Budget 2019 to 2020: feasibility of distributional analysis - study

2. Which Budget Items are we considering?

This chapter presents information about the different sources and expenditure information we used.

2.1 Principles of what to include

To identify the relevant budget items to consider in the analysis we needed to identify those items that impacted on individuals or households in a measureable way. For example, welfare benefits are received by households or individuals, but taxes may be paid by individuals, households or businesses. At the same time, public services may be used by individuals, households or businesses. As the purpose was primarily to gain insight into the impact on households and individuals a decision was taken to exclude taxes and benefits pertaining to businesses. The analysis also excluded public spending on services which benefit everyone equally and are not exactly 'used' by anyone such as defence or environmental protection.

Therefore:

For the purpose of this work we considered only taxes, benefits and public services which are paid or used by individuals or households within a given year.

To be included in the work, individuals or households need to be clearly identifiable as a beneficiary of a public service.

2.2 The Budgets and other supporting documents

Taxes, welfare benefits and public services are not determined in isolation by the Scottish Government. Local Government for example is paid a block grant by the Government but they can also raise additional revenue - through Council Tax and Non-Domestic Rates – and they allocate expenditure (apart from ring fenced policy) and provide services. For welfare benefits, the majority of expenditure in Scotland is currently funded by the UK Government. Therefore choices about revenue raising and expenditure are made by different bodies – and they all need to be looked at to undertake the analysis.

2.2.1 The Scottish Government Budget for 2019/20.

Passed on the 1 April 2019, the Scottish Government Budget for 2019/20 included a total expenditure of £42.6 billion. The Scottish Budget comprises of four categories of public expenditure.

• Fiscal Resource makes up over two-thirds of the Scottish budget (67%). It includes staff costs, benefit payments, grants to NHS boards and local governments, and other spending on day-to-day management and administration.
• Annually Managed Expenditure (AME) (19% of the Scottish Budget) includes funding which is ring-fenced for less predictable expenses, such as pensions in the health and education sectors (c £4.4bn for 2019/20), non-domestic rates (£2.6bn) and student loans (c £400m).
• Capital expenditure (12% of the Scottish Budget) comprises investment in infrastructure and other long-term assets. In the 2019/20 budget, the largest items of capital expenditure were house construction (£775m), planning support (£704m), rail services (£836m), and motorways/trunk roads (£409m).
• Non-cash expenditure (2% of the Scottish Budget) covers the depreciation of public-sector assets.

The majority of expenditure which falls within the scope set out above – services used by individuals or households within a given year - is likely to come under the Fiscal Resource budget. As a result we include only the fiscal resource part of the budget in our analysis.^[8]

Fiscal resource expenditure contains £7.1 billion of funding for the Communities and Local Government budget portfolio. However, as noted above Local Government are a primary beneficiary of the Scottish Budget with this funding often split across different budget lines. A document called the Local Government Revenue Expenditure and Financing 2019-2020: provisional outturn and budget estimates (POBE) sets out all local government expenditure on public services (funded not only by the General Revenue Grant from Scottish Government but also by local revenue streams such as Council Tax and Non Domestic Rates). To avoid double counting, we therefore exclude the Communities and Local Government budget line and use the information in Local Government POBE returns instead.^[9]

2.2.2 Local Government Provisional outturn and budget estimates (POBE)

Published in June 2019, the POBE budget estimates for 2019/20 contain £12.635 billion of expenditure on public services. These public services include:

• Education
• Social Work
• Environmental Services
• Culture & Related Services
• Roads & Transport
• Planning & Development.

2.2.3 Scottish Government - Autumn Budget Revision 2019/20

Published at the end of September 2019, the Autumn Budget Revision (ABR) makes revisions to the 2019/20 budget passed in April 2019. For the purposes of this analysis, the ABR is used to update information on concessionary fares, bus services and the level of higher education student support for 2019/20.

2.2.4 Scottish Funding Council Allocations

For students we use Scottish Funding Council budget allocations to Universities and Colleges for Academic Years 2018/19 and 2019/20. These documents give detailed information on funding to universities and colleges. This information is based on academic years (running September to August) so the information in them is converted to financial years (April to March). The more detailed information ensures that, for example, teaching is allocated just to undergraduate students benefitting from it. The modelling takes account of place of domicile, level of study and whether full or part time (see Annex D for more details).

2.2.5 Student Awards Agency for Scotland Statistics

We used Student Award Agency for Scotland Statistics (2019/20) to determine the correct number of students receiving support for tuition fees, grants and bursaries. As outlined above, we do not include student loan funding in this analysis.

2.2.6 Skills Development Scotland Annual Procurement Report

For apprenticeships, we use the Skills Development Scotland Annual Procurement Report for 2018/19. This document gives details on Modern Apprenticeships and Foundation Apprenticeships.

All of the above documents detail the financial amounts spent on each public service included in the model. Links to further data sources - detailing the number of people or households benefitting from each service – are contained in the annexes.

Budgets are written in advance of the financial year, and relate to future spend. However, there is often a significant time lag between budgets and outturn data on spend. For example, in the case of the 2019/20 budget, outturn data for 2019/20 - the data on what was actually spent - will not become available until September 2021. This is around eighteen months after the original budget. Outturn information on the amount of income tax paid and expenditure on benefits follows a similar time lag.

In order to undertake a distributional analysis of the budget – which relates to spend in the future – we need to use historical data and various modelling techniques to "nowcast" this information - about the population, the economy and public service usage - to the year of interest. In this case 2019/20. The next section of the report describes how we operationalised this for the feasibility project.