably provided the best template.

53. Members felt that powers to compel information were of particular importance in dealing Ministers, officials, departments and Non-Departmental Public Bodies which can be responsible for the disbursement of very considerable sums of public money.

54. The Committee therefore recommended that in respect of powers, legislation should specify that the Fiscal Council for Northern Ireland should:

• Have a right of access at reasonable times to any relevant information particularly from departments and Non-Departmental Public Bodies that the Fiscal Council may reasonably require for the purpose of performing its functions;
• Have the right to require any person – particularly Ministers and officials -who holds or is accountable for relevant information to provide at reasonable times any assistance or explanation that the Fiscal Council may reasonably require for the purpose of performing its functions;
• Publish an annual data statement commenting on the quality of information provided and any gaps in data, information or explanations of assumptions or methodologies which the Executive shall address; and
• Permit the Fiscal Council to devise MoUs with key partner organisations such as HM Treasury, DWP and the OBR etc..

55. Members further recommended that consideration also be given to amendments to the NI Act by the UK Government in order to require reciprocal co-operation between HM Treasury, DWP and the OBR etc. with the Fiscal Council.

4. Independence

56. The Committee noted the consistent reference by all IFIs and fiscal governance organisations to the importance of the independence of the Fiscal Council. Witnesses argued independence could only be assured through a suitable appointment (and removal) process for the chairperson and board of the IFI which was independent of the government. The OECD also referred to the importance of a chairperson who would be able to devote sufficient time to what may prove to be a demanding role. Members struggled to identify the precise resource commitment that the chairperson and board members would need to provide but agreed that this would become clear and could be specified by the Assembly within a few years of the appointment of the board.

57. Other witnesses highlighted examples of government interference e.g. in Hungary were unpopular pronouncements by the IFI led the government to cut the IFI's budget by 90%. Most witnesses stressed the importance of a circumscribed multi-year budget for an IFI which the legislature rather than government could amend.

58. The Committee noted that the members of the secretariats of both the OBR and the SFC though civil servants, reported to the board rather than to a parent department in the government. Members concluded that this was another hallmark of a suitable level of independence.

59. Notwithstanding the above, some Members indicated that it was important that the pay and conditions of Fiscal Council staff should be in line with the requirements of Managing Public Money Northern Ireland and that necessary assurances to this effect must be provided by the Departmental Treasury Officer of Accounts.

60. The Committee agreed that in line with New Decade New Approach and to ensure that the Fiscal Council begins to address the perceived or actual fiscal governance and transparency failings of the Executive, a truly independent body was required. The Committee considered different methods of assuring independence including those adopted by the SFC, OBR and the IFAC and noted certain common factors including the involvement of the legislature in confirming appointments or removals of chairpersons and board members and the direct employment of a secretariat.

61. The Committee asserted that the existing Public Appointments process should be used for appointments to the board of the Fiscal Council. Members felt that this would provide an appropriate guarantee for the independence of the Fiscal Council.

62. The Committee therefore recommended that in respect of independence, legislation should specify that the Fiscal Council for Northern Ireland should:

• Have a chairperson and a board which shall be appointed by the Minister using the Public Appointments process;
• Have sufficient resources to permit the chairperson and board members to allocate commensurate time to their roles in the Fiscal Council. These resources to be specified by the Fiscal Council and confirmed by the Assembly within 5 years of the passage of the relevant legislation.;
• Have a multi-year budget which is sufficient to undertake the Fiscal Council's work programme and which shall be subject to change only with the agreement of the Assembly - possibly the Committee for Finance; and
• Where it has a secretariat, require these staff to report to the board of the Fiscal Council, which shall recommend their pay and conditions in line with the requirements of Managing Public Money NI and subject to the agreement of the Assembly. The Department of Finance Treasury Officer of Accounts will be required to comment to the Assembly in respect of the value for money associated with the relevant pay and conditions.

5. Competence

63. The Committee noted that the schedule of the legislation establishing the IFAC specified that board members should be appointed by the minister "having regard to the desirability of their having competence and experience in domestic or international macroeconomic or fiscal matters". It appeared that legislation in other jurisdictions appeared to allow quite a lot of latitude in respect of the competence of the board of the IFI.

64. The Committee gave some consideration to this matter and agreed that the board of the Fiscal Council should be required to have appropriate competence in fiscal and economic scrutiny and particularly experience relating to an understanding of Northern Ireland public expenditure.

65. The Committee also considered whether the board required a permanent secretariat or if the appropriate functions might be met by e.g. the Fiscal Council contracting these matters to another body e.g. the OBR. Members noted that the Welsh Government had undertaken this option at a cost of around £100k pa. These costs are considerably lower than those accrued by the SFC at around £2m pa. Members also noted contrary evidence from the PBO that, owing to its limited means, it had experienced significant churn in its secretariat and consequently struggled to deliver a consistent service to elected representatives.

66. Some Members strongly felt that governance in Northern Ireland is already relatively expensive and efforts should be made to control and reduce such expenditure. They argued that another secretariat for yet another Arms Length Body represented an unnecessary additional expense. Other Members felt that without its own secretariat, the nascent Fiscal Council would lack the agency to undertake the fairly wide range of important activities identified above and which would deliver improved governance and greater transparency. On balance, the majority of Members supported the latter view insofar as reasonable efforts would be made by the Fiscal Council to minimise non-essential costs such as office costs etc.

67. In order to ensure appropriate transparency, the Committee agreed that the Fiscal Council should be required to produce an annual report and accounts which shall be audited by the Northern Ireland Audit Office.

