Government Expenditure and Revenue Scotland 2010-2011

5 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 October 2011 Country and Regional Analysis (CRA) contained in the National Statistics publication Public Expenditure Statistical Analyses (PESA) published by HM Treasury¹⁹.

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 but is instead incurred on behalf of the UK as a whole. The largest elements of non-identifiable expenditure are defence expenditure and public sector debt interest payments.

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 Sector 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. Annex C discusses the revisions from previous reports and the relevant apportionment methodologies applied.

As discussed in Chapter 2, the estimates in GERS include a share of the permanent effects of the UK Government's financial sector interventions. This is consistent with the methodology used by HM Treasury and the OBR. The UK Government's net financial sector interventions are classified as non-identifiable and are recorded in the Enterprise and Economic Development (EED) expenditure programme lines in both PESA and GERS. The outlays by the UK Government are recorded as a capital expenditure, whilst the fees received are recorded as a negative current expenditure (i.e. revenue received), as summarised in Box 2.4. 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.

Total Public Sector Expenditure

Estimated total public sector expenditure for Scotland by spending category for 2010-11 is shown in Table 5.1. In 2010-11, total public sector expenditure for Scotland was estimated to be £61.6 billion, this was equivalent to 9.3 per cent of comparable total UK public sector expenditure in 2010-11, shown in Table 5.2. Social protection was the largest Scottish expenditure programme. Together with health expenditure, it accounted for approximately 51.9 per cent of total public sector expenditure for Scotland in 2010-11.

Table 5.1: Total Expenditure: Scotland 2010-11

	Scotland
	£ million	% of total expenditure
General public services
Public and common services	1,527	2.5%
International services	746	1.2%
Public sector debt interest	3,700	6.0%
Defence	3,277	5.3%
Public order and safety	2,657	4.3%
Economic affairs
Enterprise and economic development	822	1.3%
Science and technology	391	0.6%
Employment policies	307	0.5%
Agriculture, forestry and fisheries	963	1.6%
Transport	2,722	4.4%
Environment protection	1,295	2.1%
Housing and community amenities	1,773	2.9%
Health	10,936	17.7%
Recreation, culture and religion	1,571	2.5%
Education and training	8,050	13.1%
Social protection	21,047	34.2%
EU transactions	-158	-0.3%
Total	61,625	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.

Total public sector expenditure for Scotland is estimated to have increased from £50.4 billion in 2006-07 to £61.6 billion in 2010-11, an increase of approximately 22.3 per cent in nominal terms. Over the same period, equivalent UK public sector expenditure increased from £523.1 billion to £665.1 billion, an increase of 27.1 per cent in nominal terms.

Table 5.2: Total Current and Capital Expenditure Scotland and UK 2006-07 to 2010-11

	(£ million)
	Scotland					UK
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
Current	45,363	48,246	50,007	52,992	55,281	482,232	509,858	539,199	578,163	605,688
Capital	5,044	5,218	6,500	6,435	6,344	40,888	45,425	64,232	64,990	59,444
Total	50,407	53,464	56,507	59,427	61,625	523,120	555,283	603,431	643,153	665,132

Table 5.3 shows the share of total expenditure between current and capital for Scotland. In 2006-07 and 2007-08, capital expenditure for Scotland was approximately 10 per cent of total expenditure. In 2008-09, capital expenditure for Scotland subsequently increased to 11.5 per cent of total expenditure, reflecting the impact of the UK Government's financial sector interventions. Capital expenditure fell as a share of total expenditure in the two subsequent years, to 10.3 per cent of total expenditure in 2010-11, although this remains a larger share of total expenditure than in the two years prior to 2008-09.

Table 5.3: Current and Capital Expenditure (% of Total Expenditure): Scotland 2006-07 to 2010-11

	(per cent)
	2006-07	2007-08	2008-09	2009-10	2010-11
Current	90.0%	90.2%	88.5%	89.2%	89.7%
Capital	10.0%	9.8%	11.5%	10.8%	10.3%

Tables 5.4 and 5.5 provide a more detailed breakdown of total public sector expenditure by current and capital split for Scotland and the UK.

