Government Expenditure and Revenue Scotland 2016-2017

Chapter 1: Public Sector Revenue

Introduction

This chapter provides detailed estimates of Scottish public sector revenue.

The majority of public sector revenue payable by Scottish residents and enterprises is collected at the UK level. Generally it is not possible to identify separately the proportion of revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. These methods are discussed in the methodology paper on the GERS website. ^[12]

Following the implementation of the Scotland Act 2012 and Scotland Act 2016, an increasing amount of revenue is being devolved to the Scottish Parliament, and direct Scottish measures of these revenues will be available. To date, landfill tax, property transaction taxes, and some powers over income tax have been devolved. Chapter 4 provides more information on current and future devolved taxes.

GERS uses a set of data sources and methodologies developed over a number of years following consultation with, and feedback from, users. In some cases, a variety of methodologies could be applied, each leading to different estimates of public sector revenue in Scotland. Table A.5 in Annex A provides analysis of the confidence intervals around revenue estimates based on survey data.

Changes to revenue presentation in GERS 2016-17

Following the recent user consultation, the presentation of revenues has been changed in GERS 2016-17 to align more closely with the presentation used by the Office for Budget Responsibility in its Economic and Fiscal Outlook report.

These changes are purely presentational, and the estimate of total revenue is unaffected. The main changes relate to the presentation of income tax, corporation tax, and VAT. For income tax and corporation tax, elements of revenues which were previously reported as 'other taxes on income and wealth' are now incorporated into these lines, and the 'other taxes on income and wealth' line has been removed. VAT is now split into two lines: VAT, which represents the net cash received by government, and VAT refunds, which represents the value of VAT refunds paid to government departments and local government. In the public finances, these refunds are recorded as both a revenue and expenditure, and so do not affect the net fiscal balance. These changes are discussed in more detail in the consultation document, available at: http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS/GERSConsultation2017

Another change introduced in this year's GERS is the reporting of tax and non-tax revenue separately. This follows requests from a number of users for this breakdown. Non-tax revenues are primarily non-cash accounting adjustments in gross operating surplus, and the operating surplus of public corporations such as Scottish Water. These are discussed in more detail below.

Estimated Revenue 2016-17

Table 1.1 reports estimated public sector revenue in Scotland and the preliminary outturn data for the UK in 2016-17. The contribution of each element of revenue to the Scottish total, and the proportion of UK revenue raised in Scotland, are also included in the table. Income tax, national insurance contributions, and value added tax account for around two thirds of total non-North Sea revenue. In order to report revenue on a National Accounts basis, the international reporting standards used by governments, a number of accounting adjustments are included in the total revenue estimate. These are primarily symmetric adjustments that also form part of expenditure, and therefore have little impact on the net fiscal balance.

Table 1.1: Revenue: Scotland and UK 2016-17

	Scotland		UK	Scotland as % of UK
	£ million	% of total non-North Sea taxes	£ million
Income tax	12,760	24.2%	175,923	7.3%
National insurance contributions	10,367	19.7%	125,937	8.2%
Value added tax	10,193	19.4%	121,520	8.4%
Corporation tax (excluding North Sea)	3,908	7.4%	55,211	7.1%
Fuel duties	2,362	4.5%	27,936	8.5%
Non-domestic rates	2,732	5.2%	29,319	9.3%
Council tax	2,082	4.0%	30,525	6.8%
VAT refunds	1,220	2.3%	13,735	8.9%
Capital gains tax	381	0.7%	8,704	4.4%
Inheritance tax	280	0.5%	4,908	5.7%
Reserved stamp duties	317	0.6%	15,208	2.1%
Scottish Land & Buildings transaction tax	466	0.9%	466	100.0%
Scottish landfill tax	149	0.3%	149	100.0%
Air passenger duty	264	0.5%	3,228	8.2%
Tobacco duties	1,100	2.1%	8,681	12.7%
Alcohol duties	1,038	2.0%	11,117	9.3%
Insurance premium tax	330	0.6%	4,809	6.9%
Vehicle excise duties	466	0.9%	5,997	7.8%
Environmental levies	591	1.1%	5,195	11.4%
Other taxes 1	1,643	3.1%	19,469	8.4%
Total Non-North Sea taxes	52,652	100%	668,037	7.9%
North Sea taxes
Population share	7		84	8.2%
Geographical share	208		84	247.9% 2
Other revenue
Interest and dividends	381		6,256	6.1%
Gross operating surplus	4,322		47,618	9.1%
Other receipts	388		2,401	16.2%
Total revenue
Excluding North Sea	57,743		724,312	8.0%
Including population share of the North Sea	57,750		724,396	8.0%
Including illustrative geographical share of the North Sea	57,952		724,396	8.0%
of which: revenue accounting adjustments	4,263		48,839	8.7%

