Government Expenditure and Revenue Scotland 2020-21

Summary

Introduction

• Government Expenditure and Revenue Scotland (GERS) addresses three questions about Scotland’s public sector finances under the current constitutional arrangements:
  • What revenues were raised in Scotland?
  • How much did the country pay for the public services that were consumed?
  • To what extent did the revenues raised cover the costs of these public services?
• This year’s publication covers the first full year affected by the coronavirus pandemic, which continues to have a significant impact on global public sector finances, as well as public health and the wider economy. The final impact of the pandemic on public sector finances is still being assessed, and the estimates in the publication are subject to greater uncertainty than in previous years. This is discussed in more detail in the Preface.
• GERS is a National Statistics publication. It is assessed by the independent UK Statistics Authority to ensure that it meets the standards set out in the Code of Practice for Statistics.
• Feedback from users of the publication is welcome. A correspondence address is available in the back leaf of the publication. Comments can be emailed to economic.statistics@gov.scot.
• Due to the effects of the pandemic, resources dedicated to the GERS publication this year have been reduced, and there is a reduced level of commentary compared to previous publications.

Scotland’s Overall Fiscal Position

• GERS provides two measures of Scotland’s fiscal position, the net fiscal balance and the current budget balance.
• The net fiscal balance measures the difference between total public sector expenditure and public sector revenue. It therefore includes public sector capital investment, such as the construction of roads, hospitals, and schools, which yields benefits not just to current taxpayers but also to future taxpayers. It is shown in Table S.1 below.

Table S.1: Net Fiscal Balance: Scotland and UK 2016-17 to 2020-21

	£ million
	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland - Excluding North Sea	-16,413	-16,300	-15,088	-16,665	-36,889
Scotland - Including North Sea (geographical share)	-16,255	-15,159	-13,729	-15,821	-36,340
	As % of GDP
Scotland - Excluding North Sea	-10.8%	-10.3%	-9.2%	-10.0%	-23.8%
Scotland - Including North Sea (geographical share)	-10.1%	-8.9%	-7.7%	-8.8%	-22.4%
UK	-2.7%	-2.6%	-1.8%	-2.6%	-14.2%

• The deficit on the net fiscal balance as a share of GDP has increased for both Scotland and the UK in 2020-21, by 11.6 percentage points for the UK and 13.6 percentage points for Scotland. This reflects the impact of COVID-19, which has seen falls in revenue, increased expenditure, and falls in GDP, all of which contribute to the increase in the deficit.
• A number of factors explain the difference in the change in the net fiscal balance for Scotland and the UK. In part, it reflects the different structure of the Scottish and UK economies, where public spending plays a larger role in Scotland, rather than a markedly different impact of the pandemic on either revenue or expenditure. The difference is also in part due to falling activity in the North Sea in 2020-21, as well as falls in the oil price. This has seen North Sea GDP fall by 40% in nominal terms.
• Excluding North Sea revenue, the net fiscal balance for Scotland increased by 13.9 percentage points. Again, this is partly due to larger falls in nominal GDP in Scotland in 2020-21. As real GDP has fallen by less in Scotland over this period, this highlights the challenges of measuring the impact of COVID-19 on the economy and public finances, and revisions to both Scottish and UK GDP can be expected in future.
• The current budget balance shows the difference between revenue and current expenditure only. It therefore excludes public sector capital investment. It measures the degree to which taxpayers meet the cost of paying for day-to-day public services, excluding capital investment. It is shown in Table S.2 below.
• The current budget balance for Scotland tends to move in line with the net fiscal balance figure but is typically around 2 percentage points smaller as a share of GDP, although this gap has reduced as capital spending has fallen during the pandemic. In 2020-21, the deficit on the Scottish current budget balance excluding the North Sea increased by 14.7 percentage points.

Table S.2: Current Budget Balance: Scotland and UK 2016-17 to 2020-21

	£ million
	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland - Excluding North Sea	-12,937	-12,596	-12,086	-13,937	-35,693
Scotland - Including North Sea (geographical share)	-12,778	-11,455	-10,728	-13,092	-35,143
	As % of GDP
Scotland - Excluding North Sea	-8.5%	-8.0%	-7.4%	-8.3%	-23.1%
Scotland - Including North Sea (geographical share)	-7.9%	-6.8%	-6.0%	-7.3%	-21.7%
UK	-0.7%	-0.4%	0.3%	-0.6%	-11.6%

• The charts below show the estimates of the current budget balance and net fiscal balance for Scotland and the UK since 1998-99. Figures for all tables back to 1998-99 are available in the accompanying spreadsheets online.