Table 5.4: Total Expenditure: Scotland 2006-07 to 2010-11

	(£ million)
	Current					Capital					Total
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	1,255	1,321	1,303	1,510	1,270	140	41	298	75	257	1,396	1,363	1,601	1,585	1,527
International services	495	528	569	617	682	32	37	39	52	65	527	565	609	670	746
Public sector debt interest	2,428	2,644	2,655	2,628	3,700	0	0	0	0	0	2,428	2,644	2,655	2,628	3,700
Defence	2,645	2,624	2,803	2,831	2,921	75	214	292	338	356	2,721	2,838	3,094	3,169	3,277
Public order and safety	2,127	2,237	2,323	2,373	2,392	183	165	226	245	265	2,309	2,402	2,549	2,618	2,657
Economic affairs
Enterprise and economic development	691	788	536	595	505	206	237	1,045	665	317	897	1,024	1,580	1,261	822
Science and technology	268	341	327	371	345	55	121	105	77	46	324	462	431	448	391
Employment policies	251	251	275	274	300	13	1	1	7	7	264	253	276	280	307
Agriculture, forestry and fisheries	612	700	722	764	781	73	71	101	112	182	686	771	823	875	963
Transport	1,443	1,537	1,517	1,506	1,521	1,278	1,242	1,118	1,327	1,201	2,721	2,779	2,634	2,833	2,722
Environment protection	835	829	871	985	1,049	162	190	190	188	246	997	1,019	1,061	1,173	1,295
Housing and community amenities	182	333	281	261	332	1,497	1,413	1,521	1,709	1,440	1,679	1,746	1,802	1,970	1,773
Health	8,802	9,360	9,748	10,149	10,312	297	447	512	537	624	9,099	9,807	10,260	10,687	10,936
Recreation, culture and religion	1,095	1,113	1,120	1,183	1,198	205	252	307	322	373	1,301	1,365	1,427	1,506	1,571
Education and training	6,426	6,675	6,932	7,088	7,226	724	696	649	664	823	7,150	7,372	7,581	7,751	8,050
Social protection	16,161	17,200	18,516	20,088	20,905	103	91	96	115	142	16,264	17,291	18,613	20,203	21,047
EU transactions	-353	-237	-491	-231	-158	0	0	0	0	0	-353	-237	-491	-231	-158
Total	45,363	48,246	50,007	52,992	55,281	5,044	5,218	6,500	6,435	6,344	50,407	53,464	56,507	59,427	61,625

Table 5.5: Total Expenditure: UK 2006-07 to 2010-11

	(£ million)
	Current					Capital					Total
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	11,474	11,366	11,941	11,951	11,390	1,194	1,102	2,014	1,650	2,009	12,669	12,468	13,955	13,601	13,399
International services	5,863	6,272	6,769	7,350	8,133	388	455	472	625	770	6,251	6,726	7,241	7,974	8,903
Public sector debt interest	28,749	31,363	31,555	31,281	44,136	0	0	0	0	0	28,749	31,363	31,555	31,281	44,136
Defence	31,324	31,133	33,328	33,671	34,819	899	2,539	3,468	4,025	4,246	32,223	33,672	36,796	37,696	39,065
Public order and safety	28,673	29,824	31,106	31,627	31,415	1,817	2,022	2,740	2,694	2,309	30,490	31,846	33,846	34,321	33,724
Economic affairs
Enterprise and economic development	4,786	5,423	4,018	4,840	2,728	1,534	1,402	11,409	6,450	1,597	6,320	6,826	15,426	11,290	4,325
Science and technology	2,191	2,518	2,686	2,943	2,976	675	785	625	733	515	2,865	3,303	3,311	3,676	3,491
Employment policies	3,215	3,208	3,175	3,392	3,736	195	79	86	112	71	3,410	3,287	3,261	3,503	3,806
Agriculture, forestry and fisheries	4,758	3,974	5,429	5,527	5,133	321	289	377	287	361	5,080	4,263	5,806	5,814	5,495
Transport	9,417	9,871	9,026	9,845	9,462	10,467	10,655	11,801	12,848	13,440	19,885	20,526	20,827	22,693	22,901
Environment protection	7,127	7,224	7,165	8,288	8,743	2,250	2,285	2,533	2,659	3,255	9,377	9,509	9,698	10,947	11,998
Housing and community amenities	3,599	3,878	3,787	4,053	3,535	7,948	9,037	11,207	12,129	10,177	11,547	12,916	14,995	16,182	13,712
Health	90,804	97,632	104,713	112,156	115,855	3,889	4,719	5,346	6,181	5,450	94,693	102,350	110,059	118,338	121,305
Recreation, culture and religion	9,516	9,867	10,019	10,354	10,287	1,842	2,346	3,083	3,567	3,679	11,358	12,213	13,102	13,922	13,966
Education and training	66,387	71,326	74,847	78,638	80,311	6,660	6,921	8,306	9,921	10,242	73,047	78,248	83,153	88,558	90,553
Social protection	176,152	186,510	202,565	222,177	230,106	807	789	766	1,110	1,325	176,959	187,299	203,331	223,287	231,431
EU transactions	-1,802	-1,531	-2,931	71	2,922	0	0	0	0	0	-1,802	-1,531	-2,931	71	2,922
Total	482,232	509,858	539,199	578,163	605,688	40,888	45,425	64,232	64,990	59,444	523,120	555,283	603,431	643,153	665,132

