Good morning, convener and committee. I should probably thank you three times over. First, I thank you for inviting us to give evidence today, and secondly, for engaging with us at various times earlier in the year, especially when the Organisation for Economic Co-operation and Development representatives were over and held a conference here in the Parliament. Thirdly, in preparing for the meeting, it suddenly dawned on me that we had not been in front of the committee officially and formally since the end of last year, so I thank you for the reprieve. That does not really make a difference, because you are always on our minds.
I gather that this is the committee’s first meeting in the new parliamentary year, and that this is your first public conversation after the recess. This is our first appearance since the Fiscal Commission became a statutory body. I am, for the first time, joined by my colleagues, whom you have just named.
As you know, there was another first this year on 1 April when the commission assumed responsibility for independently forecasting Scottish gross domestic product, devolved tax receipts and devolved demand-led social security expenditure. The transition from being a non-statutory body scrutinising the Scottish Government’s forecasts to becoming an independent non-ministerial department has been a fair piece of work. We will leave it at that.
However, I think that the committee will want to know that we have agreed a formal protocol with the Scottish Government, which is set out in a framework document. We are in the process of finalising similar arrangements with the Office for Budget Responsibility, Her Majesty’s Revenue and Customs, Revenue Scotland and other bodies.
Since April, in addition to induction for my colleagues here—I joined those sessions because it never hurts to be reminded—we have recruited 15 or so analytical staff from the Scottish civil service, the United Kingdom civil service, academia and the private sector. They have quite varied backgrounds: their experience includes fiscal forecasting, macroeconomic modelling, housing market analysis and public sector finances. They are a good team—we are very pleased with them, and we have been getting down to proper work.
We published our draft corporate plan yesterday, which members might have seen. If you have not, we hope that you will. Last week, we produced our first publications: the “Forecast Evaluation Report September 2017”, which we are here to discuss with the committee today, and a paper setting out how we propose to approach our forecasts at the time of the draft budget later this year.
We have also kicked off a programme of external engagement, because it is important that the people who care about what we do know us. That includes this committee, so we were pleased that a number of its members were able to attend the session that we held for parliamentarians in June. Over the summer, we also had some forecasting experts from around the UK engage with our teams in going over the forecasts, turning them inside out and commenting on the work that we are doing right now and what we will do in the future.
We will be meeting informally with a number of other economists next month to take them through our approaches and ideas. As with the journalists whom we met earlier in the year, we want to keep our stakeholders as well informed as we can—partly because it is the right thing to do, and partly because it reflects our adherence to the Organisation for Economic Co-operation and Development’s principles for independent fiscal institutions—IFIs—which is what we are.
That brings us full circle to this evidence session, in which we will be happy to answer questions about our “Forecast Evaluation Report September 2017”. I am sure that members want to get into the detail, so I will leave you with a couple of what I call keepers, or high-level thoughts. The first is that forecasting is a challenging but also inexact science, so at any point in time a range of valid and reasonable forecasts could be made. There is no single right forecast that we can pull out of the pot. Forecasting typically involves judgment, and judgments change over time. I know that committee members, wearing their other hats, have been grappling with the changing relationship between the UK and the European Union. That issue is also an example of where the commission will have to make broad judgments about the flight path, if you will, in order to produce our forecast, which will come later in the autumn.
The second thought is that forecasts benefit increasingly as data accumulate. You will see from the report how the approaches to our devolved taxes developed between 2015 and 2016 as we got more data over time. Under the new taxes, especially under a newly structured tax such as land and buildings transaction tax, the models will be further enhanced and developed. One example is the additional dwelling supplement—ADS—which was very challenging to forecast in the first instance because there were no data to start with. We therefore used the best approximation of the baseline numbers. We now have the first full year of data on how many properties fell under that category and we will have more over time, so that forecast will improve.
For us, the insights from the evaluation report have been really helpful as we develop our models for the forecasting that we will do later this year. We hope that the committee, too, found the report helpful. We are happy to try to answer your questions. Thank you for listening.