Scotland’s revenue

• Table S.3 shows two estimates of Scotland’s public sector revenue: (i) excluding North Sea revenue, and (ii) including an illustrative geographical share of North Sea revenue. Estimates including a population share of North Sea revenue are available in the main chapters.
• Scotland’s estimated non-North Sea revenue in 2020-21 fell by 3.0 billion to £62.3 billion. This was a fall of 4.6% from 2019-20, the largest recorded fall, reflecting the impact of the pandemic on revenue, with particular falls in VAT, non-domestic rates, and fuel duties. Despite the pandemic, the support schemes that were in place for the labour market meant that income tax receipts did not fall, continuing to grow by 0.4%. Non-North Sea revenue for the UK fell by 3.9%.
• As a share of GDP, non-North Sea revenue increased to 40.2%, as nominal GDP fell faster than revenue.
• Scotland’s non-North Sea revenue was 7.8% of total UK revenue in 2020-21, slightly lower than 2019-20. This fall was in part due to relatively weaker income tax performance in Scotland in 2020-21, including weaker self-assessment receipts which relate to the previous tax year.
• Including an illustrative geographical share of the North Sea, total Scottish revenue was £62.8 billion, a fall of 5.0% from 2019-20. This is larger than the fall in non-North Sea revenue, reflecting the fact that Scottish North Sea revenue fell by £294 million in 2020-21, as prices and production fell during the pandemic.
• Including an illustrative geographical share of the North Sea, Scottish revenue was 7.9% of the UK total.

Table S.3: Total Revenue: 2016-17 to 2020-21

	£ million
	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland – Excluding North Sea revenue	59,303	61,225	64,158	65,312	62,287
Scotland – Including North Sea revenue (geographical share)	59,461	62,367	65,516	66,157	62,837
	As % of UK total revenue
Scotland – Excluding North Sea revenue	7.8%	7.8%	7.9%	7.9%	7.8%
Scotland – Including North Sea revenue (geographical share)	7.8%	8.0%	8.0%	8.0%	7.9%
	As % of GDP
Scotland – Excluding North Sea revenue	38.9%	38.8%	39.1%	39.1%	40.2%
Scotland – Including North Sea revenue (geographical share)	36.9%	36.8%	36.7%	36.9%	38.7%
UK – including all North Sea revenue	37.7%	37.6%	37.7%	37.3%	38.0%

• Table S.4 below shows estimates of revenue per person for Scotland and the UK. Excluding North Sea revenue, revenue per person in Scotland is lower than the UK average by £477 in 2020-21, and has been consistently lower in earlier years.
• Including an illustrative geographical share of North Sea revenue, the difference between revenue per person in Scotland and the UK is more variable. In the latest year, including an illustrative geographical share of North Sea revenue, revenue per person was £382 lower than the UK average.

Table S.4: Revenue per person: Scotland and UK 2016-17 to 2020-21

	£ per person
	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland
Excluding North Sea revenue	10,962	11,279	11,784	11,953	11,395
Including North Sea revenue (geographical share)	10,992	11,490	12,034	12,108	11,496
UK
Excluding North Sea revenue	11,557	11,823	12,254	12,388	11,872
Including North Sea revenue	11,557	11,842	12,272	12,398	11,878
Difference (Scotland minus UK)
Excluding North Sea revenue	-595	-544	-470	-435	-477
Including North Sea revenue (geographical share)	-566	-353	-238	-290	-382

Scotland’s spending

• Table S.5 below shows estimates of public spending for Scotland. Expenditure increased from £82.0 billion in 2019-20 to £99.2 billion in 2020-21, the largest recorded increase in public expenditure. The Scottish Government spent around £9 billion in 2020-21 in response to the coronavirus pandemic, and Scotland received at least £8.3 billion in reserved spending in response to the pandemic. In particular, public spending on health, social protection and support to businesses has increased. Despite this, the cost of servicing public sector debt has decreased, as interest rates have fallen. The increase in Scottish expenditure in 2020-21 was £17.2 billion, or 8.2% of the overall UK increase, similar to Scotland’s share of the UK population.
• The increase in expenditure has reversed a trend in which spending as a share of GDP had been broadly falling since 2010-11, meaning public spending had been growing more slowly than nominal GDP. This trend is reversed in 2019-20, with spending increasing as a share of GDP. In 2020-21, as a result of the pandemic, spending as a share of GDP reached 61.1%, having never previously been above 50% of GDP when including an illustrative geographical share of the North Sea.

Table S.5: Total Public Sector Expenditure: 2016-17 to 2020-21

	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland - £ millions	75,716	77,525	79,246	81,977	99,176
Share of UK (%)	9.3%	9.3%	9.3%	9.3%	9.1%
	As % of GDP
Scotland - excluding North Sea	49.7%	49.2%	48.3%	49.0%	64.0%
Scotland - including geographic share of North Sea	47.0%	45.7%	44.4%	45.7%	61.1%
UK – including all North Sea	40.4%	40.2%	39.5%	39.8%	52.1%

• Table S.6 below shows estimates of expenditure per person for Scotland and the UK. Expenditure for Scotland has been consistently higher per person than the UK average over the period.