1 A description of the other taxes line is provided in the detailed methodology paper on the GERS website.
2 As the receipts for UK Petroleum Revenue Tax are negative, the Scottish share appears unusually high in 2016-17. This is discussed in more detail in Chapter 2.

Unlike the expenditure accounting adjustments, which are shown in a separate expenditure line, the revenue accounting adjustments are included within different revenue lines, as is set out in Table A.9 in Annex A. In order to aid transparency, a revenue accounting adjustments line is shown at the bottom of Table 1.1 and 1.4. This is a sub-total of revenue, and does not add to the revenue totals reported in these tables.

Total public sector non-North Sea current revenue in Scotland was estimated to be £57.7 billion in 2016-17. This is equivalent to 8.0% of UK total non-North Sea current revenue which is 0.2 percentage points lower than Scotland's share of the UK population. ^[13] In general, Scotland's share of most large revenues is close to either its population or GVA share. However, there are some exceptions to this, discussed below.

Revenues where Scotland's share of UK revenue is relatively low are those associated with property or assets, such as capital gains tax (4.4%), and inheritance tax (5.7%). This reflects the fact that properties and assets in Scotland tend to have lower prices than the UK average. ^[14] Scotland also has a relatively low share of interest and dividend income. This reflects the fact that the Scottish Government receives proportionally less income from student loans, as the use of such loans is lower in Scotland.

Revenues where Scotland has a relatively large share include non-domestic rates (9.3%), and gross operating surplus ( GOS), which is the surpluses (or losses) of public corporations. Scotland is estimated to generate approximately 9.1% of UK public sector GOS, higher than Scotland's population share. Scotland's GOS includes Scottish Water, which is a large contributor to UK public corporations' GOS. The equivalent water companies in England and Wales are outside the public sector and hence do not contribute to UK GOS. ^[15] Scotland's estimated share of UK GOS has increased compared to the figures published in GERS 2015-16 due to the inclusion of Scottish housing associations.

Scotland tends to also have relatively high shares of duties associated with tobacco and alcohol. This reflects the greater incidence of smoking in Scotland, ^[16] and also the fact that Scotland has higher consumption of spirits than the rest of the UK. ^[17] Scotland also has a relatively high share of 'other receipts', as for the UK this line nets out refunds of non‑domestic rates paid by local authorities. Due to the different structure of reporting non‑domestic rates in Scotland, these refunds are not separated out for Scotland.

Table 1.2 below provides a time series of Scotland's share of the largest UK revenues. Although Scotland's share of the larger taxes has been relatively stable over time, Scotland's share of other revenue has been declining. To a degree, this reflects the increasing importance of taxes such as capital gains tax and property taxes in the UK public sector finances, where Scotland has a lower share.

Table 1.2: Non-North Sea Revenue: Scotland as share of UK

	per cent of UK revenue
	2012-13	2013-14	2014-15	2015-16	2016-17
Income Tax	7.3%	7.2%	7.3%	7.3%	7.3%
Corporation tax (excl North Sea)	7.0%	7.0%	7.3%	7.1%	7.1%
National insurance contributions	8.2%	8.2%	8.2%	8.2%	8.2%
Value added tax	8.3%	8.5%	8.4%	8.4%	8.4%
Local authority revenue	8.2%	8.0%	8.1%	8.0%	8.0%
All other revenue	8.9%	8.8%	8.6%	8.5%	8.4%
Total current non-North Sea revenue	8.1%	8.1%	8.0%	8.0%	8.0%

