Medium-term financial strategy: A step backwards?

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By Caroline Gardner, Auditor General for Scotland

The impact of Scotland’s new financial powers is now starting to hit home.

Publication of the Scottish Fiscal Commission’s latest forecasts and the Scottish Government’s medium-term financial strategy triggered critical commentary from the respected Fraser of Allander Institute and the Parliament’s own Information Centre (SPICe), and testy exchanges with the Cabinet Secretary in the Finance and Constitution Committee.

A forecast budget gap of £1 billion over the next three years makes some level of politicking inevitable, but this issue is above party politics.

What matters is that the Government has a plan in place to deal with all eventualities. But as Fraser of Allander has said, the new medium-term financial strategy is thin on detail. At a time of tightening budgets, that’s a matter of concern for everyone that benefits from public services.

It’s also important to remember that the SFC’s forecasts are just that – forecasts. The actual reconciliations could be better – or worse – in three years. The new fiscal framework means that the budget is now more volatile than ever before – and that’s before the impact of EU withdrawal.

That’s why having a financial plan in place to deal with either scenario really matters.

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I was privileged to be part of the Budget Process Review Group that called for a medium-term strategy, and other measures, to strengthen strategic financial management. The Group’s recommendations were accepted by the Parliament and the Government, and the new improved budget process gives the Parliament a much bigger role in theory.

More scrutiny of the Scottish Government’s budget is widely seen as a good thing, and the first MTFS published last year was a big step forward.

So, it was disappointing that the most recent publication does not offer even indicative spending plans or priorities, and lacks detail on how the Government might meet the challenge if the £1 billion pound shortfall does materialise. That doesn’t do justice to the original intentions of the Budget Process Review Group, or the commitments made by the Government at the time.

It’s also unclear how well Parliamentary committees will be able to use the MTFS in their pre-budget scrutiny work, or where the links are between the medium term strategy, the National Performance Framework and better outcomes for Scotland’s citizens.

There is some good news, with the publication for the first time of the principles and policies the Government will use to manage its new borrowing and reserve powers. But overall the latest MTFS looks like a step backwards, with the risk that progress will stall.

The pressures on the public sector are continuing, the risk of a no-deal Brexit has risen, and the new social security powers will bring substantial budgetary risks of their own. So, it has never been more important to keep up the momentum on Parliamentary scrutiny, regardless of what administration is in office.

 

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