Table 5.6 shows estimated total public sector expenditure for Scotland and the UK on a per capita basis from 2006-07 to 2010-11. 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 £11,785 in 2010-11, £1,122 higher than the UK average. The relative difference in public spending per capita between Scotland and the UK has been on a downward trend. In 2006-07 public spending per capita for Scotland was 14.1 per cent higher than the UK average, by 2010-11 this gap had fallen to 10.5 per cent.

Table 5.6: Total Expenditure Per Capita: Scotland and UK 2006-07 to 2010-11

	2006-07	2007-08	2008-09	2009-10	2010-11
Scotland (£)	9,838	10,380	10,920	11,426	11,785
UK (£)	8,621	9,089	9,813	10,390	10,663
Difference (Scotland minus UK) (£)	1,217	1,291	1,107	1,037	1,122
Relative Expenditure for Scotland (UK = 100)	114.1	114.2	111.3	110.0	110.5

There are number of reasons why public expenditure per capita 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 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.

In other instances, 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. 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 relative to the rest of the UK.

Box 5.1 - 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 per cent debt funded which ensures that the returns to the private sector are capped and that 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 2006-07 and 2010-11 are presented in the table below. Public Sector Unitary Charge Expenditure in Scotland 2006-07 to 2010-11 (£ million) 2006-07 2007-08 2008-09 2009-10 2010-11 Scottish Public Sector Unitary Charges1 435 508 585 729 821 Other UK Government Departments PFI Unitary Charges 13 20 23 23 26 Total Unitary Charges in Scotland 448 527 608 752 847 Source: Scottish Government March 2011 and HM Treasury PFI Signed Project List - November 2011. 1. Includes both PFI and NDP figures.

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 PESA CRA 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 broader economy; 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 1,400 programme object groups in PESA CRA 2011, a number of important modifications have been made to a small number of programme expenditures 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. The principal changes relate to the treatment of expenditure on nuclear decommissioning by the UK Atomic Energy Authority (UKAEA), and the expenditure on the London Olympics.

Annex C 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.

In 2010-11 UK identifiable expenditure covered approximately 82.8 per cent of UK total public 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 Annex C.

Table 5.7 illustrates the estimated level of identifiable and non-identifiable expenditure assigned to Scotland for each year between 2006-07 and 2010-11. Identifiable expenditure was estimated to be £52.6 billion in 2010-11. In comparison, non-identifiable expenditure was £9.1 billion in 2010-11, approximately 14.7 per cent of estimated total public sector expenditure for Scotland.

Across most programme categories, the level of non-identifiable expenditure is relatively modest. Debt interest payments, defence and international services are typically the largest elements of non-identifiable expenditure. Collectively, these three elements of expenditure accounted for 84.8 per cent of total non-identifiable expenditure for Scotland in 2010-11.

