Government Expenditure and Revenue Scotland 2008-09

6 PUBLIC SECTOR EXPENDITURE

Introduction

This chapter provides detailed estimates of public sector expenditure for Scotland.

The primary data source used to estimate Scottish public sector expenditure is the Country and Regional Analysis ( CRA) contained in the National Statistics publication Public Expenditure Statistical Analyses ( PESA) published by HM Treasury ³².

In GERS, public sector expenditure is divided into three categories: identifiable expenditure, non-identifiable expenditure and an accounting adjustment. Identifiable expenditure is expenditure that can be clearly allocated to Scotland in terms of having been spent for the benefit of Scottish residents and enterprises. Examples of identifiable expenditure include unemployment benefits, local economic development expenditure and most education and health expenditure.

Non-identifiable expenditure is expenditure that cannot be allocated to a particular country of the UK or English region but is instead incurred on behalf of the UK as a whole. The largest element of non-identifiable expenditure is defence expenditure.

Finally, an accounting adjustment ensures that public sector expenditure reported in PESA is consistent with Total Managed Expenditure ( TME), the UK Government's principal measure of public sector expenditure used in the UK Public Finance Accounts.

For total expenditure and each expenditure component, a detailed breakdown according to current and capital is provided.

Each element of expenditure is discussed in detail below. Appendix B discusses the revisions from previous reports and the relevant apportionment methodologies applied.

As discussed in Chapter 3, the UK Government's net financial sector interventions are classified as non-identifiable expenditure in PESA. The outlays by the UK Government are recorded as a capital expenditure, whilst the fees received are recorded as a negative current expenditure. In PESA and GERS, these elements appear in the Enterprise and Economic Development ( EED) expenditure programmes.

The scale of the financial sector interventions, relative to other spending on EED, means that there is a significant increase in expenditure within this category between 2007-08 and 2008-09. GERS therefore separates these two elements of spending.

Total Public Sector Expenditure

Estimated total public sector expenditure for Scotland by spending category for 2008-09 is shown in Table 6.1. On the basis of the assumptions and methodologies described in this report, in 2008-09, total public sector expenditure for Scotland was £56.5 billion when an estimated share of the UK Government's financial sector interventions is included, and £55.8 billion when this share is not included. Under both measures, this was equivalent to 9.4 per cent of comparable total UK public sector expenditure in 2008-09. Social protection was the largest Scottish expenditure programme. Together with health expenditure, it accounts for approximately 50% of total public sector expenditure for Scotland in 2008-09.

Table 6.1: Total Expenditure: Scotland 2008-09

	Scotland
	£ million	% of total expenditure incl. financial sector interventions	% of total expenditure excl. financial sector interventions
General public services
Public and common services	1,597	2.8%	2.9%
International services	602	1.1%	1.1%
Public sector debt interest	2,658	4.7%	4.8%
Defence	3,078	5.5%	5.5%
Public order and safety	2,509	4.4%	4.5%
Economic affairs
Enterprise and economic development
Financial sector interventions	700	1.2%	N/A
Other enterprise and economic development	1,006	1.8%	1.8%
Science and technology	420	0.7%	0.8%
Employment policies	261	0.5%	0.5%
Agriculture, forestry and fisheries	799	1.4%	1.4%
Transport	2,629	4.7%	4.7%
Environment protection	1,037	1.8%	1.9%
Housing and community amenities	1,799	3.2%	3.2%
Health	10,244	18.1%	18.4%
Recreation, culture and religion	1,490	2.6%	2.7%
Education and training	7,563	13.4%	13.6%
Social protection	18,571	32.9%	33.3%
EU transactions	-502	-0.9%	-0.9%
Total
With financial sector interventions	56,460	100.0%	N/A
Without financial sector interventions	55,761	N/A	100.0%

1 In the TME presentation, expenditure on grants abroad is shown net of grants payable to the UK. This is why the EU transaction shows negative net expenditure.

Current expenditure is the sum of the current expenditure of general government (i.e. the Scottish Government, the UK Government in Scotland and Scottish local authorities) and certain distributive transactions (interest and dividends) payable by public corporations to the private sector and abroad. It does not include expenditure incurred by public corporations in producing goods and services for sale. Instead, the surplus of sale receipts over operating costs for public corporations is scored as a public sector revenue and does not affect the expenditure measure. Public sector current expenditure is defined to be net of certain revenue items, such as some sales of goods and services by general government. As it is defined at the public sector level, any transactions between parts of the public sector are also excluded.

Public sector capital expenditure refers to new capital formation, the net acquisition of land, and expenditure on capital grants. Capital expenditure leads to the holding of assets that can be used repeatedly to produce goods and services and generally have an economic life of more than one year. Tables 6.2 and 6.2a provide a summary of total current and capital expenditure over the years 2004-05 to 2008-09 ³³.

Table 6.2: Total Current and Capital Expenditure Including Financial Sector Interventions: Scotland and UK 2004-05 to 2008-09

	(£ million)
	Scotland					UK
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
Current	40,814	43,394	45,128	47,962	49,876	438,524	463,692	482,193	510,221	538,133
Capital	3,704	4,283	4,964	5,243	6,585	32,612	37,488	40,711	45,431	64,266
Total	44,518	47,677	50,093	53,205	56,460	471,136	501,180	522,904	555,652	602,399

Table 6.2a: Total Current and Capital Expenditure Not Including Financial Sector Interventions: Scotland and UK 2004-05 to 2008-09

	(£ million)
	Scotland					UK
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
Current	40,814	43,394	45,128	47,962	49,964	438,524	463,692	482,193	510,221	539,182
Capital	3,704	4,283	4,964	5,243	5,797	32,612	37,488	40,711	45,431	54,905
Total	44,518	47,677	50,093	53,205	55,761	471,136	501,180	522,904	555,652	594,087

Tables 6.3 and 6.3a highlight the share of total expenditure according to current and capital expenditure. Including a share of the UK Government's financial sector interventions, capital expenditure for Scotland increased from 8.3 per cent of total expenditure in 2004-05 to 11.7 per cent in 2008-09. When this share is not included, capital expenditure increased from 8.3 per cent to 10.4 per cent of total expenditure over the same period.

Table 6.3: Current and Capital Expenditure Including Financial Sector Interventions
(% of Total Expenditure): Scotland 2004-05 to 2008-09

	(per cent)
	2004-05	2005-06	2006-07	2007-08	2008-09
Current	91.7%	91.0%	90.1%	90.1%	88.3%
Capital	8.3%	9.0%	9.9%	9.9%	11.7%

Table 6.3a: Current and Capital Expenditure Not Including Financial Sector Interventions
(% of Total Expenditure): Scotland 2004-05 to 2008-09

	(per cent)
	2004-05	2005-06	2006-07	2007-08	2008-09
Current	91.7%	91.0%	90.1%	90.1%	89.6%
Capital	8.3%	9.0%	9.9%	9.9%	10.4%

Tables 6.4 and 6.5 provide a more detailed breakdown of total public sector expenditure by current and capital split for Scotland and the UK.

Including a share of the UK Government's financial sector interventions, total public sector expenditure for Scotland is estimated to have increased from £44.5 billion in 2004-05 to £56.5 billion in 2008-09, an increase of approximately 26.8 per cent in nominal terms. Over the same period, equivalent UK public sector expenditure increased from £471.1 billion to £602.4 billion, an increase of 27.9 per cent in nominal terms. When a share of the UK Government's financial sector interventions is not included, total public expenditure for Scotland is estimated to have increased from £44.5 billion to £55.8 billion over this period whilst the equivalent UK public sector expenditure is estimated to have grown from £471.1 billion to £594.1 billion.

