Government Expenditure and Revenue Scotland 2009-2010

3 SCOTLAND'S PUBLIC SECTOR ACCOUNTS

Introduction

This chapter provides a summary of Scotland's public sector accounts for the years 2005-06 to 2009-10. It outlines the latest estimates of public sector revenue in Scotland and expenditure for Scotland, and includes:

• Headline estimates of public sector revenue in Scotland and of expenditure for Scotland, the key aggregates for assessing the strength of public finances in Scotland;
• Five-year estimates of current and capital expenditure for Scotland and key elements of public sector revenue in Scotland;
• Estimates of the current budget balance and net fiscal balance of the public sector in Scotland.

As discussed in the preface, within the present constitutional arrangements there is no formal requirement for a comprehensive compilation of UK country and regional budgetary accounts. Therefore, the results presented in this section are statistical estimates of public sector revenue in Scotland and of expenditure for Scotland, not precise financial accounts and should be viewed accordingly.

Financial Sector Interventions

The most significant change in the UK Public Sector Finances in recent years has been the inclusion of the UK Government's interventions to support the banking sector at the height of the global financial crises.

GERS follows the current practice of ONS and HM Treasury in incorporating the effects of the UK Government's financial sector interventions into the public sector accounts. This distinguishes between the permanent and temporary effect that the interventions will have on the public finances, as outlined in Box 3.1.

The March 2011 UK Budget and the Office for Budget Responsibility's ( OBR) accompanying Economic and Fiscal Outlook, published estimates of the UK's public sector finances which include the permanent effects of the interventions, but excluded the temporary effects. This edition of GERS adopts the same approach ¹². A discussion paper providing further information on the treatment of the financial sector interventions in GERS is provided on the GERS website ¹³. Supplementary analysis is also provided which includes an estimate of Scotland's public sector finances when both the permanent and temporary effects of the financial sector interventions are incorporated.

Treatment of Financial Sector Interventions in GERS

As highlighted above, the methodology used to account for the financial interventions in GERS is identical to the treatment in the UK Budget, and the OBR's Economic and Fiscal Outlook. The expenditure and revenue estimates, and the estimates of Scotland's current budget balance and overall fiscal position are therefore directly comparable to the equivalent UK estimates published by the UK Government and OBR

In PESA the outlays associated with the UK Government's financial sector interventions are recorded as a capital expenditure, whilst the fees received from the various schemes are recorded as a negative current expenditure ( i.e. revenue received). PESA classifies the permanent effects of the UK Government's financial sector interventions as UK non-identifiable expenditure - that is HM Treasury has deemed that the cost of such interventions cannot be assigned to particular countries or regions.

There are various methods that can be applied to apportion a share of such non-identifiable expenditure to Scotland. The method used in this edition of GERS assigns a population share to Scotland of the total UK expenditure, on the basis that all areas of the UK have benefited equally from the resulting stabilisation of the UK financial system. This apportionment results in total Scottish expenditure on financial stability measures of £700 million in 2008-09 and £191 million in 2009-10.

Table 3.1: Scotland: Estimated Share of UK Government's Financial Stability Expenditure

	(£ millions)
	2008-09	2009-10
Current	-88	-190
Capital	788	380
Total	700	191

Box 3.1 - The UK Government's Financial Sector Interventions

The series of measures undertaken to support the UK financial sector consisted of three key elements - guarantees, recapitalisation and various loan programmes such as the support provided through the Financial Services Compensation Scheme. When accounting for the full spectrum of financial sector interventions in the public sector finances, the Office for National Statistics ( ONS) distinguishes between the temporary and permanent effects that the UK Government's financial sector interventions 14. The eventual impact of the UK Government's financial sector interventions on the public finances depends on the ultimate profit or loss incurred on each of its interventions. This will represent the permanent impact on the tax payer and the public sector accounts. Permanent impacts of the interventions which are currently included in the public sector accounts include: Fee income or loss payments from the Asset Protection Scheme and the Credit Guarantee Scheme Interest payments from the public sector banks to the Government and interest flows from the Asset Purchase Scheme Capital injections into Northern Rock Depositor compensation from the Government's support for Bradford and Bingley. Equity injections into RBS and Lloyds Banking Group While the banks are in the public sector, they will also have a temporary effect on the public sector accounts as the liabilities and assets acquired through the interventions are temporarily classified as part of the public sector. These temporary effects include the public owned banks gross operating surpluses, their transactions with the private sector and their net liabilities. They have the potential to be very large and volatile. However, once the banks are transferred back to the private sector, these effects will have no lasting impact of the public sector finances. The UK Government and OBR therefore do not include these effects in their headline estimates of the UK public sector accounts.