Table S.6: Total Expenditure per Person: Scotland and UK 2016-17 to 2020-21

	£ per person
	2016-17	2017-18	2018-19	2019-20	2020-21
Scotland	13,996	14,282	14,555	15,003	18,144
UK	12,379	12,654	12,846	13,250	16,316
Difference (Scotland minus UK)	1,617	1,628	1,710	1,754	1,828

Box S.1: GERS Frequently Asked Questions

Below is a summary of some of the most frequently asked questions and their answers.

Q: Why have the GERS numbers changed from last year?

A: The estimates in GERS are updated every year to reflect the latest data and methodologies. Often, the changes reflect updates to UK figures in the UK Public Sector Finances.

Q: How much debt interest does Scotland have in GERS?

A: GERS includes two categories of interest spending. The first is reserved UK debt interest, and Scotland is allocated a population share of this, amounting to £2.3 billion in 2020-21. The second is interest spending associated with public sector pension funds. These funds also generate interest income, and in 2020-21 Scotland is apportioned £1.5 billion of interest expenditure associated with public sector pensions, and £1.4 billion of interest income.

Q: How much spending occurs in Scotland?

A: As set out in the Preface, GERS shows spending for Scotland, rather than spending in Scotland. This shows that around 9.1% of UK spending is undertaken for Scotland, slightly higher than a population share. While direct estimates of spend in Scotland are not available, this is consistent with broader indicators of public sector activity in Scotland, which show that the public sector plays a larger role in Scotland than the UK as a whole. For example, around 10% of UK public sector employees are based in Scotland, with regional pay differences resulting in around 9.3% of the UK paybill spent in Scotland.

As GERS shows spending for Scotland, not all spending that occurs in Scotland is included in the GERS spending figures. For example, around £100 million of Scottish Government expenditure is not included GERS, as it is assumed to benefit residents outside of Scotland, such as spending on museums in Scotland which benefits visitors from the rest of the UK.

Q: Is GERS a description of the whole Scottish economy?

A: No. GERS reports only on public sector revenue and expenditure. Although these may be affected by economic performance, GERS does not directly report on Scotland’s wider economy. If users are interested in the measurement of the economy as a whole, they should refer to other economic statistics products, such as the quarterly Gross Domestic product figures or Quarterly National Accounts Scotland (QNAS) (www.gov.scot/gdp), These publications provide estimates of real terms growth in the economy, and GDP in cash or nominal terms and its components.

Q: What is the public sector?

A: The public sector contains all government bodies, and all bodies which are controlled by government. This includes publicly controlled businesses, such as Scottish Water and the Bank of England. In GERS, the Scottish Government, Scottish Local Authorities, and the public corporations they control such as Scottish Water, are referred to as Scottish public sector bodies. All other UK public sector bodies are described as ‘Other UK Government bodies’.

Q: Who produces GERS?

A: GERS is produced by Scottish Government statisticians. It is designated as a National Statistics product, which means that it is produced independently of Scottish Ministers and has been assessed by the UK Statistics Authority as being produced in line with the Code of Practice for Statistics. This means the statistics have been found to meet user needs, to be methodologically sound, explained well and produced free of political interference.

Q: Do you use company headquarters to assign corporation tax or taxes like VAT or insurance?

A: No. Corporation tax on trading profits is estimated on a company-by-company basis, depending on the economic activity each company has in Scotland, not location of company headquarters. VAT, and other taxes such as those related to insurance activity, are related to expenditure, and are therefore estimated based on expenditure that occurs in Scotland, rather than the location of a company’s head office.

Q: How do taxes from the whisky industry feature in the GERS estimates?

A: Like any industry, the whisky industry’s activity in Scotland generates tax revenue through a range of sources, such as corporation tax on profits, income tax and national insurance contributions on staff earnings, and non-domestic rates payments on business premises. These are all captured in the estimates of Scottish public sector receipts reported in GERS.

In addition, whisky consumed in the UK is subject to VAT and alcohol duty. This is assigned to Scotland on the basis of how much is consumed in Scotland. Whisky which is exported does not generate UK VAT or alcohol duty. There is no export duty in the UK.

Q: What are accounting adjustments and why do they feature in the GERS estimates?

A: Accounting adjustments are used to present revenue and expenditure on a National Accounts basis, an international reporting standard used by governments. They normally reflect non-cash items, such as depreciation or pensions liabilities. In general, these adjustments do not affect the net fiscal balance or current budget balance, as they are added to both revenue and expenditure. In 2020-21, accounting adjustments added £7.4 billion to the estimate of Scottish public sector revenue and £8.4 billion to the estimate of Scottish public sector spending, with the difference being due to coronavirus expenditure included in the accounting adjustments. For more information on accounting adjustments and where they appear in the revenue tables, see Table A.9.