Table 5.7: Total Expenditure, Identifiable and Non-identifiable: Scotland 2006-07 to 2010-11

	(£ million)
	Identifiable					Non-identifiable					Total
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	960	943	1,137	1,153	1,120	435	420	464	433	407	1,396	1,363	1,601	1,585	1,527
International services	12	13	17	15	20	515	552	592	655	727	527	565	609	670	746
Public sector debt interest	0	0	0	0	0	2,428	2,644	2,655	2,628	3,700	2,428	2,644	2,655	2,628	3,700
Defence	7	7	5	9	9	2,713	2,831	3,089	3,160	3,268	2,721	2,838	3,094	3,169	3,277
Public order and safety	2,139	2,228	2,375	2,435	2,508	170	174	174	184	149	2,309	2,402	2,549	2,618	2,657
Economic affairs
Enterprise and economic development	811	908	759	828	901	85	116	821	433	-79	897	1,024	1,580	1,261	822
Science and technology	260	412	378	390	335	63	50	54	58	56	324	462	431	448	391
Employment policies	262	252	275	278	306	2	1	1	2	1	264	253	276	280	307
Agriculture, forestry and fisheries	686	771	823	875	963	0	0	0	0	0	686	771	823	875	963
Transport	2,702	2,759	2,611	2,812	2,700	19	20	24	22	22	2,721	2,779	2,634	2,833	2,722
Environment protection	859	900	964	1,012	1,102	138	119	97	161	193	997	1,019	1,061	1,173	1,295
Housing and community amenities	1,679	1,746	1,802	1,970	1,773	0	0	0	0	0	1,679	1,746	1,802	1,970	1,773
Health	9,035	9,727	10,179	10,593	10,821	64	80	82	93	116	9,099	9,807	10,260	10,687	10,936
Recreation, culture and religion	989	1,028	1,080	1,138	1,212	312	337	347	367	359	1,301	1,365	1,427	1,506	1,571
Education and training	7,147	7,368	7,577	7,748	8,049	3	4	3	3	0	7,150	7,372	7,581	7,751	8,050
Social protection	16,025	17,036	18,331	19,904	20,737	239	255	282	299	310	16,264	17,291	18,613	20,203	21,047
EU transactions	0	0	0	0	0	-353	-237	-491	-231	-158	-353	-237	-491	-231	-158
Total	43,575	46,097	48,313	51,160	52,556	6,832	7,367	8,194	8,267	9,069	50,407	53,464	56,507	59,427	61,625

Analysis of Identifiable Expenditure

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

Table 5.8 disaggregates identifiable expenditure for Scotland into expenditure by the Scottish Government and by other UK Government departments for the years 2006-07 to 2010-11²⁰. Tables 5.9 and 5.10 provide a similar disaggregation but with an additional split for current and capital expenditure. Finally, Table 5.11 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 2006-07 and 2010-11 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 National Records of Scotland, and by public corporations. They also 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 the remaining 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.

In the five years since 2006-07, UK Government departments have accounted for slightly more than one third of total identifiable current expenditure. In contrast, over the same period these departments were typically responsible for less than three percent of identifiable capital expenditure in Scotland, with expenditure in this area instead being almost solely directed by the Scottish Government.

As Table 5.11 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 5.8: Total Identifiable Expenditure: Scotland 2006-07 to 2010-11