Current and Capital Budgets

The following tables set out estimates of public sector revenue and expenditure for Scotland over the financial years 2005-06 to 2009-10. The figures for revenue and expenditure correspond to the estimates contained in Chapters 4, 5 and 6¹⁵.

Current revenue, as defined in the UK National Accounts, is the sum of all revenue raised in a particular year by the entire public sector ¹⁶. In Scotland, this consists of the Scottish Government, the UK Government, local authorities and public corporations. The main component is tax revenues.

Public sector current expenditure is the sum of the current expenditure of general government for Scotland and certain distributive transactions (interest and dividends) payable by public corporations. Current expenditure includes items such as wages and salaries, social security payments and day to day health expenditure.

Public sector capital expenditure includes capital formation, the net acquisition of land, and net expenditure through capital grants. Net investment is public sector capital expenditure, net of capital consumption. Capital consumption represents the amount of fixed capital used up each year. It is generally calculated from a model based on assumptions about asset lives and a rolling estimate of the public sector's stock of capital assets derived from annual capital expenditure data.

The term net fiscal balance measures the difference between public sector expenditure and revenue. In Scotland, the gap between public sector revenue and expenditure is not directly reflected in borrowing (or saving) and instead, is part of the overall fiscal stance of the UK public sector.

In GERS, three estimates of Scotland's public sector accounts are presented, (i) an estimate excluding North Sea revenue, (ii) an estimate including a per capita share of North Sea revenue and (iii) an estimate including an illustrative geographical share of North Sea revenue. Chapter 5 contains a discussion of North Sea revenue and the precise definitions used here. Estimates of Scotland's current and capital budgets under each of these assumptions are provided in Tables 3.2 and 3.3. Comparable estimates of the UK's current and capital budgets are provided in Box 3.3.

Table 3.2: Current and Capital Budgets: Scotland 2005-06 to 2009-10

	(£ million)
	2005-06	2006-07	2007-08	2008-09	2009-10
Current Budget
Current revenue
Excluding North Sea revenue	39,839	42,272	45,031	43,131	42,201
Including North Sea revenue (per capita share)	40,632	43,026	45,661	44,219	42,747
Including North Sea revenue (geographical share)	47,856	49,775	52,147	54,871	48,132
Current expenditure	43,471	45,231	48,078	49,866	52,770
Current expenditure accounting adjustment	2,058	2,284	2,419	2,495	2,542
Capital consumption	1,586	1,557	1,646	1,722	1,786
Balance on current budget (surplus is positive, deficit is negative)
Excluding North Sea revenue	-7,277	-6,799	-7,112	-10,952	-14,897
Including North Sea revenue (per capita share)	-6,484	-6,045	-6,483	-9,864	-14,352
Including North Sea revenue (geographical share)	740	704	3	787	-8,966
Capital Budget
Capital expenditure	4,261	5,043	5,221	6,476	6,400
Capital expenditure accounting adjustment	171	134	84	76	374
Capital consumption	-1,586	-1,557	-1,646	-1,722	-1,786
Net Investment	2,846	3,621	3,659	4,830	4,987
Net Fiscal Balance (surplus is positive, deficit is negative)
Excluding North Sea revenue	-10,123	-10,420	-10,771	-15,782	-19,885
Including North Sea revenue (per capita share)	-9,330	-9,666	-10,142	-14,694	-19,339
Including North Sea revenue (geographical share)	-2,106	-2,916	-3,656	-4,043	-13,954

Box 3.2 - Current Budget Balance and Net Fiscal Balance

Scotland's current budget balance illustrates the difference between current revenue and current expenditure, including capital consumption and an accounting adjustment. It measures the degree to which current taxpayers meet the cost of paying for the public services they use and a contribution to debt interest payments. It is therefore an important indicator of intertemporal fairness and indicates the sustainability of current policies. National governments typically aim to manage current surpluses and deficits to ensure balance over the longer term and that any systematic excess of total expenditure over and above revenue is used only for capital expenditure, which will accrue benefits to future tax payers. This capital expenditure must itself be managed responsibly.