Note: Local authority revenue consists of non-domestic rates and council tax

Estimated Revenue: Scotland and the UK, 2012-13 to 2016-17

Table 1.4 overleaf shows estimated current revenue in Scotland and the UK between 2012‑13 and 2016‑17. Non-North Sea revenue in Scotland is estimated to have grown by 18.1% between 2012-13 and 2016-17 in nominal terms, less than for the UK as a whole (19.9%). Around a third of the difference is due to slower growth in capital gains tax in Scotland. More generally, the difference reflects the fact that Scotland's population, and therefore its tax base, has grown more slowly than in the UK as a whole.

Table 1.3 shows estimates of revenue per person for Scotland and the UK between 2012‑13 and 2016‑17. Excluding North Sea revenue, revenue per person in Scotland has been lower than in the UK by approximately £300 per year. Including an illustrative geographical share of North Sea revenue the difference is more variable.

Table 1.3: Revenue Per Person: Scotland and UK 2012-13 to 2016-17

	£ per person
	2012-13	2013-14	2014-15	2015-16	2016-17
Scotland
Excluding North Sea revenue	9,199	9,527	9,832	10,118	10,684
Including North Sea revenue (population share)	9,293	9,597	9,858	10,117	10,685
Including North Sea revenue (geographical share)	10,072	10,174	10,089	10,129	10,722
UK
Excluding North Sea revenue	9,467	9,808	10,134	10,451	11,033
Including North Sea revenue	9,562	9,879	10,160	10,450	11,035
Difference (Scotland minus UK)
Excluding North Sea revenue	-268	-281	-302	-333	-349
Including North Sea revenue (population share)	-268	-281	-302	-333	-349
Including North Sea revenue (geographical share)	511	295	-71	-321	-312

Box 1.1: Comparison between GERS and ONS estimates

Any analysis of public sector receipts in Scotland relies on estimation, and as such alternative estimates are possible. As discussed in the Preface, GERS estimates revenue using a set of apportionment methodologies, refined over a number of years following consultation with, and feedback from, users.

The Office for National Statistics ( ONS) now publishes public sector finances for the countries and regions of the UK. The first estimates covering the period to 2015-16 were published earlier in 2017. Further information, including details of the ONS methodology, is available at: https://www.ons.gov.uk/releases/countryandregionalpublicsectorfinances

In most cases, the estimates in GERS and the ONS publication are very similar. For some taxes, notably capital gains tax and air passenger duty, there are methodological differences between the two publications. ONS, HMRC and the devolved administrations are working together to reconcile, and where possible align, methodologies for estimating tax receipts for the UK countries and regions. For capital gains tax, the ONS uses estimates covering only individuals reported on an accruals basis, whilst GERS uses estimates covering individuals and trusts reported on a cash basis. For air passenger duty, GERS uses a bottom up estimate of Scottish receipts based on Scottish Civil Aviation Authority data, whilst the ONS use a top-down apportionment using UK data. Together, these two differences result in the estimates of Scottish receipts in GERS being £119 million lower in 2015-16 than estimated by the ONS, and explain the majority of the overall difference between the publications.

The table below compares the estimates in GERS with those published by ONS. For Non‑North Sea taxes; the difference between the ONS and GERS is largely due to air passenger duty and capital gains tax as discussed above. The differences in other Non‑North Sea receipts are primarily due to using different data sources for government gross operating surplus. This is an accounting adjustment which is included as both a revenue and expenditure, and so makes no difference to estimates of the net fiscal balance. Following the alignment of North Sea methodologies, discussed in more detail in Chapter 2, estimates are now largely identical.

