Government Expenditure & Revenue Scotland 2013-14

CHAPTER 5: PUBLIC SECTOR EXPENDITURE

Total Public Sector Expenditure: Scotland 2013-14

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 November 2014 Country and Regional Analysis (CRA) published by HM Treasury.^[30] In addition to this, data provided directly by HM Treasury is used to provide a complete measure of Total Managed Expenditure, the headline measure of aggregate public spending in the UK Public Sector Finances. 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. Annex B discusses the relevant apportionment methodologies applied while Annex C provides information on the revisions from previous reports.

Public Sector Expenditure

Total public sector expenditure for Scotland in 2013-14 is estimated to be £66.4 billion. This is shown by spending category in Table 5.1. This was equivalent to 9.2% of comparable total UK public sector expenditure, shown in Table 5.2. Social protection was the largest Scottish expenditure programme. Together with health expenditure, it accounted for over half of total public sector expenditure for Scotland.

Box 5.1: European System of Accounts (ESA10) changes to expenditure

The move to reporting in line with ESA10 has resulted in some changes to expenditure. In general, these occur within the accounting adjustment, and offset changes made to the revenue side, as discussed in Box 3.2. The main change to expenditure under ESA10 is the reclassification of spending on research and development and single use military expenditure as capital rather than current spending. This results in an increase in capital expenditure and corresponding reduction in current spending, leaving total expenditure unchanged. As the HM Treasury CRA database is still on an ESA95 basis, this change has been made for GERS by reclassifying all expenditure classed as research and development from current to capital. No adjustment has been made to single use military expenditure due to difficulty in identifying this spending within the CRA database. The CRA database will be updated to be on an ESA10 basis next year. The other major change is the inclusion of Network Rail, as discussed in Box 3.2. Network Rail expenditure is included within the accounting adjustments. The inclusion of Network Rail increases UK current expenditure by £4.6 billion and UK net investment by £1.6 billion. As discussed in Box 3.2, Scotland's share of Network Rail's expenditure is estimated based on its regulatory financial statements. Network Rail's current expenditure for Scotland is estimated to be approximately £350 million, and net investment approximately £80 million.

Table 5.1: Total Expenditure: Scotland 2013-14

	Scotland
	£ million	% of total expenditure
General public services
Public and common services	1,620	2.4%
International services	838	1.3%
Public sector debt interest	3,068	4.6%
Defence	3,025	4.6%
Public order and safety	2,557	3.9%
Economic affairs
Enterprise and economic development	1,049	1.6%
Science and technology	333	0.5%
Employment policies	329	0.5%
Agriculture, forestry and fisheries	962	1.4%
Transport	3,049	4.6%
Environment protection	1,277	1.9%
Housing and community amenities	1,619	2.4%
Health	11,465	17.3%
Recreation, culture and religion	1,486	2.2%
Education and training	7,599	11.4%
Social protection	22,323	33.6%
Accounting adjustments	3,785	5.7%
Total Expenditure	66,388	100%

Total public sector expenditure for Scotland is estimated to have increased from £63.5 billion in 2009-10 to £66.4 billion in 2013-14, an increase of 4.5% in nominal terms. Over the same period, equivalent UK public sector expenditure increased by 5.1% in nominal terms. Much of growth of UK spending has occurred in debt interest expenditure, which has increased by 36% over the period as a result of increased borrowing since the beginning of the financial crisis and recession in 2008. As Scotland is apportioned a population share of this expenditure, which is lower than its overall expenditure share, this has contributed to expenditure in Scotland growing relatively more slowly than overall UK spending.

Table 5.2: Total Current and Capital Expenditure Scotland and UK 2009-10 to 2013-14

	(£ million)
	Scotland					UK
	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14
Current	55,560	57,776	58,265	59,353	59,653	606,512	634,412	642,131	651,038	660,331
Capital	7,973	7,336	7,503	8,495	6,735	79,783	72,108	64,059	69,798	61,158
Total	63,533	65,112	65,768	67,848	66,388	686,295	706,520	706,190	720,836	721,489

Table 5.3 shows the share of total expenditure between current and capital for Scotland. Capital expenditure for Scotland is higher than in previous estimates as it incorporates definitional changes as a result of ESA10, discussed in Box 5.1. Capital expenditure in 2012-13 is higher due to the inclusion of one-off expenditure associated with the transfer of the Royal Mail Pension Plan.