68. The Committee therefore recommended that in respect of competence, legislation should specify that the Fiscal Council for Northern Ireland should:

• Require the board of the Fiscal Council to have appropriate competence in fiscal and economic scrutiny and particularly experience relating to an understanding of Northern Ireland public expenditure; and
• Require the board of the Fiscal Council to employ its own secretariat with an appropriate level of expertise such that reasonable efforts are made to minimise associated non-essential costs.
• Produce an annual report and accounts which shall be audited by the Northern Ireland Audit Office.

6. Credibility

69. The Committee noted advice from the OECD and the OBR in respect of the importance of an IFI establishing its credibility by publishing its own reports in a timely manner and without political interference. The Committee agreed that this was essential if the Fiscal Council was to be perceived as an impartial actor which was seeking to improve transparency in support of the public interest. Members noted that the relevant parts of the Scottish legislation enshrine the SFC's ability in this regard while requiring it to lay reports at the Scottish Parliament.

70. Members commented on the practice of delayed reporting in Northern Ireland and therefore suggested that the Fiscal Council be obliged to lay its reports within a specified reasonable timescale.

71. The Committee also noted advice from a number of witnesses indicating the importance of regular and impartial review of an IFI by an independent body. The Committee considered relevant extracts from OECD reports on the SFC and OBR etc. and noted the useful feedback and constructive criticism therein. The Committee also noted that the SFC legislation captures the importance of external review as a key support for that organisation's credibility. Members indicated that as Northern Ireland's development of an IFI is some years behind that of other jurisdictions and positive learnings could be shared, the formal processes of review should be supplemented with engagement with IFIs across these islands and in the rest of the OECD countries.

72. The Committee therefore recommended that in respect of credibility, legislation should specify that the Fiscal Council for Northern Ireland should:

• lay any report which it has prepared before the Assembly as soon as reasonably practicable and within 30 days of preparation and that it may publish reports in such manner as it considers appropriate;
• at least once in every 5 years, appoint a suitable and independent person or body subject to the approval of the Assembly to review and prepare a report on its performance of its functions during the period and it must arrange for the report to be laid before the Assembly; and
• should engage with other IFIs across these islands in order to share best practice and positive learnings.

7. Assembly Engagement

73. As indicated above, the Committee believes that current budget scrutiny arrangements are unsatisfactory and may lead to a perceived of a lack of transparency. Members have regularly complained about the inappropriate timing of budget debates which tend to take place after decisions have been made and thus prevent the Assembly from fulfilling its role of scrutiny and challenge. The Department has consistently contended (and with justification) that delays and timing issues often originate at Westminster or are owing to political disagreements in the Executive and are thus unavoidable.

74. Members accepted that the final envelope for public expenditure budgets for a given year is generally not known until near the end of the preceding calendar year and may also be subject to further changes before the end of the preceding financial year. However Members asserted that, with the exception of 2021-22, the levels of uncertainty in budgets are in percentage terms quite low. It should then be possible, as is the case in other jurisdictions, for the Fiscal Council to interrogate departmental assumptions and then generate a meaningful and timely assessment of public expenditure for scrutiny by the Assembly at an early stage of the budget process.

75. By doing this. the Committee hopes that a Fiscal Council for Northern Ireland would address some of the governance and transparency challenges facing the Executive's existing budget process. To that end, Members felt that legislation should specify timely engagement with the Assembly in respect of the budget process but should otherwise stop short of specifying the work programme of the Fiscal Council in order to avoid the suggestion of political interference.

76. The Committee noted that different jurisdictions appear to have approached this differently. The OBR charter rather than its legislation refers to engagement with Parliament. The Scottish legislation indicates that reports must be laid before Parliament but doesn't specify appearances before committees. The PBO legislation requires the PBO to furnish reports to committees as required.

77. The Committee felt strongly that the key takeaway from the Fiscal Council process should be an improvement to the budget process. The Committee therefore recommended that in respect of Assembly engagement, legislation should specify that the Fiscal Council for Northern Ireland should:

• Produce an annual report on past Executive expenditure and including a multi-year forecast of Executive expenditure and income published in a manner and at a time which will inform elected representatives and public debate on the budget scrutiny process, regardless of delays to the Westminster budget process or deliberations at the Executive; and
• Be required to appear before Assembly Committees particularly in respect of its annual multi-year budget and forecast report.

The Way Forward

78. The Committee believes that legislation should be brought forward at the earliest opportunity to establish an independent Fiscal Council for Northern Ireland as a body corporate with: an independent board (appointed in line with the Public Appointments process); a circumscribed multi-year budget and appropriate level of secretariat support; powers to compel information from Ministers, departments etc. similar to those available to the Scottish Fiscal Commission; the discretion to report on (largely) any fiscal factors that it chooses relating to Executive (and non-Executive) income and the resources or expenditure deployed by the Executive; and a requirement to produce an annual authoritative multi-year expenditure budget analysis and forecast report. This report is to be laid in the Assembly and presented to the Finance Committee and debated in the Assembly in the early autumn regardless of whether the related Westminster or Executive processes are running late and which will illuminate the budget process for MLAs and the public and perhaps inform Executive decision-making in respect of final public expenditure plans.

79. Given the above, the Committee agreed that the format of the Fiscal Council for Northern Ireland should be similar to that in effect in Scotland, namely a standalone body corporate established in legislation.

80. The Committee also agreed that, further to the above, the Minister should clarify whether the relevant legislation will be brought forward in this mandate and whether the consent of the UK Government will be required for the related legislation.

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