Now that the dust has settled on the UK Chancellor’s Autumn Statement, it is time to direct attention to John Swinney’s Scottish Budget pronouncement – due on 16th December. This statement of the Budget for 2016-17 and beyond was inevitably deferred until after the Autumn Statement, as it was only then that any degree of clarity emerged regarding that element of the funds to be available for public expenditure in Scotland coming from the UK via the ‘block grant’.

The scale of the block grant is only one of several uncertainties in the Scottish Budget process. The extent of this particular uncertainty was underscored by the remarkable change at the UK level in the forecasts (by the Office for Budget Responsibility - OBR) for both tax revenues and the cost of debt servicing. The former went up sharply as compared to the expectation at the spring Budget; and the latter went sharply down, in line with changing interest rate expectations. Both worked in the same direction – increasing revenue and reducing costs – and the net result was a major improvement in the OBR forecast for the public finances; and hence far more flexibility for the Chancellor than he would have dreamed might be possible.

So far as the Scottish Budget is concerned the result of these remarkable OBR forecast changes was also positive. The UK department expenditure plans by comparison with which the Scottish block grant is calculated were significantly higher than expected and hence so also the block grant.

But life usually involves swings and roundabouts. Just as the block grant edged up, so commitments to publicly funded capital expenditure in Scotland did likewise. Her Majesty’s Treasury, in their infinite wisdom, decided that several large scale Scottish infrastructure projects which the Scottish Government had believed should be treated as (effectively) privately funded should be deemed public expenditure. Consequently these (large) costs have to be managed within this year’s Budget and in Budgets for several years to come. Inevitably this dramatic change is making John Swinney’s task much more difficult than he may have briefly anticipated following the (relatively) good news from the Autumn Statement.

There are perhaps three lessons to be learned from this complex tale. First, it is never easy to arrange for public sector capital projects to be funded ‘off balance sheet’. No doubt our friends at the Scottish Futures Trust are striving to find or invent alternative funding mechanisms. But I learned from working at the Treasury over 30 years back that where any degree of risk remains with the public sector funding off the balance sheet is not feasible. Further Treasury is judge and jury on such matters.

Second, we are not going to escape from the fact that the environment for the public finances over the next 4 or 5 years will remain incredibly tough. The slight relief from the OBR forecast revisions was welcome, but these revisions could equally easily be reversed in years to come. And come what may on the forecast front, we still face several years of reductions in expenditure in real and cash terms for all but a privileged minority of UK Government departments and hence a continuing squeeze of the Scottish block.

My third point relates to the work of the OBR. If the Chancellor had still been responsible the other week for forecasting the UK economy and the UK public finances he would, to be frank, have been laughed out of court if he had presented the changes in the forecasts of tax revenues that appeared from the OBR. Underlying these forecasts are changes for the better in productivity which are more of a hope than a firm expectation – and basing Government finance forecasts on optimistic assumptions could be seen as unduly risky. It was the fact that the forecasts came from the strictly independent OBR, and that the Chancellor was required to take their forecasts on board, that meant there was no criticism to be laid at his door. At other times the OBR may be perceived as unduly cautious, but this time around the Chancellor no doubt felt he had to take the smooth with the rough!

While John Swinney is pondering his 16th December Budget, he may also find a little time to consider the way forward for his proposals for an independent Scottish Fiscal Commission (SFC). I recently gave evidence to the Holyrood Finance Committee regarding plans for the SFC and have prepared a Policy Brief for Strathclyde –available at www.strath.ac.uk. It is critically important that we get this right!

In my view it is firmly in Scotland’s interests that, as financial devolution continues, we have a strictly independent Commission, which is well resourced and with a broad remit. At present the proposals are somewhat restrictive, but the Finance Committee is rightly pressing for assured independence and a wider role. Not only would such a Commission be immensely reassuring for those seeking security regarding the sound management of the public finances in years to come, it might also prove to have values for the Scottish Finance Minister. Its independent and informed view of expected revenues from devolved taxes should be respected; and such forecasts would inevitably be based upon an independent forecast of the Scottish outlook as a whole. The OBR and a robust and strongly independent SFC would be required to co-operate and should provide a widely respected backcloth for UK and Scottish fiscal management.