Including a share of the UK Government's financial sector interventions, estimated public sector current expenditure for Scotland was £49.9 billion in 2008-09; 88.3 per cent of total Scottish public sector expenditure. When a share of these interventions is not included, current expenditure was estimated to have been £50.0 billion in 2008-09; 89.6 per cent of total public sector expenditure for Scotland. In comparison, UK public sector current expenditure was £538.1 billion in 2008-09; 89.3 per cent of total UK public sector expenditure, including the financial sector interventions, and £539.2 billion; 90.6 per cent of total public expenditure, when these effects are not included.

Estimated public sector capital expenditure for Scotland was £6.6 billion in 2008-09, including a share of the UK Government's financial sector interventions. This is equivalent to 11.7 per cent of total estimated Scottish public sector expenditure. When these effects are not included, public sector capital expenditure for Scotland was estimated to be £5.8 billion in 2008-09, 10.4 per cent of total public sector expenditure. Over the period 2004-05 to 2008-09, capital expenditure, including a share of the UK Government's financial sector interventions, increased by 77.8 per cent in nominal terms, much faster than the growth observed in current expenditure. When a share of the UK Government's financial interventions are not included, capital expenditure increased by 56.5 per cent over the same period.

Table 6.4: Total Expenditure: Scotland 2004-05 to 2008-09

	(£ million)
	Current					Capital					Total
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	1,104	1,396	1,248	1,313	1,300	269	186	144	61	297	1,372	1,582	1,392	1,374	1,597
International services	454	496	497	532	566	16	28	30	34	35	470	524	527	566	602
Public sector debt interest	2,112	2,260	2,427	2,645	2,658	0	0	0	0	0	2,112	2,260	2,427	2,645	2,658
Defence	2,387	2,523	2,639	2,618	2,787	137	90	75	214	292	2,524	2,613	2,714	2,832	3,078
Public order and safety	1,935	2,121	2,089	2,188	2,284	180	164	189	165	225	2,115	2,285	2,279	2,354	2,509
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	-88	0	0	0	0	788	0	0	0	0	700
Other enterprise and econ development	751	745	725	804	713	126	175	216	247	293	877	920	941	1,051	1,006
Science and technology	242	301	261	330	321	48	62	55	120	99	290	363	316	450	420
Employment policies	260	241	246	253	260	11	33	13	1	1	271	274	259	254	261
Agriculture, forestry and fisheries	621	605	593	677	709	44	42	67	65	90	664	646	660	741	799
Transport	884	933	1,449	1,533	1,526	745	913	1,181	1,228	1,103	1,629	1,846	2,630	2,761	2,629
Environment protection	676	728	833	822	848	104	206	162	190	189	779	935	995	1,012	1,037
Housing and community amenities	279	162	182	333	260	1,068	1,363	1,497	1,413	1,539	1,347	1,526	1,679	1,746	1,799
Health	7,334	8,355	8,804	9,363	9,726	424	251	297	447	518	7,758	8,606	9,102	9,810	10,244
Recreation, culture and religion	1,000	1,056	1,093	1,110	1,119	173	189	209	271	371	1,174	1,245	1,302	1,382	1,490
Education and training	5,841	6,091	6,413	6,664	6,914	304	480	724	696	649	6,145	6,570	7,137	7,360	7,563
Social protection	15,273	15,747	15,984	17,019	18,475	57	100	103	91	96	15,329	15,847	16,087	17,110	18,571
EU transactions	-339	-366	-355	-242	-502	0	0	0	0	0	-339	-366	-355	-242	-502
Total
With financial sector interventions	40,814	43,394	45,128	47,962	49,876	3,704	4,283	4,964	5,243	6,585	44,518	47,677	50,093	53,205	56,460
Without financial sector interventions	40,814	43,394	45,128	47,962	49,964	3,704	4,283	4,964	5,243	5,797	44,518	47,677	50,093	53,205	55,761

Table 6.5: Total Expenditure: UK 2004-05 to 2008-09

	(£ million)
	Current					Capital					Total
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	10,451	11,072	11,385	11,291	11,830	1,653	1,675	1,241	1,262	2,012	12,104	12,747	12,626	12,553	13,843
International services	5,358	5,868	5,887	6,309	6,733	194	341	368	426	423	5,552	6,209	6,255	6,734	7,156
Public sector debt interest	24,897	26,744	28,744	31,362	31,579	0	0	0	0	0	24,897	26,744	28,744	31,362	31,579
Defence	28,119	29,846	31,250	31,055	33,130	1,635	1,072	899	2,539	3,466	29,755	30,918	32,149	33,594	36,596
Public order and safety	26,785	27,685	28,633	29,652	30,917	1,707	1,610	1,815	2,091	2,741	28,492	29,295	30,448	31,743	33,658
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	-1,049	0	0	0	0	9,361	0	0	0	0	8,312
Other enterprise and econ development	5,094	5,236	4,998	5,501	5,362	1,503	1,309	1,515	1,386	2,171	6,598	6,544	6,512	6,888	7,533
Science and technology	1,931	2,232	2,136	2,416	2,550	514	683	629	784	618	2,445	2,915	2,765	3,200	3,168
Employment policies	3,027	2,987	3,155	3,210	3,017	157	355	195	72	87	3,184	3,342	3,349	3,282	3,104
Agriculture, forestry and fisheries	5,203	5,316	4,835	4,753	5,034	236	280	315	293	383	5,439	5,596	5,150	5,046	5,416
Transport	8,129	8,459	9,551	9,872	9,027	7,894	8,580	10,437	10,620	11,758	16,022	17,039	19,988	20,492	20,785
Environment protection	6,177	6,364	7,169	7,271	7,133	905	2,211	2,231	2,274	2,593	7,082	8,575	9,400	9,545	9,726
Housing and community amenities	3,262	3,540	3,560	3,859	3,737	5,055	7,131	7,946	8,998	11,196	8,317	10,670	11,506	12,856	14,933
Health	79,218	86,467	90,623	97,432	104,605	3,718	3,116	3,885	4,722	5,345	82,936	89,583	94,509	102,155	109,951
Recreation, culture and religion	8,496	9,110	9,462	9,754	9,977	1,467	1,699	1,767	2,252	3,063	9,962	10,809	11,229	12,006	13,040
Education and training	59,620	63,254	66,266	71,162	74,282	5,500	6,450	6,665	6,936	8,302	65,120	69,704	72,931	78,098	82,583
Social protection	163,647	170,111	176,340	186,827	203,195	475	976	804	775	747	164,122	171,088	177,143	187,603	203,942
EU transactions	-892	-598	-1,802	-1,505	-2,927	0	0	0	0	0	-892	-598	-1,802	-1,505	-2,927
Total
With financial sector interventions	438,524	463,692	482,193	510,221	538,133	32,612	37,488	40,711	45,431	64,266	471,136	501,180	522,904	555,652	602,399
Without financial sector interventions	438,524	463,692	482,193	510,221	539,182	32,612	37,488	40,711	45,431	54,905	471,136	501,180	522,904	555,652	594,087