Estimates of Total Scottish Revenues 2012-13 to 2016-17

	£ million
	2012-13	2013-14	2014-15	2015-16	2016-17
Non-North Sea taxes
GERS	44,161	45,917	47,678	49,450	52,652
ONS	44,197	45,983	47,770	49,565	n/a
Difference	-36	-66	-92	-115	n/a
Other Non-North Sea receipts
GERS	4,751	4,887	4,961	4,996	5,091
ONS	4,867	5,045	5,265	5,348	n/a
Difference	-116	-158	-304	-352	n/a
Geographical share of North Sea revenues
GERS	4,643	3,448	1,374	56	208
ONS	4,640	3,446	1,373	52	n/a
Difference	3	2	1	4	n/a

Table 1.4: Revenue: Scotland and UK 2012-13 to 2016-17

	£ million
	Scotland					UK
	2012-13	2013-14	2014-15	2015-16	2016-17	2012-13	2013-14	2014-15	2015-16	2016-17
Income tax	11,145	11,393	11,866	12,247	12,760	152,296	157,623	163,622	168,880	175,923
National insurance contributions	8,581	8,798	9,077	9,383	10,367	104,483	107,306	110,260	114,061	125,937
Value added tax	8,332	9,077	9,325	9,780	10,193	100,769	106,521	111,244	116,502	121,520
Corporation tax (excluding North Sea)	2,627	2,682	3,084	3,207	3,908	37,607	38,332	42,523	45,290	55,211
Fuel duties	2,257	2,290	2,310	2,333	2,362	26,571	26,881	27,155	27,621	27,936
Non-domestic rates	2,347	2,367	2,511	2,579	2,732	26,301	27,111	27,500	28,710	29,319
Council tax	1,938	1,964	1,995	2,047	2,082	26,139	27,355	28,128	28,989	30,525
VAT refunds	1,279	1,202	1,192	1,245	1,220	13,659	13,646	13,602	14,012	13,735
Capital gains tax	318	238	291	310	381	3,926	3,907	5,559	7,083	8,704
Inheritance tax	175	207	222	269	280	3,150	3,541	3,879	4,712	4,908
Reserved stamp duties	464	661	741	279	317	9,140	12,481	13,779	13,756	15,208
Scottish Land & Buildings transaction tax	0	0	0	425	466	0	0	0	425	466
Scottish landfill tax	0	0	0	147	149	0	0	0	147	149
Air passenger duty	213	225	243	247	264	2,818	3,003	3,205	3,040	3,228
Tobacco duties	1,281	1,232	1,170	1,155	1,100	9,590	9,556	9,251	9,106	8,681
Alcohol duties	946	972	961	996	1,038	10,139	10,308	10,449	10,697	11,117
Insurance premium tax	203	211	204	256	330	3,033	3,018	2,973	3,717	4,809
Vehicle excise duties	481	488	458	458	466	6,003	6,121	5,910	5,922	5,997
Environmental levies	269	343	406	507	591	2,464	3,128	3,657	4,526	5,195
Other taxes	1,306	1,568	1,623	1,579	1,643	14,969	17,601	18,346	19,138	19,469
Total Non-North Sea taxes	44,161	45,917	47,678	49,450	52,652	553,057	577,439	601,042	626,334	668,037
North Sea taxes
Population share of North Sea revenue	502	374	140	-7	7	6,020	4,499	1,691	-80	84
Illustrative geographical share of North Sea revenue	4,643	3,448	1,374	56	208	6,020	4,499	1,691	-80	84
Other receipts
Interest and dividends	488	465	394	418	381	6,365	6,471	6,352	6,593	6,256
Gross operating surplus	3,885	4,057	4,082	4,170	4,322	42,261	43,808	45,033	46,349	47,618
Other receipts	378	366	485	408	388	2,385	2,264	3,482	2,602	2,401
Total revenue (excl North Sea revenue)	48,912	50,805	52,640	54,446	57,743	604,069	629,982	655,909	681,878	724,312
Total revenue (incl pop share North Sea revenue)	49,414	51,178	52,780	54,439	57,750	610,089	634,481	657,600	681,798	724,396
Total revenue (incl geog share North Sea revenue)	53,556	54,252	54,014	54,501	57,952	610,089	634,481	657,600	681,798	724,396
Of which, revenue accounting adjustment	3,790	3,938	3,956	4,114	4,263	42,522	44,112	45,433	47,496	48,839