Tables 3.3a - 3.3c present the estimates of Scotland's public sector accounts as a percentage of Gross Domestic Product ( GDP). Box 3.4 discusses the process used to estimate Scotland's GDP under the three sets of estimates for North Sea revenue.

Table 3.3a: Current and Capital Budgets (Excluding North Sea Revenue) % GDP: Scotland 2005-06 to 2009-10

	(per cent of GDP)
	2005-06	2006-07	2007-08	2008-09	2009-10
Current Budget
Current revenue (Excluding North Sea revenue)	39.8%	39.6%	39.5%	37.5%	37.9%
Current expenditure	43.5%	42.4%	42.2%	43.3%	47.4%
Current expenditure accounting adjustment	2.1%	2.1%	2.1%	2.2%	2.3%
Capital consumption	1.6%	1.5%	1.4%	1.5%	1.6%
Balance on current budget (surplus is positive, deficit is negative)
Excluding North Sea revenue	-7.3%	-6.4%	-6.2%	-9.5%	-13.4%
Capital Budget
Capital expenditure	4.3%	4.7%	4.6%	5.6%	5.7%
Capital expenditure accounting adjustment	0.2%	0.1%	0.1%	0.1%	0.3%
Capital consumption	-1.6%	-1.5%	-1.4%	-1.5%	-1.6%
Net Investment	2.8%	3.4%	3.2%	4.2%	4.5%
Net Fiscal Balance (surplus is positive, deficit is negative)
Excluding North Sea revenue	-10.1%	-9.8%	-9.4%	-13.7%	-17.8%

Table 3.3b: Current and Capital Budgets (Per Capita Share North Sea Revenue) % GDP: Scotland 2005-06 to 2009-10

	(per cent of GDP)
	2005-06	2006-07	2007-08	2008-09	2009-10
Current Budget
Current revenue (Including per capita share of North Sea revenue)	39.7%	39.5%	39.1%	37.5%	37.7%
Current expenditure	42.5%	41.5%	41.2%	42.3%	46.5%
Current expenditure accounting adjustment	2.0%	2.1%	2.1%	2.1%	2.2%
Capital consumption	1.6%	1.4%	1.4%	1.5%	1.6%
Balance on current budget (surplus is positive, deficit is negative)
Including North Sea revenue (per capita share)	-6.3%	-5.5%	-5.6%	-8.4%	-12.6%
Capital Budget
Capital expenditure	4.2%	4.6%	4.5%	5.5%	5.6%
Capital expenditure accounting adjustment	0.2%	0.1%	0.1%	0.1%	0.3%
Capital consumption	-1.6%	-1.4%	-1.4%	-1.5%	-1.6%
Net Investment	2.8%	3.3%	3.1%	4.1%	4.4%
Net Fiscal Balance (surplus is positive, deficit is negative)
Including North Sea revenue (per capita share)	-9.1%	-8.9%	-8.7%	-12.5%	-17.0%

Table 3.3c: Current and Capital Budgets (Geographical Share North Sea Revenue) % GDP: Scotland 2005-06 to 2009-10

	(per cent of GDP)
	2005-06	2006-07	2007-08	2008-09	2009-10
Current Budget
Current revenue (Including geographical share of North Sea revenue)	39.4%	39.1%	37.2%	38.7%	36.7%
Current expenditure	35.8%	35.5%	34.3%	35.2%	40.2%
Current expenditure accounting adjustment	1.7%	1.8%	1.7%	1.8%	1.9%
Capital consumption	1.3%	1.2%	1.2%	1.2%	1.4%
Balance on current budget (surplus is positive, deficit is negative)
Including North Sea revenue (geographical share)	0.6%	0.6%	0.0%	0.6%	-6.8%
Capital Budget
Capital expenditure	3.5%	4.0%	3.7%	4.6%	4.9%
Capital expenditure accounting adjustment	0.1%	0.1%	0.1%	0.1%	0.3%
Capital consumption	-1.3%	-1.2%	-1.2%	-1.2%	-1.4%
Net Investment	2.3%	2.8%	2.6%	3.4%	3.8%
Net Fiscal Balance (surplus is positive, deficit is negative)
Including North Sea revenue (geographical share)	-1.7%	-2.3%	-2.6%	-2.9%	-10.6%