Box 6.1 - Social Protection Expenditure

In 2008-09, social protection expenditure accounted for approximately 33 per cent of public sector expenditure in Scotland and 34 percent of public sector expenditure in the UK as a whole. Social protection comprises personal social services and social security expenditure. Personal social services covers both social work and social care services provided by local authorities. Examples include residential care homes for the elderly and home care services. Social security comprises cash benefits that are given to eligible individuals defined by states of need, such as unemployment, disability, sickness, old age etc. The table below disaggregates social protection expenditure in Scotland and the UK by its key components in 2008-09. The results show that the composition of spending on social protection in Scotland and the UK is broadly similar. In both countries, pensions accounted for over a third of spending on social protection and were the largest single category. Social security expenditure on sickness and disability, which includes incapacity benefit 34 and elements of income support, was the second largest category in both counties, accounting for 16.2 percent of total social protection in Scotland and 15.1 per cent in the UK. Social security spending in Scotland is 10.0% of the UK total. This is higher than a per capita and GVA share. Social Protection Expenditure in Scotland and the UK 2008-09 (£ million) Scotland UK £ million % of total social protection expenditure £ million Scotland as % of UK Central Government: Sickness and Disability 3,004 16.2% 28,050 10.7% Pensions 6,830 36.8% 70,077 9.7% Widow's Benefits 192 1.0% 1,622 11.8% Family Benefits (Income support; Tax Credits and Personal Social Services) 1,883 10.1% 19,658 9.6% Unemployment related benefits and personal social services 390 2.1% 4,874 8.0% Social exclusion 1,667 9.0% 18,593 9.0% Other social protection 189 1.0% 1,985 0.1% Local Government 4,417 23.8% 40,512 10.9% Total Social Protection Expenditure 18,571 100.0% 185,371 10.0%

Table 6.6 shows estimated total public sector expenditure for Scotland and the UK on a per capita basis. The table also highlights the absolute per capita difference between Scotland and the UK and Scottish expenditure relative to the UK level. Total expenditure per capita for Scotland is estimated to have been £10,910 in 2008-09, £1,097 (or 11.4 per cent) higher than the UK average, when a share of the UK Government's financial sector interventions is included, and £10,775 (11.5 per cent higher than the UK average) when these effects are not included. It should be noted that UK Government departments may have classified certain expenditures to particular categories using a different approach to that taken by Scottish Government Statisticians. Therefore, allocations of certain expenditure for Scotland may differ from those for the UK, not as a result of different levels of actual expenditure, but as a result of different classifications of similar expenditures. Caution should therefore be exercised when comparing expenditure per capita for Scotland with UK figures for individual expenditure categories.

Table 6.6: Total Expenditure per capita: Scotland and UK 2008-09

	Scotland (£)	UK (£)	Per Capita Difference (Scotland less UK) (£)	Relative expenditure for Scotland ( UK = 100)
General public services
Public and common services	309	225	83	137
International services	116	116	0	100
Public sector debt interest	514	514	0	100
Defence	595	595	0	100
Public order and safety	485	547	-63	89
Economic affairs
Enterprise and economic development
Financial sector interventions	135	135	0	100
Other enterprise and econ development	194	123	72	159
Science and technology	81	52	30	157
Employment policies	50	50	0	100
Agriculture, forestry and fisheries	154	88	66	175
Transport	508	338	170	150
Environment protection	200	158	42	127
Housing and community amenities	348	243	105	143
Health	1,980	1,788	191	111
Recreation, culture and religion	288	212	76	136
Education and training	1,462	1,343	118	109
Social protection	3,589	3,317	272	108
EU transactions	-97	-48	-49	204
Total
With financial sector interventions	10,910	9,797	1,113	111
Without financial sector interventions	10,775	9,662	1,113	112

With the exception of defence, international services, public sector debt interest payments, public order and safety and employment policies, public expenditure per capita for Scotland was estimated to be higher than the UK average across all programme types. The biggest absolute differences were in social protection, health and transport, where per capita expenditure for Scotland was between £170 and £272 higher than the UK average. In relative terms, the greatest differences in expenditure per capita occurred in science and technology and agriculture, forestry and fisheries expenditure.

Within the UK, the levels of public expenditure vary from one constituent part to another, reflecting the needs rather than the wealth or tax capacity of an area.

There are number of reasons why public expenditure for Scotland often lies above the UK average. In some cases, higher expenditure per capita reflects the greater relative importance of particular activities for Scotland. Agriculture, fisheries and forestry is one such example. Scotland also has a lower population density than the UK which increases the cost of providing the same level of public service activity, particularly in areas such as education, health and transport.

The scope and remit of the public sector also differs in Scotland compared to the UK. For example, water and sewage services are a public sector responsibility in Scotland, and are therefore included in Scottish public expenditure, whilst in England they are operated by the private sector. The inclusion of Scottish Water in the public sector is one reason why net investment in Scotland is relatively higher than for the UK as a whole.

In other areas, the higher Scottish expenditure often observed reflects greater demand for Scottish-based providers. For example, the strength of Scottish universities has created a net inflow of students from other parts of the UK. Additionally, Scottish university courses are typically longer - the honours degree course takes four years, compared with a typical three year course in England and Wales. Therefore, expenditure on education and training for Scotland will be relatively higher than the rest of the UK. However, this benefits the UK as a whole. As discussed in GERS 2006-07, Scottish universities have also been able to attract above average levels of research funding which has contributed to the high level of public expenditure for science and technology in Scotland.

Finally, higher public expenditure also reflects Scotland's greater need for some public services such as in health and housing.

Box 6.2 - Private Finance Initiative

The Private Finance Initiative ( PFI) is a method to provide financial support for Public Private Partnerships ( PPPs) between the public and private sectors. PFI projects are long-term contracts for services that include the provision of associated facilities or properties. Under the contract, the private sector is generally responsible for various roles including designing and constructing a building or facility and maintaining and servicing it throughout the contract term. The public sector retains accountability for the main public services. The private sector is responsible for financing the project up front and only receives payment from the public sector once construction has been completed and the services have commenced. Payment takes the form of a unitary charge which is usually paid annually over the lifetime of the contract. A detailed discussion of the treatment of PFI projects in GERS is provided in Box 6.3 of GERS 2007-08. The unitary charges paid on PFI projects in Scotland between 2004-05 and 2008-09 are presented in the table below. PFI Unitary Charge Expenditure in Scotland 2004-05 to 2008-09 (£ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Scottish Public Sector Unitary Charge 358 391 435 509 610 Other UK Government Departments Unitary Charges 18 19 20 28 22 Total Unitary Charges in Scotland 376 410 455 537 632 Source: Scottish Government and HM Treasury PFI Signed Project List - February 2010

Identifiable and Non-identifiable Expenditure

GERS classifies public sector expenditure for Scotland according to three categories: identifiable expenditure, non-identifiable expenditure and accounting adjustments.

In the vast majority of cases, GERS uses the data on identifiable expenditure contained in PESACRA directly. It is a fundamental principle of PESA that the apportionment of UK expenditure adheres to the 'who benefits' principle whereby spending is allocated to a given region if the benefit of the service derived from the expenditure is thought to accrue to residents and enterprises of that region. As highlighted in the PESA publication, there are limitations in the ability to capture precisely 'who benefits' from a given item of expenditure:

• there are practical difficulties. For example, schools are not used solely by the residents of a region in which the facility is located and roads serve the needs of more than the geographical area through which they pass. Definitional and border problems become increasingly significant the smaller the geographical unit considered;
• there are also significant definitional problems associated with assessing 'who benefits'. For example, agricultural support is treated as benefiting the farmers who receive subsidies rather than the final consumers of food; and
• there are also issues around collecting accurate country and regional data in a cost efficient way. UK government departments are encouraged but not required to allocate all expenditure on the basis of 'who benefits'. If spending is not significant (less than £20 million on capital or current) and/or relevant data for allocating this to regions are not available, departments may use some statistical proxy instead. For example: using straight per capita shares, or using the regional allocation proportions for related spending. Further, it is not practical or cost effective to collect local government spending data on the basis of 'who benefits'. Instead, local government spending is assumed to benefit the area where the expenditure occurs.