Table 5.3: Current and Capital Expenditure (% of Total Expenditure): Scotland 2009-10 to 2013-14

	(per cent)
	2009-10	2010-11	2011-12	2012-13	2013-14
Current	87.5%	88.7%	88.6%	87.5%	89.9%
Capital	12.5%	11.3%	11.4%	12.5%	10.1%

The table below presents the estimates of Scottish and UK total public sector expenditure as a share of GDP. Such statistics provide a useful illustration of the relative size of public spending between countries and over time by controlling for the size of the economy. They should not, however, be viewed as an estimate of the relative contribution of public spending (or the public sector) to the economy as a significant proportion of such spending is on transfers from government to individuals and businesses.

Table 5.4: Total Managed Expenditure as a Share of GDP: 2009-10 to 2013-14

	(per cent of GDP)
	2009-10	2010-11	2011-12	2012-13	2013-14
Scottish TME as a Share of GDP:
Excluding North Sea GDP	52.6%	53.1%	51.4%	52.3%	49.2%
Including population share of North Sea GDP	51.8%	52.1%	50.5%	51.6%	48.5%
Including geographical share of North Sea GDP	45.4%	44.9%	43.6%	46.1%	43.5%
UK TME as a share of GDP:
Including 100% of North Sea GDP	45.7%	44.8%	43.4%	43.3%	41.6%

Tables 5.5 and 5.6 show current, capital, and total expenditure for Scotland and the UK respectively.

Table 5.5: Total Expenditure: Scotland 2009-10 to 2013-14

	(£ million)
	Current					Capital					Total
	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14
General public services
Public and common services	1,525	1,420	1,492	1,366	1,415	99	221	156	145	205	1,624	1,641	1,648	1,511	1,620
International services	548	608	616	617	787	50	62	50	45	51	598	670	666	662	838
Public sector debt interest	2,278	3,350	3,500	3,137	3,068	0	0	0	0	0	2,278	3,350	3,500	3,137	3,068
Defence	2,715	2,727	2,756	2,547	2,537	449	565	478	481	488	3,164	3,292	3,234	3,028	3,025
Public order and safety	2,441	2,562	2,668	2,654	2,415	257	244	198	196	142	2,698	2,806	2,866	2,850	2,557
Economic affairs
Enterprise and economic development	688	475	610	712	810	698	274	249	243	239	1,386	749	859	955	1,049
Science and technology	0	0	0	0	0	287	274	305	281	333	287	274	305	281	333
Employment policies	332	417	282	261	321	10	9	8	8	8	342	426	290	269	329
Agriculture, forestry and fisheries	781	796	827	770	813	112	152	147	150	149	893	948	974	920	962
Transport	1,509	1,570	1,567	1,671	1,692	1,450	1,182	1,243	1,399	1,357	2,959	2,752	2,810	3,070	3,049
Environment protection	942	949	950	917	949	221	266	228	294	328	1,163	1,215	1,178	1,211	1,277
Housing and community amenities	257	292	228	165	194	1,713	1,328	1,397	1,446	1,425	1,970	1,620	1,625	1,611	1,619
Health	10,131	10,340	10,560	10,737	10,956	539	591	486	553	509	10,670	10,931	11,046	11,290	11,465
Recreation, culture and religion	1,216	1,179	1,209	1,311	1,253	297	274	334	327	233	1,513	1,453	1,543	1,638	1,486
Education and training	7,065	7,053	6,802	7,018	6,988	662	599	687	656	611	7,727	7,652	7,489	7,674	7,599
Social protection	19,894	20,524	21,036	22,201	22,288	111	93	64	84	35	20,005	20,617	21,100	22,285	22,323
Accounting adjustments	3,235	3,510	3,162	3,269	3,165	1,017	1,201	1,475	2,183	621	4,252	4,712	4,636	5,452	3,785
Total	55,560	57,776	58,265	59,353	59,653	7,973	7,336	7,503	8,495	6,735	63,533	65,112	65,768	67,848	66,388