Box 3.3 - UK Public Sector Accounts

The tables below provide estimates of the UK's Public Sector Accounts over the period 2005-06 to 2009-10, as published in the ONS Public Finance Statistical Bulletin for April 2011. They are prepared on a consistent basis with the estimates in Tables 3.2 and 3.3. The figures show that in 2009-10, the estimated current budget balance for the UK public sector was a deficit of £107.3 billion (7.6 per cent of GDP). For the same year, the estimated UK public sector net fiscal balance, referred to in the UK Public Sector Accounts as 'net borrowing', was a deficit of £156.5 billion (11.1 per cent of GDP). Current and Capital Budgets: UK 2005-06 to 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Current Budget Current revenue 486,597 519,184 548,831 533,235 513,160 Current expenditure 463,696 482,029 510,068 537,792 574,511 Current expenditure accounting adjustment 20,759 25,188 25,813 26,550 26,568 Capital consumption 16,095 16,988 17,758 18,688 19,335 Balance on current budget -13,953 -5,021 -4,808 -49,795 -107,254 Capital Budget Capital expenditure 37,512 40,824 45,552 64,310 64,726 Capital expenditure accounting adjustment 2,039 2,005 1,134 947 3,856 Capital consumption -16,095 -16,988 -17,758 -18,688 -19,335 Net Investment 23,456 25,841 28,928 46,569 49,247 Net Fiscal Balance -37,409 -30,862 -33,736 -96,364 -156,501 Current and Capital Budgets: UK 2005-06 to 2009-10 (% of GDP) 2005-06 2006-07 2007-08 2008-09 2009-10 Current Budget Current revenue 38.2% 38.5% 38.6% 37.2% 36.5% Current expenditure 36.4% 35.7% 35.8% 37.5% 40.9% Current expenditure accounting adjustment 1.6% 1.9% 1.8% 1.9% 1.9% Capital consumption 1.3% 1.3% 1.2% 1.3% 1.4% Balance on current budget -1.1% -0.4% -0.3% -3.5% -7.6% Capital Budget Capital expenditure 2.9% 3.0% 3.2% 4.5% 4.6% Capital expenditure accounting adjustment 0.2% 0.1% 0.1% 0.1% 0.3% Capital consumption -1.3% -1.3% -1.2% -1.3% -1.4% Net Investment 1.8% 1.9% 2.0% 3.3% 3.5% Net Fiscal Balance -2.9% -2.3% -2.4% -6.7% -11.1%

The current budget surplus is defined as current revenue (including capital taxes) less current expenditure and capital consumption.

In 2009-10, excluding North Sea revenue, current expenditure exceeded current revenue in Scotland leading to a current budget deficit of £14.9 billion, or 13.4 per cent of GDP as presented in Table 3.3a. With a per capita share of North Sea revenue, current expenditure exceeded current revenue in Scotland by £14.4 billion (or 12.6 per cent of GDP - see Table 3.3b).

In 2009-10, including an illustrative geographical share of North Sea revenue, total current expenditure for Scotland exceeded current revenue to yield a current budget deficit of £9.0 billion (or 6.8 per cent of GDP - see Table 3.3c). In 2009-10, the equivalent UK current budget position, including 100 per cent of all North Sea revenue, was a deficit of £107.3 billion (or 7.6 per cent of GDP), as illustrated in Box 3.3.

As Tables 3.2 and 3.3 highlight, any estimate of Scotland's current balance varies according to the allocation of North Sea revenue. Over the period 2005-06 to 2009-10, the estimated cumulative current budget balance in Scotland between 2005-06 and 2009-10 when North Sea revenue is excluded was a deficit of £47.0 billion. When an illustrative geographical share of North Sea revenue is assigned to Scotland, the estimated cumulative current budget balance over the same period was a deficit of £6.7 billion. The cumulative current budget balance for the UK over the same period was a deficit of £180.8 billion.

The 'net fiscal balance' is equal to public sector current and capital revenue less public sector current and capital expenditure. A positive figure, i.e. a surplus, in any given year is obtained if total public sector revenue in Scotland is greater than total public sector expenditure.