Following a detailed review of all 1,404 expenditure programme object groups in PESA 2010, a number of important modifications to the PESA data have been made before being used for the GERS report. These changes reflect the fact that in certain circumstances, officials in the Scottish Government believe a more accurate assessment of 'who benefits' is thought possible than is currently presented in PESA. As in GERS 2007-08, the principal change relates to the treatment of expenditure on nuclear decommissioning by the UK Atomic Energy Authority ( UKAEA) and British Nuclear Fuels, as outlined in Box 6.3.

Appendix B contains a detailed list of all amendments to PESA implemented in this report. The development of PESA continues to be work in progress and further improvements in the regional apportionment of public sector expenditure will be reflected in future GERS reports.

Box 6.3 - The Regional Allocation of Decommissioning Expenditure by UK Atomic Energy Authority and British Nuclear Fuels

PESA currently apportions decommissioning expenditure by the UK Atomic Energy Authority ( UKAEA) and British Nuclear Fuels ( BNF) to UK countries or English regions according to where the nuclear facility is located. GERS has departed from the PESACRA analysis in this instance and re-classified all UKAEA and BNF decommissioning expenditure as non-identifiable, on the basis that during the plants operational life, the value added from nuclear facilities benefited all UK residents. A proportion of total decommissioning expenditure, including that for plants in England, is therefore apportioned to Scotland on a per capita basis. Related expenditure, for example that corresponding to the security of nuclear facilities is treated similarly. The rationale for this change is set out in detail in Box 6.4 of GERS 2007-08. The table below illustrates the impact of these revisions and highlights the extent to which the data presented in GERS differ from PESACRA analysis in this respect. Under the methodology used in GERS, expenditure on UKAEA and BNF decommissioning for Scotland was estimated to be £65 million in 2008-09, £48 million lower than the estimate contained in PESA. Expenditure on Nuclear Decommissioning: 2004-05 to 2008-09 (£ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Total UKAEA Decommissioning Expenditure and related nuclear expenditure 524 1,280 1,606 1,374 987 Expenditure 'identified' to Scotland in PESA 180 507 240 238 145 Revised apportionment to Scotland in GERS 44 108 136 116 83 Revision -135 -399 -104 -122 -62

In 2008-09, UK identifiable expenditure covered approximately 83.4 per cent of UK total public sector expenditure including the financial sector interventions. When these effects are not included, UK identifiable expenditure accounted for 84.6 per cent of UK total public sector expenditure. The remaining spending cannot be attributed to individual locations, for example, because it is spent for the benefit of the UK as a whole. A proportion of such UK non-identifiable expenditure is allocated to the public sector for Scotland either on the basis of Scotland's share of the UK population, GVA or a more specific apportionment variable. Information on the methodologies used to apportion each element of expenditure is provided in Appendix B.

Table 6.7 illustrates the estimated level of identifiable and non-identifiable expenditure assigned to Scotland for each year between 2004-05 and 2008-09. Identifiable expenditure was estimated to be £48.3 billion in 2008-09. This figure is not affected by the UK Government's financial sector interventions as all of these are classified as non-identifiable. In comparison, non-identifiable expenditure was £8.1 billion in 2008-09, approximately 14.4 per cent of estimated total public sector expenditure for Scotland when a share of the UK Government's financial interventions is included. When these effects are not included, non-identifiable expenditure was £7.4 billion in 2008-09, approximately 13.3 per cent of estimated total public sector expenditure for Scotland.

Across most programme categories, the level of non-identifiable expenditure is relatively modest. This, in part, reflects development work that has been undertaken in compiling the PESACRA database in recent years to identify more specifically particular elements of expenditure on a regional basis. Debt interest payments, defence and enterprise and economic development are typically the largest elements of non-identifiable expenditure. Collectively, these three elements of expenditure accounted for 79.7 per cent of total non-identifiable expenditure for Scotland in 2008-09 when a share of the UK Government's financial sector interventions is included, and 77.8 per cent of total non-identifiable expenditure for Scotland when these effects are not included.

Box 6.4 - The London Olympics and Glasgow Commonwealth Games

In PESACRA 2010, HM Treasury classify expenditure on the London Olympics as UK non-identifiable expenditure. This assumes the benefits from the London Olympics are shared equally by all UK residents. There is some debate whether all the expenditures classified as being part of the 2012 London Olympics are non-identifiable. For example, a significant proportion of spending is for investment in infrastructure and re-development of areas in the east end of London. Previous regeneration schemes have generally been classified as identifiable to the region in which they occur. Expenditure associated with the 2014 Commonwealth Games in Glasgow has been separately identified in PESA for the first time this year. Current expenditures of £2 million and £4 million are reported for 2007-08 and 2008-09 respectively. PESA classifies all the expenditure associated with the Commonwealth Games as being identifiable to Scotland. This implies all the resulting benefits accrue to Scotland. The classifications used in PESA imply that Scottish residents are assumed to be the sole beneficiaries of the expenditure associated with the Commonwealth Games, whilst all UK residents benefit equally from the expenditure associated with the London Olympics. This creates an apparent asymmetry in the treatment of the expenditures associated with these two events. One option would be to reclassify expenditure on the London Olympics as being identifiable to London. This would mean that expenditures associated with the Olympics and Commonwealth Games are treated symmetrically, with the principal beneficiaries of both events being the residents of the area in which they are held. This adjustment would reduce the estimates of Scottish public expenditure by £33 million in 2007-08 and £96 million in 2008-09. However this approach would not account for the fact that regions outside London will benefit as a result of the hosting of the Olympic Games in the UK. For example, through increased tourism. Equally, England, Wales and Northern Ireland may accrue similar benefits from the expenditure associated with the Commonwealth Games. Scottish Government Statisticians will review the methodologies used to apportion expenditures associated with the Olympics and Commonwealth Games in GERS with a view to proposing a revised methodology for introduction in GERS 2009-10. This will be informed by the review of Olympic expenditure currently being undertaken by UK Government officials in response to a formal request from the Devolved Administrations.

Table 6.7: Total Expenditure, Identifiable and Non-identifiable: Scotland 2004-05 to 2008-09

