Government Expenditure and Revenue in Scotland (GERS): 2018 to 2019

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?
• GERS is a National Statistics publication. It is assessed by the independent UK Statistics Authority to ensure that it meets the Code of Practice for Statistics.
• The estimates in GERS are consistent with the UK Public Sector Finances published in July 2019 by the Office for National Statistics (ONS). 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.

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 2014-15 to 2018-19

	£ million
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland - Excluding North Sea	-15,369	-15,535	-15,187	-15,192	-14,060
Scotland - Including North Sea (geographical share)	-13,992	-15,484	-14,921	-13,766	-12,630
UK	-89,870	-71,840	-44,878	-41,796	-23,533
	As % of GDP
Scotland - Excluding North Sea	-10.5%	-10.5%	-10.0%	-9.6%	-8.5%
Scotland - Including North Sea (geographical share)	-8.7%	-9.7%	-9.2%	-8.1%	-7.0%
UK	-4.9%	-3.8%	-2.3%	-2.0%	-1.1%

• Excluding North Sea revenue, the net fiscal balance for Scotland tends to move in line with the figure for the UK, but is typically around 7 percentage points weaker. In 2018-19, it improved by 1.1 percentage points, compared to a 0.9 percentage point improvement for the UK. When including the North Sea, the movement in Scotland's net fiscal budget balance is more variable, and does not follow the same pattern as the UK. It also improved by 1.1 percentage points in 2018-19.
• 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 overleaf.
• The current budget balance for Scotland tends to move in line with the net fiscal balance, figure for the UK but is typically around 2 percentage points smaller as a share of GDP. This reflects that capital spending is relatively stable as a share of total spending over time. In 2018-19, the Scottish current budget balance excluding the North Sea improved by 1.1 percentage points, although it remained in deficit. The UK current budget balance, which has been in surplus since 2017-18, improved by 0.8 percentage points.

Table S.2: Current Budget Balance: Scotland and UK 2014-15 to 2018-19

	£ million
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland - Excluding North Sea	-12,655	-12,677	-11,030	-10,744	-9,376
Scotland - Including North Sea (geographical share)	-11,278	-12,627	-10,764	-9,318	-7,947
UK	-53,256	-37,766	-6,416	861	18,121
	As % of GDP
Scotland - Excluding North Sea	-8.7%	-8.6%	-7.2%	-6.8%	-5.7%
Scotland - Including North Sea (geographical share)	-7.0%	-7.9%	-6.6%	-5.5%	-4.4%
UK	-2.9%	-2.0%	-0.4%	0.0%	0.8%

• The charts on page 6 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 2018-19 was £61.3 billion. As a percentage of GDP, non-North Sea revenues increased to 37.2%.
• Non-North Sea revenue grew by 5.1% in 2018-19. This relatively strong growth is driven by increased income tax and VAT revenue, which are both estimated to have increased by over 7%. Income tax growth in 2018-19 has increased following policy changes to Scottish income tax and also increased earnings growth. Revenue growth in the UK as a whole was slower at 4.5%.
• Including an illustrative geographical share of the North Sea, total Scottish revenue was £62.7 billion, an increase of 4.9% from 2017-18. This is slower than the growth in non‑North Sea revenue, reflecting the fact that Scottish North Sea revenue remained largely unchanged, increasing by £4 million, from £1,426 million in 2017-18 to £1,430 million in 2018-19.
• Scotland's non-North Sea revenue was 7.8% of total UK revenue in 2018-19. Including an illustrative geographical share of the North Sea, Scottish revenue was 8.0% of the UK total.

Table S.3: Total Revenue: 2014-15 to 2018-19

	£ million
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland – Excluding North Sea revenue	53,034	53,805	56,245	58,327	61,278
Scotland – Including North Sea revenue (geographical share)	54,411	53,855	56,511	59,752	62,708
	As % of UK total revenue
Scotland – Excluding North Sea revenue	8.0%	7.9%	7.7%	7.8%	7.8%
Scotland – Including North Sea revenue (geographical share)	8.2%	7.9%	7.8%	7.9%	8.0%
	As % of GDP
Scotland – Excluding North Sea revenue	36.3%	36.5%	36.8%	36.8%	37.2%
Scotland – Including North Sea revenue (geographical share)	34.0%	33.8%	34.6%	35.0%	34.7%
UK – including all North Sea revenue	35.6%	35.8%	36.5%	36.4%	36.8%

• 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 £552 in 2018-19, 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 quite variable. In the latest year, including an illustrative geographical share of North Sea revenue, revenue per person was £307 lower than the UK average.

