We are publishing the response we submitted in September 2023 to the Scottish Fiscal Commission’s consultation on their approach to policy baselines. In our response, we highlighted the importance of the SFC being provided by the Scottish Government with a detailed plan for indexation of tax thresholds and social security payments. We also discuss the fact that indexation in line with inflation ought to be the default assumption if the Scottish Government does not provide one, as it is a more neutral assumption and means that fiscal drag becomes an explicit government decision rather than a hidden one that is baked into an uprating assumption.
We support the SFC’s proposal for a judgement-based approach. In the absence of the ideal scenario of the Scottish Government publishing their baseline policy, or at least informing the SFC so it can publish it alongside its official forecasts, we think a judgement-based approach is less likely to be easily influenced by the Scottish Government by means other than a clear statement of government policy, and therefore more credible and transparent.
Our view is that there is very much a role for the Scottish Government to shape policy baselines by making clear statements about its intended path of policy. These do not necessarily have to be legislated for already – that would be too legalistic a view, and one that would be open to gaming by changing the timing of legislation. Instead, our view is that if the Scottish Government would like to shape these assumptions, then it is entirely within its gift to provide a list of uprating mechanisms (i.e. multi-year and not just for the subsequent one) for the SFC to use. This list should be made public, ideally by the Scottish Government, but certainly by the SFC upon publication of its forecasts.
While there may at first appear to be questions of whether the current government should make commitments beyond the next election, we do not believe this is a realistic concern. In a parliamentary system such as in Scotland, the current parliament cannot bind its successors, and therefore the uprating mechanisms should be seen as the baseline against which future proposals will be judged – which is exactly what the SFC’s proposal is intended to achieve.
João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.