	(£ million)
	Identifiable					Non-identifiable					Total
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	942	1,137	961	943	1,145	431	445	430	430	452	1,372	1,582	1,392	1,374	1,597
International services	16	18	16	16	18	453	506	511	549	584	470	524	527	566	602
Public sector debt interest	0	0	0	0	0	2,112	2,260	2,427	2,645	2,658	2,112	2,260	2,427	2,645	2,658
Defence	6	6	7	7	5	2,517	2,607	2,707	2,825	3,073	2,524	2,613	2,714	2,832	3,078
Public order and safety	1,931	2,119	2,105	2,176	2,332	184	167	173	177	177	2,115	2,285	2,279	2,354	2,509
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	0	0	0	0	0	700	0	0	0	0	700
Other enterprise and econ development	832	869	884	998	953	45	51	57	53	53	877	920	941	1,051	1,006
Science and technology	250	318	260	400	365	40	44	56	50	55	290	363	316	450	420
Employment policies	270	273	258	253	260	1	1	1	1	1	271	274	259	254	261
Agriculture, forestry and fisheries	664	646	660	741	799	0	0	0	0	0	664	646	660	741	799
Transport	1,611	1,827	2,612	2,742	2,606	18	18	18	20	23	1,629	1,846	2,630	2,761	2,629
Environment protection	733	826	859	897	951	46	109	136	115	86	779	935	995	1,012	1,037
Housing and community amenities	1,347	1,526	1,679	1,746	1,799	0	0	0	0	0	1,347	1,526	1,679	1,746	1,799
Health	7,702	8,562	9,035	9,727	10,160	56	44	67	82	84	7,758	8,606	9,102	9,810	10,244
Recreation, culture and religion	898	951	989	1,029	1,081	276	295	313	353	409	1,174	1,245	1,302	1,382	1,490
Education and training	6,138	6,564	7,130	7,353	7,554	7	6	7	7	10	6,145	6,570	7,137	7,360	7,563
Social protection	15,124	15,625	15,859	16,867	18,304	205	222	227	242	267	15,329	15,847	16,087	17,110	18,571
EU transactions	0	0	0	0	0	-339	-366	-355	-242	-502	-339	-366	-355	-242	-502
Total
With financial sector interventions	38,466	41,267	43,314	45,897	48,329	6,052	6,409	6,778	7,308	8,132	44,518	47,677	50,093	53,205	56,460
Without financial sector interventions	38,466	41,267	43,314	45,897	48,329	6,052	6,409	6,778	7,308	7,432	44,518	47,677	50,093	53,205	55,761

Analysis of Identifiable Expenditure

This section provides a more detailed analysis of identifiable expenditure for Scotland.

As the UK Government's financial sector interventions are recorded in GERS as non-identifiable expenditure, they are not reflected in the identifiable expenditure tables below. Therefore only one estimate of both expenditure on Enterprise and Economic Development and total public spending is provided.

Table 6.8 disaggregates identifiable expenditure for Scotland into expenditure by the Scottish Government and by other UK Government departments for the years 2004-05 to 2008-09 ³⁵. Tables 6.9 and 6.10 provide a similar disaggregation but with an additional split for current and capital expenditure. Finally, Table 6.11 provides an assessment of the contribution of each expenditure programme to overall identifiable expenditure for Scotland and the UK as a whole.

The Scottish Government accounted for over two thirds of total Scottish identifiable public expenditure in each year between 2004-05 and 2008-09 with the majority of such expenditure on health and education. It should be noted that the figures presented for Scottish Government expenditure in GERS do not reconcile directly with Scottish Government budget statements. The identifiable expenditure figures contained in GERS include expenditure by non-ministerial departments, such as the General Register Office for Scotland ( GROS), and by public corporations. They exclude a small expenditure by the Scottish Government on services outside Scotland. Furthermore, the figures presented in GERS are consistent with the National Accounts framework for public sector expenditure and will therefore differ from the Scottish Government budget documents in their treatment of certain cash and non-cash items. There are also important differences in classification of expenditure.

UK Government departments accounted for a third of Scottish identifiable expenditure. Their spending is dominated by expenditure on social protection - i.e. welfare payments and unemployment benefits. Social protection is the only function where the majority of identifiable expenditure is not undertaken by the Scottish Government.

Decomposing the data into current and capital components shows that the Scottish Government's share of identifiable current expenditure increased from 65.0 per cent in 2004-05 to 66.1 per cent in 2008-09. Over the same period the proportion of identifiable capital expenditure undertaken by the Scottish Government increased from 88.6 per cent in 2004-05 to 96.6 per cent in 2008-09. A significant element of this increase reflects the transfer of responsibility for elements of railways expenditure from the Department for Transport to the Scottish Government. This issue is set out more in detail in box 6.1 in GERS 2007-08.

As Table 6.11 highlights, the pattern of identifiable expenditure for Scotland was broadly similar to that for the UK as a whole, with social protection and health being the dominant expenditure components.

Table 6.8: Total Identifiable Expenditure: Scotland 2004-05 to 2008-09

	(£ million)
	Scottish Government					Other UK Government					Total
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	897	1,062	898	873	1,083	45	75	63	70	61	942	1,137	961	943	1,145
International services	0	0	0	0	0	16	18	16	16	18	16	18	16	16	18
Public sector debt interest	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Defence	6	6	7	7	5	0	0	0	0	0	6	6	7	7	5
Public order and safety	1,914	2,104	2,091	2,165	2,305	18	15	15	11	27	1,931	2,119	2,105	2,176	2,332
Economic affairs
Enterprise and econ development	671	664	689	818	760	161	205	194	179	193	832	869	884	998	953
Science and technology	90	135	88	195	138	161	184	172	204	227	250	318	260	400	365
Employment policies	0	0	0	1	4	270	273	258	252	256	270	273	258	253	260
Agriculture, forestry and fisheries	651	634	646	727	785	13	12	14	14	13	664	646	660	741	799
Transport	1,335	1,586	2,554	2,688	2,585	276	241	58	54	21	1,611	1,827	2,612	2,742	2,606
Environment protection	694	776	815	862	919	39	50	44	35	31	733	826	859	897	951
Housing and community amenities	1,347	1,526	1,679	1,746	1,799	0	0	0	0	0	1,347	1,526	1,679	1,746	1,799
Health	7,664	8,517	8,992	9,689	10,111	38	45	43	39	48	7,702	8,562	9,035	9,727	10,160
Recreation, culture and religion	808	835	892	945	999	90	116	97	84	82	898	951	989	1,029	1,081
Education and training	6,108	6,528	7,098	7,330	7,523	30	36	31	23	31	6,138	6,564	7,130	7,353	7,554
Social protection	3,650	3,817	3,765	4,261	4,499	11,474	11,808	12,094	12,606	13,805	15,124	15,625	15,859	16,867	18,304
EU transactions	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total	25,835	28,189	30,214	32,308	33,515	12,631	13,079	13,100	13,589	14,813	38,466	41,267	43,314	45,897	48,329

Table 6.9: Identifiable Expenditure - Scottish Government: Scotland 2004-05 to 2008-09

	(£ million)
	Current					Capital
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	674	923	769	837	832	223	139	129	36	252
International services	0	0	0	0	0	0	0	0	0	0
Public sector debt interest	0	0	0	0	0	0	0	0	0	0
Defence	6	6	7	7	5	0	0	0	0	0
Public order and safety	1,746	1,945	1,918	2,013	2,099	168	159	173	152	206
Economic affairs
Enterprise and econ development	564	532	532	627	542	107	132	157	192	218
Science and technology	73	105	69	110	75	17	30	18	85	63
Employment policies	0	0	0	1	4	0	0	0	0	0
Agriculture, forestry and fisheries	609	593	579	663	696	43	41	67	64	89
Transport	820	889	1,395	1,476	1,505	515	696	1,159	1,211	1,080
Environment protection	616	681	766	772	834	79	95	49	90	85
Housing and community amenities	279	162	182	333	260	1,068	1,363	1,497	1,413	1,539
Health	7,261	8,282	8,715	9,250	9,602	402	234	277	439	510
Recreation, culture and religion	676	707	735	742	756	131	128	157	203	244
Education and training	5,823	6,068	6,390	6,637	6,875	285	460	709	694	648
Social protection	3,612	3,770	3,707	4,195	4,434	38	46	58	66	65
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	22,760	24,665	25,765	27,664	28,517	3,075	3,524	4,449	4,644	4,999

Table 6.10: Identifiable Expenditure - Other UK Government: Scotland 2004-05 to 2008-09