	(£ million)
	Scottish Government and Local Authorities					Other UK Government					Total
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	898	873	1,079	1,085	1,059	62	70	58	67	61	960	943	1,137	1,153	1,120
International services	0	0	0	0	0	12	13	17	15	20	12	13	17	15	20
Public sector debt interest	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Defence	7	7	5	9	9	0	0	0	0	0	7	7	5	9	9
Public order and safety	2,091	2,165	2,306	2,355	2,443	48	63	69	80	65	2,139	2,228	2,375	2,435	2,508
Economic affairs
Enterprise and econ development	689	818	664	734	820	122	90	95	94	82	811	908	759	828	901
Science and technology	88	195	137	110	68	173	216	241	280	267	260	412	378	390	335
Employment policies	0	1	4	3	3	262	251	271	275	303	262	252	275	278	306
Agriculture, forestry and fisheries	674	759	811	864	954	12	12	12	11	10	686	771	823	875	963
Transport	2,554	2,692	2,604	2,766	2,669	148	67	6	46	31	2,702	2,759	2,611	2,812	2,700
Environment protection	815	862	927	978	1,052	44	38	38	34	50	859	900	964	1,012	1,102
Housing and community amenities	1,679	1,746	1,802	1,970	1,773	0	0	0	0	0	1,679	1,746	1,802	1,970	1,773
Health	8,992	9,689	10,130	10,545	10,772	43	39	48	49	49	9,035	9,727	10,179	10,593	10,821
Recreation, culture and religion	892	945	999	1,058	1,122	97	84	81	80	90	989	1,028	1,080	1,138	1,212
Education and training	7,114	7,344	7,546	7,725	8,030	33	24	31	23	20	7,147	7,368	7,577	7,748	8,049
Social protection	3,768	4,264	4,479	4,865	5,160	12,257	12,772	13,852	15,039	15,577	16,025	17,036	18,331	19,904	20,737
EU transactions	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total	30,261	32,360	33,492	35,066	35,932	13,314	13,737	14,821	16,093	16,623	43,575	46,097	48,313	51,160	52,556

Table 5.9: Identifiable Expenditure - Scottish Government and Local Authorities: Scotland 2006-07 to 2010-11

	(£ million)
	Current					Capital
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	769	837	827	1,036	833	129	36	252	49	225
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	7	7	5	9	9	0	0	0	0	0
Public order and safety	1,918	2,013	2,100	2,136	2,198	173	152	206	218	245
Economic affairs
Enterprise and econ development	532	627	470	492	541	157	192	194	242	279
Science and technology	69	110	68	80	56	18	85	69	30	12
Employment policies	0	1	4	3	3	0	0	0	0	0
Agriculture, forestry and fisheries	601	689	711	754	772	73	70	100	111	182
Transport	1,395	1,476	1,505	1,456	1,484	1,159	1,215	1,099	1,310	1,185
Environment protection	766	772	841	885	937	49	90	85	93	115
Housing and community amenities	182	333	281	261	332	1,497	1,413	1,521	1,709	1,440
Health	8,715	9,250	9,626	10,013	10,161	277	439	504	532	610
Recreation, culture and religion	735	742	755	811	826	157	203	244	247	297
Education and training	6,405	6,650	6,898	7,062	7,207	709	694	648	663	823
Social protection	3,710	4,198	4,413	4,805	5,065	58	65	65	61	95
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	25,806	27,706	28,504	29,802	30,425	4,455	4,655	4,988	5,264	5,507

Table 5.10: Identifiable Expenditure - Other UK Government: Scotland 2006-07 to 2010-11

	(£ million)
	Current					Capital
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	57	65	52	61	57	5	4	6	7	4
International services	12	12	17	14	19	0	1	0	0	1
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	48	61	67	78	65	1	1	2	2	0
Economic affairs
Enterprise and econ development	120	88	93	84	69	2	2	2	10	13
Science and technology	159	199	220	248	244	14	18	21	32	23
Employment policies	249	249	270	268	296	13	1	1	7	7
Agriculture, forestry and fisheries	11	11	11	10	9	1	1	1	1	0
Transport	36	48	-3	37	24	111	19	9	9	7
Environment protection	23	31	31	30	31	22	7	6	4	19
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	27	35	46	47	46	16	3	2	2	2
Recreation, culture and religion	64	57	59	56	66	33	27	22	25	24
Education and training	18	22	30	23	19	15	2	1	1	0
Social protection	12,212	12,747	13,821	14,985	15,530	45	25	31	53	47
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	13,036	13,626	14,717	15,941	16,477	278	111	104	152	147

