Establishing the Scottish Fiscal Commission

UofG researchers developed an extensive body of research on fiscal policy and its institutions in response to fiscal policy failures, which have had a significant impact on the formation and design of the Scottish Fiscal Commission (SFC) and its associated policy activities.

The research

Fiscal policy is typically implemented by governments subject to the constraints of the political process. Many politicians have sought to tie their own hands by adopting some form of fiscal rule. However, these rules have often been broken at the point where they start to bite. This has happened so often that it is difficult to see such rules having any credibility.

In order to address this issue, research led by Professor Campbell Leith proposed the creation of independent fiscal councils.

Through a long-term strategy of engagement with communities of policymaking, economic forecasting and institutional design, Professor Leith and colleagues forged three principles from the research to shape policy and practice in Scotland:

First, that the SFC should be fully independent from the Scottish Government. Second, it should support fiscal sustainability. Third, the SFC, and its operating Fiscal Framework should enable policymakers to respond flexibly to shocks.

The impact

This body of research underpinned Professor Leith’s evidence to the Finance Committee of the Scottish Parliament, which was relied upon in supporting their recommendation that the SFC be created.

Ahead of the SFC being established, Scottish Government forecasts 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.

Upon the formation of the SFC, Professor Leith was invited by the Finance Minister to be one of three founding members (Commissioners) of the SFC. Leith was then joined by UofG colleague, Professor Charles Nolan, who also became a Commissioner in 2016.

Following the independence referendum of 2014, 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.

At this point the SFC assumed the role of official forecaster for Scotland, which marked a step-change in the country’s economic policymaking.

In their role as Commissioners, Leith and Nolan significantly informed the development of the SFC’s remit as it became a statutory body in April 2017.