	(£ million)
	Current					Capital
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	39	69	58	65	56	6	5	5	5	5
International services	16	18	16	16	17	1	1	0	1	0
Public sector debt interest	0	0	0	0	0	0	0	0	0	0
Defence	0	0	0	0	0	0	0	0	0	0
Public order and safety	16	17	7	10	26	2	-2	7	1	1
Economic affairs
Enterprise and econ development	147	168	144	130	126	14	37	50	49	66
Science and technology	136	160	146	182	202	25	23	26	23	25
Employment policies	258	240	245	251	255	11	33	13	1	1
Agriculture, forestry and fisheries	12	11	14	13	13	1	1	1	1	1
Transport	53	32	42	45	7	223	209	15	10	14
Environment protection	19	26	22	28	25	21	24	22	7	6
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	19	25	27	35	46	19	20	16	3	2
Recreation, culture and religion	55	66	64	57	60	35	50	33	27	22
Education and training	11	16	16	20	29	19	19	15	3	1
Social protection	11,456	11,755	12,050	12,582	13,774	19	53	44	25	31
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	12,235	12,605	12,851	13,435	14,639	396	474	249	154	174

Table 6.11: Identifiable Expenditure: Scotland and UK 2008-09

	Scotland						UK
	Scottish Government		Other UK Government		Total		Total
	Expenditure (£ million)	Share of identifiable expenditure	Expenditure (£ million)	Share of identifiable expenditure	Expenditure (£ million)	Share of identifiable expenditure	Expenditure ( £ million)	Share of identifiable expenditure
General public services
Public and common services	1,083	2.2%	61	0.1%	1,145	2.4%	8,391	1.7%
International services	0	0.0%	18	0.0%	18	0.0%	214	0.0%
Public sector debt interest	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Defence	5	0.0%	0	0.0%	5	0.0%	82	0.0%
Public order and safety	2,305	4.8%	27	0.1%	2,332	4.8%	31,552	6.3%
Economic affairs
Enterprise and econ development	760	1.6%	193	0.4%	953	2.0%	6,892	1.4%
Science and technology	138	0.3%	227	0.5%	365	0.8%	2,490	0.5%
Employment policies	4	0.0%	256	0.5%	260	0.5%	3,087	0.6%
Agriculture, forestry and fisheries	785	1.6%	13	0.0%	799	1.7%	5,416	1.1%
Transport	2,585	5.3%	21	0.0%	2,606	5.4%	20,479	4.1%
Environment protection	919	1.9%	31	0.1%	951	2.0%	8,685	1.7%
Housing and community amenities	1,799	3.7%	0	0.0%	1,799	3.7%	14,933	3.0%
Health	10,111	20.9%	48	0.1%	10,160	21.0%	108,934	21.7%
Recreation, culture and religion	999	2.1%	82	0.2%	1,081	2.2%	8,130	1.6%
Education and training	7,523	15.6%	31	0.1%	7,554	15.6%	82,470	16.4%
Social protection	4,499	9.3%	13,805	28.6%	18,304	37.9%	200,609	39.9%
EU transactions	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Total	33,515	69.3%	14,813	30.7%	48,329	100.0%	502,365	100.0%

Table 6.12 shows identifiable expenditure per capita for Scotland in 2008-09 and compares this with the corresponding per capita figure for the UK. In 2008-09, identifiable expenditure per capita for Scotland was estimated to be £9,339 which is £1,169 (14.3 per cent) higher than the UK average.

In absolute terms, the largest differences arose in transport, health and social protection where per capita identifiable expenditure for Scotland was between £170 and £274 higher than the UK average. These are the key factors in explaining the difference in total identifiable expenditure between Scotland and the UK.

In relative terms, the greatest variations in spending per capita arose in enterprise and economic development, science and technology, and agriculture, forestry and fisheries.

Table 6.12: Identifiable Expenditure per capita: Scotland and UK 2008-09

	Scotland (£)	UK (£)	Difference (Scotland less UK) (£)	Relative expenditure for Scotland ( UK = 100)
General public services
Public and common services	221	136	85	162
International services	3	3	0	97
Public sector debt interest	0	0	0	0
Defence	1	1	0	72
Public order and safety	451	513	-63	88
Economic affairs
Enterprise and econ development	184	112	72	164
Science and technology	70	40	30	174
Employment policies	50	50	0	100
Agriculture, forestry and fisheries	154	88	66	175
Transport	504	333	170	151
Environment protection	184	141	42	130
Housing and community amenities	348	243	105	143
Health	1,963	1,772	192	111
Recreation, culture and religion	209	132	77	158
Education and training	1,460	1,341	118	109
Social protection	3,537	3,263	274	108
EU transactions	0	0	0	0
Total	9,339	8,170	1,169	114

Analysis of Non-Identifiable Expenditure

This section provides a more detailed analysis of non-identifiable expenditure. There are a number of possible ways in which to allocate a share of UK non-identifiable expenditure to Scotland including Scotland's share of UKGVA or population. The methodologies used to apportion each element of non-identifiable expenditure are discussed in Appendix B.

In addition to non-identifiable expenditure, PESA also includes a small amount of UK Government expenditure which is classified as identifiable but for programmes outside the UK. This includes expenditure on international development programmes. This category is included in GERS within non-identifiable expenditure for both Scotland and the UK. This treatment is consistent with the view that expenditure outside the UK is non-identifiable from the perspective of the UK's constituent countries, as the benefits are shared between them. To make the Scottish non-identifiable expenditure comparable with UK data, this category is therefore included in UK non-identifiable expenditure.

Table 6.13 presents total non-identifiable expenditure for Scotland and the UK between 2004-05 and 2008-09. Tables 6.14 and 6.15 decompose Scottish and UK non-identifiable expenditure into their current and capital components.

Including a share of the UK Government's financial sector interventions, total non-identifiable expenditure for Scotland was estimated to be £8.1 billion in 2008-09, 8.1 per cent of the equivalent UK figure. When a share of the financial sector interventions is not included, total non-identifiable expenditure for Scotland is estimated to be £7.4 billion (8.1 per cent of the UK total).

Defence and debt interest payments comprise the largest components. As Tables 6.14 and 6.15 highlight, current expenditure was the major component of non-identifiable expenditure for both Scotland and the UK in 2008-09.

Table 6.13: Non-Identifiable Expenditure: Scotland and UK 2004-05 to 2008-09

	(£ million)
	Scotland					UK
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	431	445	430	430	452	5,101	5,295	5,130	5,135	5,451
International services	453	506	511	549	584	5,346	5,984	6,057	6,513	6,942
Public sector debt interest	2,112	2,260	2,427	2,645	2,658	24,897	26,744	28,744	31,362	31,579
Defence	2,517	2,607	2,707	2,825	3,073	29,676	30,841	32,058	33,501	36,514
Public order and safety	184	167	173	177	177	2,165	1,973	2,054	2,104	2,106
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	700	0	0	0	0	8,312
Other enterprise and econ development	45	51	57	53	53	543	610	687	640	641
Science and technology	40	44	56	50	55	490	547	688	618	678
Employment policies	1	1	1	1	1	14	15	18	13	17
Agriculture, forestry and fisheries	0	0	0	0	0	0	0	0	0	0
Transport	18	18	18	20	23	372	380	346	351	306
Environment protection	46	109	136	115	86	553	1,300	1,627	1,370	1,041
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	56	44	67	82	84	671	538	804	991	1,017
Recreation, culture and religion	276	295	313	353	409	3,286	3,517	3,753	4,231	4,910
Education and training	7	6	7	7	10	88	72	80	84	113
Social protection	205	222	227	242	267	2,517	2,734	2,820	3,021	3,333
EU transactions	-339	-366	-355	-242	-502	-892	-598	-1,802	-1,505	-2,927
Total
With financial sector interventions	6,052	6,409	6,778	7,308	8,132	74,827	79,951	83,063	88,428	100,035
Without financial sector interventions	6,052	6,409	6,778	7,308	7,432	74,827	79,951	83,063	88,428	91,722