Table 5.11: Identifiable Expenditure: Scotland and UK 2010-11

	Scotland						UK
	Scottish Government and Local Authorities		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	1,059	2.0%	61	0.1%	1,120	2.1%	8,504	1.5%
International services	0	0.0%	20	0.0%	20	0.0%	235	0.0%
Public sector debt interest	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Defence	9	0.0%	0	0.0%	9	0.0%	85	0.0%
Public order and safety	2,443	4.6%	65	0.1%	2,508	4.8%	31,948	5.8%
Economic affairs
Enterprise and econ development	820	1.6%	82	0.2%	901	1.7%	5,134	0.9%
Science and technology	68	0.1%	267	0.5%	335	0.6%	2,808	0.5%
Employment policies	3	0.0%	303	0.6%	306	0.6%	3,800	0.7%
Agriculture, forestry and fisheries	954	1.8%	10	0.0%	963	1.8%	5,495	1.0%
Transport	2,669	5.1%	31	0.1%	2,700	5.1%	22,580	4.1%
Environment protection	1,052	2.0%	50	0.1%	1,102	2.1%	9,685	1.8%
Housing and community amenities	1,773	3.4%	0	0.0%	1,773	3.4%	13,712	2.5%
Health	10,772	20.5%	49	0.1%	10,821	20.6%	119,925	21.8%
Recreation, culture and religion	1,122	2.1%	90	0.2%	1,212	2.3%	8,598	1.6%
Education and training	8,030	15.3%	20	0.0%	8,049	15.3%	90,550	16.4%
Social protection	5,160	9.8%	15,577	29.6%	20,737	39.5%	227,727	41.3%
EU transactions	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Total	35,932	68.4%	16,623	31.6%	52,556	100.0%	550,787	100.0%

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 UK GVA or population. The methodologies used to apportion each element of non-identifiable expenditure are discussed in Annex C.

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 5.12 presents total non-identifiable expenditure for Scotland and the UK between 2006-07 and 2010-11. Tables 5.13 and 5.14 decompose Scottish and UK non-identifiable expenditure into their current and capital components.

Total non-identifiable expenditure for Scotland was estimated to be £9.1 billion in 2010-11, 7.9 per cent of the UK total.

Defence and debt interest payments comprise the largest components. As Tables 5.13 and 5.14 highlight, current expenditure was the major component of non-identifiable expenditure for both Scotland and the UK in 2010-11.

As outlined in Box 2.4 the UK Government's financial sector interventions are classified as non-identifiable expenditure and are recorded in the Enterprise and Economic Development (EED) expenditure programme lines. The scale of the financial sector interventions, relative to other spending on this category, means that total non-identifiable expenditure on EED for Scotland is estimated to have increased from £116 million in 2007-08 to £821 million in 2008-09, before falling to -£79 million in 2010-11.

The negative value for 2010-11 is due to the fact that the fees received from the various schemes are recorded as a negative current expenditure (i.e. revenue received). As shown in Table 5.13, these fees exceeded the current expenditure on other elements of EED in both 2008-09 and 2010-11. As such, total current expenditure on non-identifiable EED is negative in both of these years.

Table 5.12: Non-Identifiable Expenditure: Scotland and UK 2006-07 to 2010-11

	(£ million)
	Scotland					UK
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	435	420	464	433	407	5,189	5,011	5,543	5,196	4,895
International services	515	552	592	655	727	6,094	6,551	7,029	7,795	8,668
Public sector debt interest	2,428	2,644	2,655	2,628	3,700	28,749	31,363	31,555	31,281	44,136
Defence	2,713	2,831	3,089	3,160	3,268	32,133	33,581	36,713	37,614	38,979
Public order and safety	170	174	174	184	149	2,018	2,070	2,070	2,186	1,776
Economic affairs
Enterprise and economic development	85	116	821	433	-79	1,170	1,531	9,909	5,304	-810
Science and technology	63	50	54	58	56	777	607	644	704	683
Employment policies	2	1	1	2	1	18	13	18	25	6
Agriculture, forestry and fisheries	0	0	0	0	0	0	1	1	0	0
Transport	19	20	24	22	22	395	396	355	337	322
Environment protection	138	119	97	161	193	1,646	1,419	1,154	1,924	2,313
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	64	80	82	93	116	771	961	984	1,112	1,380
Recreation, culture and religion	312	337	347	367	359	3,885	4,435	4,980	5,390	5,368
Education and training	3	4	3	3	0	36	43	41	41	3
Social protection	239	255	282	299	310	2,831	3,026	3,351	3,563	3,703
EU transactions	-353	-237	-491	-231	-158	-1,802	-1,531	-2,931	71	2,922
Total	6,832	7,367	8,194	8,267	9,069	83,910	89,476	101,416	102,543	114,345