Table 5.6: Total Expenditure: UK 2009-10 to 2013-14

	(£ million)
	Current					Capital					Total
	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14
General public services
Public and common services	11,913	11,110	10,454	10,037	10,296	1,840	1,651	1,121	1,276	1,840	13,753	12,761	11,575	11,313	12,136
International services	6,536	7,257	7,361	7,407	9,474	596	743	591	546	620	7,132	8,000	7,952	7,953	10,094
Public sector debt interest	27,143	39,972	41,829	37,648	36,942	0	0	0	0	0	27,143	39,972	41,829	37,648	36,942
Defence	32,359	32,549	32,952	30,587	30,552	5,354	6,738	5,711	5,768	5,879	37,713	39,287	38,663	36,355	36,431
Public order and safety	31,409	31,005	30,498	29,902	28,642	2,709	2,010	1,537	1,398	1,523	34,118	33,015	32,035	31,300	30,165
Economic affairs
Enterprise and economic development	5,126	2,792	3,256	3,933	4,224	7,110	2,023	1,595	939	1,051	12,236	4,815	4,851	4,872	5,275
Science and technology	0	0	0	0	0	3,552	3,406	3,564	3,599	4,440	3,552	3,406	3,564	3,599	4,440
Employment policies	3,953	4,602	3,171	2,986	3,583	145	94	84	100	76	4,098	4,696	3,255	3,086	3,659
Agriculture, forestry and fisheries	5,550	5,150	5,522	4,990	5,044	273	329	271	306	439	5,823	5,479	5,793	5,296	5,483
Transport	9,767	8,830	8,376	7,861	8,055	13,204	12,659	11,667	10,910	12,320	22,971	21,489	20,043	18,771	20,375
Environment protection	7,850	7,775	7,855	7,403	7,806	2,547	3,154	2,606	3,202	3,709	10,397	10,929	10,461	10,605	11,515
Housing and community amenities	4,014	3,215	2,730	3,173	3,143	12,330	9,904	7,318	6,776	8,592	16,344	13,119	10,048	9,949	11,735
Health	110,736	114,437	116,987	119,490	124,772	6,180	5,389	4,247	4,783	4,710	116,916	119,826	121,234	124,273	129,482
Recreation, culture and religion	10,253	10,244	9,693	10,726	9,343	2,926	2,718	2,818	2,004	2,324	13,179	12,962	12,511	12,730	11,667
Education and training	78,535	82,350	79,100	80,643	84,251	9,948	9,148	7,798	6,642	6,769	88,483	91,498	86,898	87,285	91,020
Social protection	221,948	229,379	239,401	250,046	251,552	1,053	1,017	596	428	-208	223,001	230,396	239,997	250,474	251,344
Accounting adjustments	39,420	43,744	42,949	44,205	42,653	10,018	11,122	12,536	21,123	7,074	49,438	54,867	55,485	65,328	49,727
Total	606,512	634,412	642,131	651,038	660,331	79,783	72,108	64,059	69,798	61,158	686,295	706,520	706,190	720,836	721,489

Table 5.7 shows estimated total public sector expenditure for Scotland and the UK on a per person basis from 2009-10 to 2013-14. The table also highlights the absolute per person difference between Scotland and the UK, and the relative difference between the two. Since 2009-10, public spending per head for Scotland has been between 9.9% and 13.0% higher than the UK average.

Table 5.7: Total Expenditure Per Person: Scotland and UK 2009-10 to 2013-14¹

	2009-10	2010-11	2011-12	2012-13	2013-14
Scotland (£)	12,100	12,400	12,400	12,800	12,500
UK (£)	11,000	11,200	11,100	11,300	11,200
Difference (Scotland minus UK) (£)	1,100	1,100	1,300	1,500	1,200
Relative Expenditure for Scotland (UK = 100)	110.2	109.9	111.3	113.0	110.8

¹ Figures rounded to the nearest £100

There are a number of reasons why public expenditure per person for Scotland is above the UK average. In some cases, it reflects the lower population density in Scotland relative to 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 sewerage 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.

Finally, higher public expenditure also reflects Scotland's greater need for some public services such as in health and housing relative to the rest of the UK.

Table 5.8 below provides a breakdown of all expenditure in Scotland by the Scottish Government (including Local Authorities and Scottish Public Corporations) and Other UK Government departments. Unlike in previous editions of GERS, non-identifiable expenditure is also included to provide consistency with the figures in Table 5.4. Information previously provided in Tables 5.8 to 5.14 is available on the GERS website.

Box 5.2 provides a description of how the figures in Table 5.8 reconcile to published Scottish Government budgets and Scottish Local Authority accounts.