Table 6.14: Non-Identifiable Expenditure: Scotland 2004-05 to 2008-09

	(£ million)
	Current					Capital
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	391	404	420	410	412	40	42	10	20	40
International services	438	478	481	516	549	15	28	30	34	35
Public sector debt interest	2,112	2,260	2,427	2,645	2,658	0	0	0	0	0
Defence	2,381	2,517	2,632	2,611	2,782	137	90	75	214	292
Public order and safety	174	160	164	165	159	10	7	9	12	18
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	-88	0	0	0	0	788
Other enterprise and econ development	40	45	48	47	45	5	6	9	6	8
Science and technology	34	36	45	39	44	6	9	10	12	11
Employment policies	1	1	1	1	1	0	0	0	0	0
Agriculture, forestry and fisheries	0	0	0	0	0	0	0	0	0	0
Transport	11	11	11	12	14	6	7	7	7	9
Environment protection	41	21	45	22	-12	5	87	92	93	98
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	53	47	62	78	79	3	-3	4	5	6
Recreation, culture and religion	269	283	294	311	303	7	12	19	42	106
Education and training	7	6	7	7	10	0	0	0	0	0
Social protection	205	221	227	242	267	0	1	1	1	0
EU transactions	-339	-366	-355	-242	-502	0	0	0	0	0
Total
With financial sector interventions	5,818	6,124	6,512	6,863	6,720	233	285	266	445	1,412
Without financial sector interventions	5,818	6,124	6,512	6,863	6,809	233	285	266	445	624

Table 6.15: Non-Identifiable Expenditure: UK 2004-05 to 2008-09

	(£ million)
	Current					Capital
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
General public services
Public and common services	4,632	4,802	5,008	4,893	4,970	469	493	123	242	481
International services	5,168	5,655	5,702	6,115	6,524	178	329	355	398	417
Public sector debt interest	24,897	26,744	28,744	31,362	31,579	0	0	0	0	0
Defence	28,066	29,776	31,168	30,965	33,050	1,610	1,066	891	2,536	3,464
Public order and safety	2,051	1,894	1,945	1,962	1,890	114	79	109	142	216
Economic affairs
Enterprise and economic development
Financial sector interventions	0	0	0	0	-1,049	0	0	0	0	9,361
Other enterprise and econ development	480	542	579	565	544	64	68	107	75	97
Science and technology	414	441	559	472	538	76	106	129	145	140
Employment policies	14	14	17	13	17	0	1	0	0	0
Agriculture, forestry and fisheries	0	0	0	0	0	0	0	0	0	0
Transport	152	165	161	197	214	219	215	184	154	92
Environment protection	496	263	541	264	-126	56	1,037	1,086	1,106	1,167
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	642	574	753	937	950	30	-36	50	54	67
Recreation, culture and religion	3,195	3,375	3,517	3,725	3,642	90	142	236	506	1,268
Education and training	88	72	80	84	113	0	0	0	0	0
Social protection	2,516	2,726	2,811	3,014	3,328	1	8	9	7	5
EU transactions	-892	-598	-1,802	-1,505	-2,927	0	0	0	0	0
Total
With financial sector interventions	71,920	76,444	79,784	83,063	83,258	2,907	3,507	3,279	5,365	16,776
Without financial sector interventions	71,920	76,444	79,784	83,063	84,307	2,907	3,507	3,279	5,365	7,415

Table 6.16 compares the composition of non-identifiable expenditure for Scotland and the UK for 2008-09. For both Scotland and the UK, the structure of non-identifiable expenditure is broadly similar, with debt interest and defence expenditure contributing the largest amounts.

Table 6.16: Non-Identifiable Expenditure: Scotland and UK 2008-09

	Scotland			UK
	Expenditure (£ million)	Share of non-identifiable expenditure inc. financial interventions	Share of non-identifiable expenditure exc. financial interventions	Expenditure (£ million)	Share of non-identifiable expenditure inc. financial interventions	Share of non-identifiable expenditure exc. financial interventions
General public services
Public and common services	452	5.6%	6.1%	5,451	5.4%	5.9%
International services	584	7.2%	7.9%	6,942	6.9%	7.6%
Public sector debt interest	2,658	32.7%	35.8%	31,579	31.6%	34.4%
Defence	3,073	37.8%	41.4%	36,514	36.5%	39.8%
Public order and safety	177	2.2%	2.4%	2,106	2.1%	2.3%
Economic affairs
Enterprise and economic development
Financial sector interventions	700	8.6%	N/A	8,312	8.3%	N/A
Other enterprise and econ development	53	0.7%	0.7%	641	0.6%	0.7%
Science and technology	55	0.7%	0.7%	678	0.7%	0.7%
Employment policies	1	0.0%	0.0%	17	0.0%	0.0%
Agriculture, forestry and fisheries	0	0.0%	0.0%	0	0.0%	0.0%
Transport	23	0.3%	0.3%	306	0.3%	0.3%
Environment protection	86	1.1%	1.2%	1,041	1.0%	1.1%
Housing and community amenities	0	0.0%	0.0%	0	0.0%	0.0%
Health	84	1.0%	1.1%	1,017	1.0%	1.1%
Recreation, culture and religion	409	5.0%	5.5%	4,910	4.9%	5.4%
Education and training	10	0.1%	0.1%	113	0.1%	0.1%
Social protection	267	3.3%	3.6%	3,333	3.3%	3.6%
EU transactions	-502	-6.2%	-6.8%	-2,927	-2.9%	-3.2%
Total
With financial sector interventions	8,132	100.0%	N/A	100,035	100.0%	N/A
Without financial sector interventions	7,432	N/A	100.0%	91,722	N/A	100.0%

Table 6.17 outlines Scottish non-identifiable expenditure on services per capita in 2008-09 and compares this with the corresponding figure for the UK. For Scotland, non-identifiable expenditure was estimated to be £1,571 per capita including a share of the UK Government's financial sector interventions, and £1,436 per capita when these effects are not included. These are marginally lower than the equivalent UK per capita figures of £1,627 and £1,492 respectively. This reflects the fact that for some apportionments, GVA was used and Scotland's GVA per capita (excluding extra-regio) was marginally smaller than the corresponding UK figure in 2008-09.