Table 5.13: Non-Identifiable Expenditure: Scotland 2006-07 to 2010-11

	(£ million)
	Current					Capital
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	429	419	424	413	379	6	1	40	20	27
International services	483	516	552	603	663	32	36	39	52	64
Public sector debt interest	2,428	2,644	2,655	2,628	3,700	0	0	0	0	0
Defence	2,638	2,617	2,798	2,822	2,912	75	214	292	338	356
Public order and safety	161	162	156	159	129	9	12	18	25	20
Economic affairs
Enterprise and economic development	39	73	-27	20	-105	46	43	849	413	26
Science and technology	40	32	39	42	46	23	18	15	16	11
Employment policies	1	1	1	2	0	0	0	0	0	0
Agriculture, forestry and fisheries	0	0	0	0	0	0	0	0	0	0
Transport	11	12	14	13	13	7	7	9	8	9
Environment protection	47	26	-2	70	80	92	93	98	91	113
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	59	75	76	90	105	4	5	6	3	11
Recreation, culture and religion	296	314	305	317	307	15	22	42	51	52
Education and training	3	4	3	3	0	0	0	0	0	0
Social protection	238	255	282	298	310	1	1	0	1	1
EU transactions	-353	-237	-491	-231	-158	0	0	0	0	0
Total	6,522	6,915	6,787	7,249	8,380	311	452	1,408	1,018	690

Table 5.14: Non-Identifiable Expenditure: UK 2006-07 to 2010-11

	(£ million)
	Current					Capital
	2006-07	2007-08	2008-09	2009-10	2010-11	2006-07	2007-08	2008-09	2009-10	2010-11
General public services
Public and common services	5,110	4,998	5,065	4,960	4,567	79	14	478	236	327
International services	5,719	6,124	6,565	7,174	7,906	375	427	464	621	762
Public sector debt interest	28,749	31,363	31,555	31,281	44,136	0	0	0	0	0
Defence	31,242	31,045	33,247	33,590	34,735	891	2,536	3,466	4,023	4,245
Public order and safety	1,909	1,930	1,856	1,889	1,535	109	140	214	297	241
Economic affairs
Enterprise and economic development	620	1,016	-177	381	-1,117	549	515	10,086	4,923	307
Science and technology	497	392	468	516	553	280	215	176	189	130
Employment policies	18	12	18	25	6	0	0	0	0	0
Agriculture, forestry and fisheries	0	1	1	0	0	0	0	0	0	0
Transport	207	241	259	238	211	188	155	96	99	111
Environment protection	561	313	-13	840	966	1,086	1,106	1,167	1,084	1,347
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	721	907	917	1,076	1,249	50	54	67	37	132
Recreation, culture and religion	3,591	3,859	3,718	3,868	3,777	295	576	1,261	1,522	1,591
Education and training	36	43	41	41	2	0	0	0	0	1
Social protection	2,822	3,019	3,346	3,551	3,694	9	6	5	12	10
EU transactions	-1,802	-1,531	-2,931	71	2,922	0	0	0	0	0
Total	79,999	83,732	83,934	89,500	105,142	3,911	5,744	17,482	13,043	9,203