Table 5.8: Total Expenditure: Scotland 2009-10 to 2013-14

	(£ million)
	Scottish Government, LAs, and Public Corporations					Other UK Government					Total
	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14	2009-10	2010-11	2011-12	2012-13	2013-14
General public services
Public and common services	1,087	1,137	1,193	1,077	1,175	537	505	455	433	445	1,624	1,642	1,648	1,510	1,620
International services	0	0	0	0	0	599	670	665	662	838	599	670	665	662	838
Public sector debt interest	0	0	0	0	0	2,279	3,351	3,501	3,137	3,068	2,279	3,351	3,501	3,137	3,068
Defence	5	5	4	4	6	3,161	3,287	3,230	3,024	3,020	3,166	3,292	3,235	3,028	3,026
Public order and safety	2,359	2,561	2,581	2,589	2,310	340	246	285	262	248	2,699	2,808	2,866	2,851	2,558
Economic affairs	.	.	.	.	.
Enterprise and econ development	835	752	782	759	834	551	-2	79	197	216	1,386	750	861	956	1,051
Science and technology	7	6	5	4	3	280	267	300	277	330	287	273	305	282	333
Employment policies	0	0	0	0	0	341	426	289	270	327	341	426	289	270	327
Agriculture, forestry and fisheries	868	924	962	911	947	25	24	12	9	16	893	947	975	920	963
Transport	2,757	2,583	2,651	2,907	2,874	203	169	158	163	175	2,960	2,752	2,810	3,070	3,049
Environment protection	978	986	956	968	1,008	187	231	221	243	268	1,165	1,217	1,178	1,211	1,277
Housing and community amenities	1,970	1,621	1,624	1,611	1,620	0	0	0	0	0	1,970	1,621	1,624	1,611	1,620
Health	10,545	10,789	10,916	11,184	11,354	125	141	131	108	112	10,670	10,930	11,046	11,292	11,465
Recreation, culture and religion	1,061	1,019	1,126	1,147	1,062	450	433	416	492	424	1,511	1,453	1,542	1,639	1,486
Education and training	7,702	7,629	7,463	7,654	7,580	25	24	25	19	18	7,727	7,652	7,488	7,673	7,597
Social protection	4,865	5,051	5,086	5,555	5,613	15,140	15,567	16,014	16,730	16,711	20,005	20,618	21,100	22,284	22,324
Accounting adjustments	4,034	4,740	5,143	5,108	4,427	219	-28	-507	345	-641	4,252	4,712	4,636	5,453	3,786
Total	39,070	39,804	40,493	41,477	40,813	24,463	25,308	25,274	26,371	25,575	63,533	65,112	65,768	67,848	66,388

 

Box 5.2: Reconciliation of published SG and LG budgets to GERS figures

There are a number of differences between the figures for spending by Scottish Government and Local Authorities presented in Table 5.8 and figures presented in Scottish Government budgets and Scottish Local Government Finance Statistics. These fall into three main categories: Coverage differences The GERS expenditure figures are based on HM Treasury's CRA publication. This includes spending associated with Audit Scotland and the Scottish Parliament, which is not included within the Scottish Government budget documents. Accounting differences Figures presented in GERS are on a National Accounts basis, whilst figures reported in budgets are on a resource accounting basis. The key differences relate to reporting of pensions and depreciation. On a National Accounts basis, pensions expenditure is reported as the difference between monies paid into the pension fund and monies paid out of the pension fund. On the resource accounts basis, a measure of future liabilities is also included. This is removed in the CRA. National Accounts also uses a measure of capital consumption rather than depreciation. This represents the amount of services which are provided using existing capital assets. This is because, on a National Accounts basis, expenditure represents all services provided by the public sector. For example, even if the government were not to spend any monies on transport, there would still be transport services provided, as people are able to use the existing road network. The value of these services is represented by capital consumption. An equal and offsetting amount is included in gross operating surplus as a revenue, so the estimate of capital consumption does not affect the overall fiscal position. In contrast, the depreciation reported in budgets is on a resource accounts basis, and will therefore be based on historical asset prices, rather than current asset values. This is removed as part of the CRA, although a National Accounts measure is not added in. GERS therefore adds in a measure of capital consumption based on data reported in ONS Regional Accounts. GERS also adds in estimates of VAT refunds claimed by government departments in Scotland. On a National Accounts basis, expenditure is shown including VAT. Finally, GERS includes implied subsidies relating to student loans by being issued at a lower interest rate, and the cost of rent rebates and subsidies paid to the Housing Revenue Account in Scotland. Grants and transfers Grants and transfers within the public sector are excluded from expenditure by government bodies. This avoids double counting of expenditure, as the grant will be used to fund expenditure by another body. Instead, the expenditure by the final body receiving the grant is included. Other smaller differences between budgets and National Accounts concepts are set out in Annex E of HM Treasury's Public Expenditure and Statistics Analyses publication: https://www.gov.uk/government/statistics/public-expenditure-statistical-analyses-2014 The table below shows the reconciliation of published Scottish Government and Scottish Local Government Finance figures to the figures published in the CRA and GERS. Annex B provides more detail of the accounting adjustments. The reconciliation is shown for 2012‑13, the latest year for which final accounts were available for the compilation of the CRA.