In 2009-10, excluding North Sea revenue, total revenue was less than total expenditure yielding an estimated negative net fiscal balance of £19.9 billion (or 17.8 per cent of GDP). With a per capita share of North Sea revenue the estimated negative net fiscal balance for Scotland was £19.3 billion (or 17.0 per cent of GDP). Including an illustrative geographical share of North Sea revenue, total revenue was less than total expenditure for Scotland to yield a negative net fiscal balance of £14.0 billion (or 10.6 per cent of GDP). In 2009-10, the equivalent UK position including 100 per cent of all North Sea revenue, referred to in the UK Public Sector Accounts as 'net borrowing', was a deficit of £156.5 billion (or 11.1 per cent of GDP).

Over the past five years, the largest net fiscal deficit in Scotland under all three assumptions about North Sea revenue occurred in 2009-10. This reflects the effects of the global financial crisis and subsequent recession which resulted in a significant deterioration in the strength of the public finances across many countries. For example, the UK's net fiscal deficit in 2009-10 represented the largest annual deficit, as a proportion of GDP, since 1945. This picture was mirrored across most advanced economies. The IMF estimates that the average net fiscal deficit among the G7 economies increased from 4.4 per cent of GDP in 2008 to 9.8 per cent of GDP in 2009 ¹⁷. Broadly speaking, four key effects lead to this deterioration. Firstly, as a result of the recession, key tax revenues declined. Secondly, certain expenditures, such as social welfare benefits, increased automatically as unemployment rose. Thirdly, governments took discretionary actions, such as temporarily cutting taxes and increasing capital spending to offset falls in private demand. Finally, many countries were forced to take direct interventions to support their financial and banking sectors.

Box 3.4: Scotland's GDP with and without North Sea GDP

When calculating Scotland's capital and current budgets as a percentage of GDP, the measure of GDP used must adopt the same assumptions made in the corresponding budget calculations. When Scotland's public sector accounts are presented excluding North Sea revenue, they are expressed as a percentage of Scotland's GDP excluding the amount of GDP arising from North Sea activities. When a proportion of North Sea revenue is included in the Scottish public sector revenue estimates, the same share is included in Scottish GDP. For example, if 100 per cent of North Sea revenue is included in the Scottish estimate, then 100 per cent of North Sea GDP will be included in Scotland's corresponding GDP figure. Scotland's GDP figures under the three sets of estimates presented above are reflected in the following table. Scottish GDP Including and Excluding North Sea GDP: 2005-06 to 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Scottish GDP Excluding North Sea GDP 99,978 106,735 114,013 115,150 111,446 Including per capita share of North Sea GDP 102,300 108,972 116,635 117,873 113,464 Including geographical share of North Sea GDP 121,507 127,291 140,038 141,716 131,163 Source: Scottish National Accounts Project ( SNAP), http://www.scotland.gov.uk/snap Comparable estimates of UKGDP, including 100% of North Sea GDP are provided in the table below. UKGDP: 2005-06 to 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 UKGDP 1,273,641 1,348,377 1,423,649 1,432,418 1,406,248 Source: ONS

Expenditure

This section presents summary results of estimates of public sector expenditure for Scotland (excluding accounting adjustments) for the years 2005-06 to 2009-10. Table 3.4 provides estimates for the six largest functions of public sector expenditure. For a discussion and more detailed breakdown of expenditure, refer to Chapter 6 and Appendix B.

Table 3.4: Summary of Total Public Sector Expenditure: Scotland 2005-06 to 2009-10

	(£ million)
	2005-06	2006-07	2007-08	2008-09	2009-10
Social protection	15,948	16,193	17,205	18,589	20,189
Health	8,606	9,102	9,810	10,264	10,712
Education and training	6,568	7,134	7,358	7,558	7,739
General public services	4,358	4,344	4,583	4,855	4,875
Defence	2,613	2,715	2,832	3,088	3,160
Public order and safety	2,284	2,288	2,369	2,515	2,635
Other	7,355	8,499	9,142	9,473	9,861
Total	47,732	50,274	53,299	56,342	59,170

In 2009-10, total public sector expenditure for Scotland was estimated to be £59.2 billion. This represents a nominal increase of 24.0 per cent since 2005-06. Social protection and health experienced the greatest relative increases, rising by 26.6 per cent and 24.5 per cent respectively in nominal terms over these five years. Between 2008-09 and 2009-10, total public sector expenditure for Scotland increased by £2.8 billion (5.0%) in nominal terms. Over half of this increase is attributable to higher spending on social protection, reflecting the deterioration in the labour market as the economy went into recession.