Table S.4: Revenue per person: Scotland and UK 2014-15 to 2018-19

	£ per person
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland
Excluding North Sea revenue	9,906	9,999	10,397	10,745	11,268
Including North Sea revenue (geographical share)	10,163	10,008	10,446	11,008	11,531
UK
Excluding North Sea revenue	10,180	10,499	11,058	11,367	11,820
Including North Sea revenue	10,206	10,498	11,059	11,386	11,838
Difference (Scotland minus UK)
Excluding North Sea revenue	-274	-500	-661	-621	-552
Including North Sea revenue (geographical share)	-43	-489	-613	-378	-307

Note: An error was identified in this table on 13 December 2019 for the figure for Scottish revenue per person excluding North Sea revenue in 2016-17. This error had no effect on any of the other tables or numbers in the publication and has now been corrected.

Scotland's spending

• Table S.5 below shows estimates of public spending for Scotland and the UK. Expenditure increased from £73.5 billion in 2017-18 to £75.3 billion in 2018-19. Scotland's share of UK expenditure is relatively stable over the period, at around 9.2%.
• In general, spending as a share of GDP has been falling in recent years, meaning public spending has grown more slowly than nominal GDP. Expenditure as a share of GDP excluding the North Sea fell by 0.7 percentage points in Scotland in 2018-19, compared to 0.5 percentage points in the UK. This reflects GDP growing relatively faster in Scotland.
• Including an illustrative geographical share of the North Sea, expenditure as a share of GDP fell by 1.3 percentage points in 2018-19. This reflects an increase in North Sea GDP, which grew by 29% in 2018-19, helped by rising production.

Table S.5: Total Public Sector Expenditure: 2014-15 to 2018-19

	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland - £ millions	68,403	69,339	71,432	73,518	75,338
Share of UK (%)	9.1%	9.2%	9.3%	9.2%	9.3%
	As % of GDP
Scotland - excluding North Sea	46.3%	46.6%	46.4%	46.0%	45.3%
Scotland - including geographic share of North Sea	42.8%	43.5%	43.7%	43.0%	41.7%
UK – including all North Sea	40.5%	39.6%	38.8%	38.4%	37.9%

• 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 2014-15 to 2018-19

	£ per person
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland	12,776	12,886	13,204	13,544	13,854
UK	11,594	11,599	11,741	12,018	12,193
Difference (Scotland minus UK)	1,182	1,287	1,463	1,526	1,661

Net Fiscal Balance: Scotland & UK 1998-99 to 2018-19

Current Budget Balance: Scotland & UK 1998-99 to 2018-19

Box S.1: GERS Frequently Asked Questions

The Scottish Government receives many questions from users about GERS. Below is a summary of some of the most frequently asked questions and their answers.

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: How do you decide on changes that are made to GERS?

A: In line with the Code of Practice for Statistics, changes are made to GERS after consultation and discussion with users. This includes discussion at the annual Scottish Economic Statistics Consultation Group,^[1] which brings together users of economic statistics from industry, academia and the wider public sector. Public consultation exercises, open to all, are also carried out to allow all users of GERS to comment on planned and suggested changes to GERS.

Q: What income tax figures are presented in GERS?

A: The headline income tax figures in GERS show estimates of all income tax raised in Scotland. This is slightly different from tax collected under the devolved Scottish Income Tax, which only relates to non-savings non-dividends income tax liabilities. The revenue from devolved income tax is presented in Chapter 4, and the headline estimates are consistent with these figures.

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

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 is a consumption tax, and is therefore estimated based on purchases that are made 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 2018-19, accounting adjustments added £5.0 billion to the estimate of Scottish public sector revenue and £5.1 billion to the estimate of Scottish public sector spending. Comparable accounting adjustments are also contained in the estimates of UK public sector spending and revenue. For more information on accounting adjustments and where they appear in the revenue tables, see Table A.9.

Q: Is spending that does not occur in Scotland included in the estimates of Scottish public spending?

A: Yes. GERS aims to capture all spending that benefits the residents of Scotland. This means it assigns Scotland a share of some expenditure which takes place outside Scotland. It also means that it does not assign to Scotland expenditure which occurs in Scotland but benefits non-Scottish residents.

For example, expenditure on embassies occurs outside Scotland, but provides benefits to Scottish residents and companies, such as Scottish tourists requiring consular services. As such, Scotland is allocated a population share of this expenditure in GERS. Likewise, spending on museums in Scotland benefits visitors from the rest of the UK, so not all of this spending is assigned to Scotland in GERS.

Q: Why does GERS refer to public sector revenues rather than taxes?

A: Public sector revenue covers all income received by the public sector. Although this is mostly taxes, there are some forms of revenue which are not taxes. These include income made by public corporations, such as Scottish Water, or dividend income from companies in which the government holds shares.