Reconciliation of published budget documents to GERS expenditure Table 5.8 (£bn)

	2012-13
Scottish Government
Published Scottish Government budget1	33.8
Spending by Audit Scotland and Scottish Parliament	+0.1
Total Scottish Government expenditure	33.9
Adjustments to align budget to CRA measure of spending
Grants to other public sector bodies (e.g. local government)	-11.2
Pensions	-2.2
Depreciation	-0.6
Other	+0.3
Final Scottish Government expenditure from CRA	20.2
Scottish Local Government
Published Local Government gross current expenditure2	14.1
Income excluding grants from Central Government3	-2.0
Housing benefit	+1.8
Published Local Government gross capital expenditure4	2.5
Income from sales of capital assets4	-0.1
Final Scottish Local Government expenditure from CRA	16.3
Scottish Government and Scottish Local Government from CRA	36.5
National Accounts adjustments5
Capital consumption	+2.3
VAT refunds	+1.2
Student loan and Housing Revenue Account subsidy in Scotland	-0.1
Other accounting adjustments	+1.8
Final Scottish Government and Scottish Local Government TME	41.5

¹ Scottish Government Draft Budget 2015-16, Annex G

² Scottish Local Government Finance Statistics 2012-13, Annex B. Total General Fund (excluding the Housing Revenue Account and trading with the public) employee costs, operating costs, and support services costs.

³ As Note 2. Total General Fund (excluding the Housing Revenue Account and trading with the public) income less government grants

⁴ As Note 2. All services total gross capital expenditure (Annex H)

⁵ As Note 2. Total capital receipts from sales of assets (Annex I)

⁵ See Annex B

Private Finance Initiative and Non-Profit Distributing Financing

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.

There was also another model of revenue finance in operation over this period called Non-Profit Distributing (NPD). The NPD model is 100% debt funded and there is no dividend bearing equity. Payments for both PFI and NPD projects take the form of a unitary charge which is usually paid annually over the lifetime of the contract.

Public sector unitary charges paid on PFI and NPD projects in Scotland between 2009-10 and 2013-14 are included within individual spending lines, such as transport and health, in the main tables in this chapter, depending on the type of project. The table below presents the overall charges paid in Scotland as a whole.

Table 5.9: Public Sector Unitary Charge Expenditure in Scotland 2009-10 to 2013-14

	(£ million)
	2009-10	2010-11	2011-12	2012-13	2013-14
Scottish Public Sector Unitary Charges1	707	789	866	902	922
Other UK Government Departments PFI Unitary Charges for Projects in Scotland	23	23	23	23	23
Total Unitary Charges in Scotland	758	848	928	978	999

Source: Scottish Government and HM Treasury Private Finance Initiative projects: 2014 Summary Data (December 2014).

¹ Includes both PFI and NPD figures.

Box 5.3: Comparisons of Scottish expenditure to other areas of the UK (Experimental Statistics)

The recent GERS consultation and user requests throughout the year have highlighted an interest in comparing GERS figures to other countries and regions of the UK. The HM Treasury Country and Regional Analysis publication, which forms the basis of the expenditure estimates in GERS, contains expenditure figures for all countries and regions of the UK. However, in their published format these figures are not on a comparable basis to overall UK public sector expenditure figures and therefore GERS figures. The chart below provides experimental estimates of public sector expenditure for each of the UK countries and regions. Full details of the methodology can be found at: http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS/RelatedAreas We welcome user feedback about this analysis, including comments on the methods used. As normal, please feedback to economic.statistics@scotland.gsi.gov.uk . Overall, Scotland has the second highest spending per head of the UK countries and regions. The charts below show spending per head separately first for capital and then current spend relative to the UK average. In most countries and regions capital spending accounts for approximately 10% of total expenditure. There is a large amount of variation in capital spending per head, with London receiving the highest. As shown in the chart, the higher levels of capital spending in London are due in part to capital expenditure on public transport, which includes spending on railways, the London Underground service, and buses. Spending in Scotland and Northern Ireland is also higher than other parts of the UK due in part to the fact that their water and sewerage services are provided by the public sector, rather than private companies. The fact that these services remain in the public sector in these countries also increases their public sector revenue. Scotland has the second highest level of capital expenditure per head of the UK countries and regions, even when spending on Scottish Water is excluded. Capital spend per head, 2013-14 The chart below shows current expenditure per head. This accounts for around 90% of total expenditure. Spending in Scotland is the second highest of the UK countries and regions. Current spend per head, 2013-14