Box 3.5: Total Managed Expenditure as a Share of GDP

Total Managed Expenditure ( TME) is the main aggregate of total public sector expenditure used in the UK National Accounts. It is equal to the sum of total current and capital expenditure and the respective accounting adjustments, as detailed in Table 3.2. In 2009-10 Total Managed Expenditure ( TME) was £62.1 billion for Scotland, and £669.7 billion for the UK as a whole. Total Managed Expenditure for Scotland and the UK: 2005-06 to 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Total Managed Expenditure for Scotland 49,962 52,692 55,803 58,913 62,086 Total Managed Expenditure for the UK 524,006 550,046 582,567 629,599 669,661 The tables below present the estimates of Scottish and UKTME as a share of GDP. In 2009-10, the ratio of TME for Scotland to GDP was 55.7 per cent excluding North Sea GDP and 54.7 per cent including a per capita share. This ratio falls to 47.3 per cent when an illustrative geographical share of North Sea GDP is included. In comparison, UKTME was equivalent to 47.6% of GDP in 2009-10, including 100% of North Sea GDP. Such statistics provide a useful illustration of the relative size of public spending between countries 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. Total Managed Expenditure as a Share of GDP: 2005-06 to 2009-102009-10 (per cent of GDP) 2005-06 2006-07 2007-08 2008-09 2009-10 Scottish TME as a Share of GDP: Excluding North Sea GDP 50.0% 49.4% 48.9% 51.2% 55.7% Including per capita share of North Sea GDP 48.8% 48.4% 47.8% 50.0% 54.7% Including geographical share of North Sea GDP 41.1% 41.4% 39.8% 41.6% 47.3% UKTME as a share of GDP: 100% of North Sea GDP 41.1% 40.8% 40.9% 44.0% 47.6%

Current Revenue

This section summarises the estimates of public sector revenue in Scotland (excluding accounting adjustments) for the years 2005-06 to 2009-10. Table 3.5 provides estimates of Scottish public sector current revenue by economic category. A more detailed discussion and breakdown of revenue is provided in Chapters 4, 5 and in Appendix A.

Table 3.5: Summary of Current Revenue by Economic Category: Scotland 2005-06 to 2009-10

	(£ million)
	2005-06	2006-07	2007-08	2008-09	2009-10
Taxes on income and wealth	12,934	14,188	15,288	14,163	13,386
National insurance contributions	6,926	7,303	7,850	7,988	7,997
Taxes on production and imports	13,897	14,611	15,286	14,496	14,703
Other current taxes	2,357	2,464	2,591	2,634	2,661
Taxes on capital	198	227	269	178	146
Gross operating surplus	2,502	2,524	2,574	2,651	2,685
Rent and other current transfers	418	390	405	417	392
Interest and dividends from private sector and abroad	607	565	768	604	231
Total current non-North Sea revenue	39,839	42,272	45,031	43,131	42,201
North Sea revenue
Per capita share	793	754	629	1,088	545
Geographical share	8,017	7,503	7,115	11,739	5,931
Total current revenue (including North Sea revenue)
Per capita share	40,632	43,026	45,661	44,219	42,747
Geographical share	47,856	49,775	52,147	54,871	48,132

In 2009-10, total current revenue, excluding revenue from the North Sea was estimated to be approximately £42.2 billion. This represented a fall of 2.2 per cent on the previous year, primarily due to a 5.5 per cent fall in receipts from taxes on income and wealth. Non-North Sea revenue has now fallen for two consecutive years, and is now 6.3 per cent lower than in 2007-08. Over 80 per cent of the fall in total Scottish non-North Sea tax receipts between 2007-08 and 2009-10 is attributable to falls in income tax, corporation tax and VAT. Total current revenue including a per capita share of North Sea revenue faced similar declines between 2007-08 and 2009-10: falling by approximately £2.9 billion (6.4 per cent).

As Table 3.5 highlights, there was a significant increase in North Sea revenue between 2005-06 and 2008-09. In 2005-06, Scotland's estimated illustrative geographical share of North Sea revenue was estimated at approximately £8.0 billion, rising to £11.7 billion in 2008-09, a record high in nominal terms. However, between 2008-09 and 2009-10, North Sea revenues fell by 49.5 per cent to £5.9 billion reflecting the significant drop in global oil and gas prices as the global recession sharply reduced demand. As a result, total current revenue in Scotland, including a geographical share of North Sea revenue fell by £6.7 billion (12.3 per cent) between 2008-09 and 2009-10.