Table 6.17: Non-Identifiable Expenditure Per Capita: Scotland and UK 2008-09

	Scotland (£)	UK (£)	Difference (Scotland less UK) (£)	Relative expenditure for Scotland ( UK = 100)
General public services
Public and common services	87	89	-1	98
International services	113	113	0	100
Public sector debt interest	514	514	0	100
Defence	594	594	0	100
Public order and safety	34	34	0	100
Economic affairs
Enterprise and economic development
Financial sector interventions	135	135	0	100
Other enterprise and econ development	10	10	0	99
Science and technology	11	11	0	97
Employment policies	0	0	0	100
Agriculture, forestry and fisheries	0	0	0	0
Transport	4	5	0	90
Environment protection	17	17	0	99
Housing and community amenities	0	0	0	0
Health	16	17	0	99
Recreation, culture and religion	79	80	-1	99
Education and training	2	2	0	100
Social protection	52	54	-3	95
EU transactions	-97	-48	-49	204
Total
With financial sector interventions	1,571	1,627	-56	97
Without financial sector interventions	1,436	1,492	-56	96

Box 6.5 - Debt Interest Payments

The debt interest payment expenditure in the above tables refers to payments to cover interest on outstanding UK Government debt. In GERS, such expenditure is classified as non-identifiable. For each year, a per capita share of UK Government debt interest expenditure is allocated for Scotland. The allocation on a per capita basis is based on the assumption that residents across the UK bear an equal burden of UK Government liabilities. As there is no separate identification of Scotland's share of UK public sector net debt in UK public financial accounts, a separate Scottish debt interest expenditure does not exist. An assessment of an implied 'debt position' for Scotland is inherently problematic, not least because general government borrowing is controlled by the UK Government. Debt interest payments can also be viewed as payments related to past UK public sector net borrowing and government expenditure. Current expenditure excluding debt interest payments represents expenditure on public services consumed within the current financial year. The difference between this estimate and estimated current revenue represents the current budget fiscal position for public services provided at a given point in time (the primary current balance). In GERS, an estimate of debt interest payments is then deducted from this balance to obtain the current budget balance which is presented in Chapter 3. Estimates for Scotland over the period 2004-05 to 2008-09, including a share of the UK Government's financial sector interventions, are highlighted in the table below, illustrating the current balance on public services consumed within each financial year. Current Balance on Public Services Consumed Including Financial Sector Interventions: Scotland 2008-09 (£ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Current revenue Excluding North Sea revenue 36,983 39,787 42,198 44,966 43,466 Including North Sea revenue (per capita share) 37,422 40,580 42,952 45,627 44,553 Including North Sea revenue (geographical share) 41,515 47,914 49,694 52,417 55,236 Total current expenditure (including capital consumption and accounting adjustments) 44,036 46,983 48,907 51,943 53,966 Less debt interest payments (as used in headline GERS estimates) -2,112 -2,260 -2,427 -2,645 -2,658 Total current expenditure on services consumed within current financial year 41,924 44,723 46,480 49,298 51,309 Current balance on public services consumed within current financial year Excluding North Sea revenues -4,941 -4,936 -4,281 -4,332 -7,843 Including North Sea revenues (per capita share) -4,502 -4,143 -3,528 -3,671 -6,755 Including North Sea revenues (geographical share) -409 3,192 3,214 3,119 3,928

Accounting Adjustments

The analysis of public sector expenditure in GERS focuses on Total Expenditure on Services ( TES). This is consistent with the departmental budget framework. In UK public finance documents, the principal measure of public sector expenditure is Total Managed Expenditure ( TME). TME is constructed from categories in the National Accounts framework. The main difference between TES and TME is that TES does not include general government capital consumption and does not reverse the deduction of certain VAT refunds in the budget-based expenditure data. It also contains a number of items that are in budgets but not in TME, for example the grant-equivalent element of student loans. In most years, TES amounts to approximately 95 per cent of TME. To reconcile TES and TME, an accounting adjustment is introduced such that TES plus the accounting adjustment equals TME.

The largest component of the UK accounting adjustment is general government capital consumption. It is a measure of the amount of fixed capital resources used up in the process of the provision of public services. In 2008-09, the UK capital consumption of £13.8 billion represented 50.5 per cent of the total UK accounting adjustment. Table 6.18 shows the component disaggregation of the UK accounting adjustment. The total UK accounting adjustments was estimated at £27.3 billion in 2008-09. The estimates of the UK accounting adjustment presented in Table 6.18 include the effect of the UK Government's financial sector interventions.

Table 6.18: Accounting Adjustment Including Financial Sector Interventions: UK 2004-05 to 2008-09

	(£ million)
	2004-05	2005-06	2006-07	2007-08	2008-09
UK total managed expenditure ( TME)	492,332	523,942	549,819	581,919	629,659
UK total expenditure on services ( TES)	471,136	501,180	522,904	555,652	602,399
UK accounting adjustment	21,196	22,762	26,915	26,267	27,260
of which:
Central government capital consumption	5,513	5,734	5,881	6,142	6,530
Local government capital consumption	5,437	5,952	6,478	6,803	7,224
Current VAT refunds	7,803	8,791	9,416	9,725	10,001
Capital VAT refunds	1,508	1,655	1,772	1,982	1,978
Nigerian debt cancellation	116	1,246	1,406	0	0
Student loans subsidy 1	-327	-429	-290	-1,032	-524
Imputed subsidy from Local Authorities to the Housing Revenue Account 2	715	1,431	1,528	1,535	1,488
Imputed flows for Renewable Obligation Certificates 3	368	370	474	469	472
Residual	63	-1,988	250	643	91

1 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.
2 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporation gross operating surplus, which scores on the revenue side of the account).
3 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.

The corresponding Scottish figures, as highlighted in Table 6.19, are calculated using a variety of apportionment methodologies. Firstly, estimates of general government capital consumption from the ONS Regional Accounts, together with information from local government returns, have been used to apportion capital consumption to UK countries and English regions. In 2008-09, general government capital consumption for Scotland was estimated at £1.3 billion (9.2 per cent of UK capital consumption). This is relatively high for Scotland, reflecting a higher stock of public sector assets (e.g. roads, hospitals, schools) than elsewhere in the UK. These figures are identical to those used in the general government gross operating surplus calculations in the revenue account. The figures cancel out in the net borrowing calculation

VAT refunds have been allocated to Scotland using the apportionments derived in the revenue calculations for VAT refunds which form part of the total VAT calculations (see Appendix A), and therefore cancel out in the calculation of net borrowing. The figures for Scottish student loan subsidies were provided by HM Treasury. The imputed subsidy from local authorities to the Housing Revenue Account adopt the same apportionment allocation as in the gross operating surplus calculations on the revenue side, and the imputed flows for Renewable Obligation Certificates adopts the same methodology used in 'other taxes and royalties'. These items cancel in the net borrowing calculations. The Scottish share of the Nigerian debt write-off has been allocated on a per capita basis. The current and capital residuals are allocated to Scotland using the appropriate TES ratios.

In sum, the total Scottish public sector accounting adjustment was estimated at £2.6 billion in 2008-09, or 9.4 per cent of the total UK accounting adjustment, including the effect of the UK Government's financial sector interventions. The relatively higher proportion compared to per capita or GVA shares reflects the high share of general government capital consumption for Scotland.

Table 6.19: Accounting Adjustment Including Financial Sector Interventions: Scotland 2004-05 to 2008-09

	(£ million)
	2004-05	2005-06	2006-07	2007-08	2008-09
Capital consumption: 1
Central government capital consumption	496	501	522	542	579
Local government capital consumption	591	651	611	658	688
Current expenditure:
Current VAT refunds	736	868	839	879	909
Student loans subsidy 2	-33	-40	-27	-44	7
Imputed subsidy from Local Authorities to the Housing Revenue Account 3	75	160	158	149	128
Imputed flows for Renewable Obligation Certificates 4	46	33	35	50	56
Current expenditure residual
Capital expenditure:	142	163	158	179	180
Capital VAT refunds	10	105	119	0	0
Nigerian debt cancellation	169	-98	-130	-95	-23
Capital expenditure residual
Total accounting adjustment	2,100	2,238	2,408	2,456	2,553
Percentage of UK accounting adjustment	9.9%	9.8%	8.9%	9.4%	9.4%

1 Public Corporations' capital consumption is included in gross operating surplus.
2 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.
3 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporations gross operating surplus, which scores on the revenue side of the account).
4 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.