Box 5.2 - Debt Interest Payments

The debt interest payment expenditure in the above tables refers to payments to cover interest on outstanding UK Government debt. As there is no separate identification of Scotland's share of UK public sector net debt in UK public financial accounts they do not provide a separate Scottish debt interest expenditure. 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. 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 2. Estimates for Scotland over the period 2006-07 to 2010-11, are highlighted in the table below, illustrating the current balance on public services consumed within each financial year. Current Balance on Public Services Consumed: Scotland 2006-07 to 2010-11 (£ million) 2006-07 2007-08 2008-09 2009-10 2010-11 Current revenue           Excluding North Sea revenue 42,272 45,167 43,391 41,916 45,177 Including North Sea revenue (per capita share) 43,026 45,796 44,479 42,462 45,914 Including North Sea revenue (geographical share) 49,776 52,282 55,131 47,846 53,128 Total current expenditure (including capital consumption and accounting adjustments) 49,223 52,389 54,138 57,099 59,517 Less debt interest payments (as used in headline GERS estimates) -2,428 -2,644 -2,655 -2,628 -3,700 Total current expenditure on services consumed within current financial year 46,796 49,744 51,483 54,470 55,817 Current balance on public services consumed within current financial year           Excluding North Sea revenues -4,523 -4,578 -8,092 -12,554 -10,640 Including North Sea revenues (per capita share) -3,770 -3,949 -7,004 -12,009 -9,903 Including North Sea revenues (geographical share) 2,980 2,538 3,648 -6,624 -2,689

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). The differences between TME and TES are described in detail in Annex C. 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 2010-11, the UK general government capital consumption of £15.2 billion represented 67.2 per cent of the total UK accounting adjustment. Table 5.15 shows the component disaggregation of the UK accounting adjustment. The total UK accounting adjustment was estimated at £22.7 billion in 2010-11.

Table 5.15: Accounting Adjustment: UK 2006-07 to 2010-11

	(£ million)
	2006-07	2007-08	2008-09	2009-10	2010-11
UK total managed expenditure (TME)	550,045	582,937	629,223	669,736	687,805
UK total expenditure on services (TES)	523,120	555,283	603,431	643,153	665,132
UK accounting adjustment	26,925	27,654	25,792	26,583	22,673
of which:
Central government capital consumption	5,951	6,170	6,544	6,700	7,200
Local government capital consumption	6,466	6,774	7,164	7,550	8,027
Current VAT refunds	9,419	9,701	9,952	9,354	10,777
Capital VAT refunds	1,705	1,883	1,934	1,834	2,194
Nigerian debt cancellation	1,406	0	0	0	0
Student loans subsidy1	-305	-1,046	-814	-1,466	-1,746
Imputed subsidy from Local Authorities to the Housing Revenue Account2	1,528	1,535	1,477	1,500	1,581
Imputed flows for Renewable Obligation Certificates3	474	487	472	470	535
Residual4	281	2,150	-937	641	-5,895

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.
4 The residual for the UK in 2010-11 is largely explained by a timing adjustment. The TES figure used in GERS is consistent with the latest CRA analysis, which is from June 2011. The TME figure in GERS is consistent with the public sector finances statistical bulletin published in January 2012. The June 2011 residual of -£2,034 million was revised down by £3,861 million in the January 2012 publication reflecting downward revisions to TME for 2010-11 made by the ONS.

The corresponding Scottish figures, as highlighted in Table 5.16, are calculated using a variety of apportionment methodologies described in Annex C. The total Scottish public sector accounting adjustment was estimated at £2.2 billion in 2010-11, or 9.6 per cent of the total UK accounting adjustment. The relatively higher proportion compared to a per capita share reflects the high share of general government capital consumption for Scotland.

Table 5.16: Accounting Adjustment: Scotland 2006-07 to 2010-11

	(£ million)
	2006-07	2007-08	2008-09	2009-10	2010-11
Capital consumption:1
Central government capital consumption	528	544	580	594	645
Local government capital consumption	610	656	683	723	766
Current expenditure:	0	0	0	0	0
Current VAT refunds	840	878	905	888	1,006
Student loans subsidy2	-42	-58	-17	-63	22
Imputed subsidy from Local Authorities to the Housing Revenue Account3	158	146	126	119	76
Imputed flows for Renewable Obligation Certificates4	35	48	56	55	60
Current expenditure residual	136	254	59	-46	-262
Capital expenditure:	0	0	0	0	0
Capital VAT refunds	152	171	176	174	197
Nigerian debt cancellation	119	0	0	0	0
Capital expenditure residual	-133	-133	-210	155	-327
Total accounting adjustment	2,403	2,506	2,358	2,598	2,182
Percentage of UK accounting adjustment	8.9%	9.1%	9.1%	9.8%	9.6%

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.