Government Expenditure and Revenue Scotland (GERS) 2019-2020

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 2020 by the Office for National Statistics (ONS). Since last year’s publication, there have been a number of revisions and methodological changes to the UK Public Sector Finances which have increased the net fiscal balance for both Scotland and the UK in all years. Further information is set out in the Preface.
• 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.
• The figures for 2019-20 incorporate the initial impacts of the COVID-19 pandemic. The impact of coronavirus will be greater in 2020-21 and the potential impacts are discussed in more detail in the Preface. 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 2015-16 to 2019-20

	£ million
	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland - Excluding North Sea	-16,073	-15,629	-15,391	-14,521	-15,860
Scotland - Including North Sea (geographical share)	-16,390	-15,472	-14,251	-13,155	-15,136
As % of GDP
Scotland - Excluding North Sea	-10.9%	-10.2%	-9.7%	-8.8%	-9.4%
Scotland - Including North Sea (geographical share)	-10.6%	-9.7%	-8.6%	-7.4%	-8.6%
UK	-4.2%	-2.8%	-2.7%	-1.9%	-2.5%

• The deficit on the net fiscal balance as a share of GDP has increased for both Scotland and the UK in 2019‑20, by 0.6 percentage points for the UK and 1.2 percentage points for Scotland. In part, this will be due to the impact of COVID-19, with the OBR estimating that borrowing in 2019-20 has increased by 0.4 percentage points as a result of the pandemic. The remainder reflects a loosening in the UK Government’s fiscal stance, with increases in spending announced at Spending Round 2019, and an above inflation increase in the personal allowance for income tax.
• The difference in the change in the overall net fiscal balance between Scotland and the UK is explained by falling North Sea revenue in 2019-20. Excluding North Sea revenue, the net fiscal balance for Scotland increased by 0.6 percentage points, the same as the UK. The net fiscal balance excluding North Sea revenue tends to move in line with the figure for the UK, but is typically around 7 percentage points weaker.
• 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 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 2019-20, the deficit on the Scottish current budget balance excluding the North Sea increased by 0.5 percentage points. The UK current budget balance, which was in surplus in 2018-19, returned to deficit, also falling by 0.5 percentage points.

Table S.2: Current Budget Balance: Scotland and UK 2015-16 to 2019-20

	£ million
	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland - Excluding North Sea	-14,083	-12,308	-11,749	-11,520	-12,651
Scotland - Including North Sea (geographical share)	-14,400	-12,151	-10,609	-10,154	-11,927
As % of GDP
Scotland - Excluding North Sea	-9.6%	-8.1%	-7.4%	-7.0%	-7.5%
Scotland - Including North Sea (geographical share)	-9.3%	-7.7%	-6.4%	-5.7%	-6.8%
UK	-2.5%	-0.9%	-0.6%	0.1%	-0.4%

• 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 2019-20 was £65.2 billion. Non-North Sea revenues fell slightly to 38.7% of GDP.
• Non-North Sea revenue grew by 1.7% in 2019-20. This relatively weak growth reflects weak growth in income tax, which will in part reflect the increase in the personal allowance in this year. It is also due to falls in corporation tax and VAT, which reflects the initial assessment of the impact of COVID-19 on revenues. Non-North Sea revenue growth in the UK as a whole was 1.9%.
• Including an illustrative geographical share of the North Sea, total Scottish revenue was £65.9 billion, an increase of 0.7% from 2018-19. This is slower than the growth in non‑North Sea revenue, reflecting the fact that Scottish North Sea revenue fell by £642 million in 2019-20, due in part to the fall in oil prices toward the end of the year.
• Scotland’s non-North Sea revenue was 7.9% of total UK revenue in 2019-20. Including an illustrative geographical share of the North Sea, Scottish revenue was 8.0% of the UK total.

Table S.3: Total Revenue: 2015-16 to 2019-20

	£ million
	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland – Excluding North Sea revenue	56,530	59,372	61,432	64,076	65,155
Scotland – Including North Sea revenue (geographical share)	56,213	59,529	62,573	65,442	65,878
As % of UK total revenue
Scotland – Excluding North Sea revenue	7.9%	7.8%	7.9%	7.9%	7.9%
Scotland – Including North Sea revenue (geographical share)	7.9%	7.9%	8.0%	8.1%	8.0%
As % of GDP
Scotland – Excluding North Sea revenue	38.4%	38.8%	38.7%	38.8%	38.7%
Scotland – Including North Sea revenue (geographical share)	36.3%	37.3%	37.6%	37.0%	37.4%
UK – including all North Sea revenue	36.8%	37.5%	37.3%	37.4%	37.3%

• 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 £431 in 2019-20, 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 £308 lower than the UK average.

Table S.4: Revenue per person: Scotland and UK 2015-16 to 2019-20

	£ per person
	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland
Excluding North Sea revenue	10,506	10,975	11,317	11,769	11,926
Including North Sea revenue (geographical share)	10,447	11,004	11,527	12,020	12,058
UK
Excluding North Sea revenue	10,919	11,508	11,752	12,174	12,357
Including North Sea revenue	10,918	11,508	11,772	12,192	12,367
Difference (Scotland minus UK)
Excluding North Sea revenue	-413	-533	-435	-404	-431
Including North Sea revenue (geographical share)	-471	-504	-244	-171	-308

Scotland’s spending

• Table S.5 below shows estimates of public spending for Scotland. Expenditure increased from £78.6 billion in 2018-19 to £81.0 billion in 2019-20. Scotland’s share of UK expenditure is relatively stable over the period, at around 9.2%.
• In general, spending as a share of GDP had been falling in recent years, meaning public spending has grown more slowly than nominal GDP. Between 2015-16 and 2018-19, expenditure as a share of GDP excluding the North Sea fell by around 2 percentage points in Scotland and the UK. This trend is reversed in 2019-20, with spending increasing as a share of GDP. This is the first time that spending as a share of GDP has increased in the UK since 2009-10. In Scotland, the last time spending increased as a share of GDP was in 2015-16, which reflected a fall in GDP rather than a spending increase. This change is largely due to the spending increases announced by the UK Government in Spending Round 2019 rather than COVID-19, with COVID-19 spending currently estimated to increase spending as a share of GDP by 0.2% in 2019-20.

Table S.5: Total Public Sector Expenditure: 2015-16 to 2019-20

	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland - £ millions	72,603	75,001	76,823	78,598	81,015
Share of UK (%)	9.1%	9.2%	9.2%	9.2%	9.2%
As % of GDP
Scotland - excluding North Sea	49.0%	48.8%	48.1%	47.2%	47.9%
Scotland - including geographic share of North Sea	46.9%	47.0%	46.1%	44.4%	46.1%
UK – including all North Sea	41.0%	40.2%	40.0%	39.3%	39.8%

• 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 2015-16 to 2019-20

£ per person	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland	13,493	13,864	14,153	14,436	14,829
UK	12,162	12,360	12,626	12,802	13,196
Difference (Scotland minus UK)	1,331	1,504	1,527	1,634	1,633

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: How has the coronavirus pandemic affected the GERS figures?

A: The GERS publication covers the period up to the end of March 2020 and some initial impacts can already be seen. In particular, revenue from corporation tax and VAT have fallen, whilst public spending, particularly on health, has increased. The impact of coronavirus will be greater in 2020-21.

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. This year there have been changes relating to student loans, pensions, and capital consumption, as well as regular data updates.

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

A: GERS allocates Scotland a population share of UK debt interest. In 2019-20, this was £4.5 billion. This figure now includes debt interest expenditure associated with public sector pension funds, which also generate interest income. In 2019-20, Scotland is apportioned £1.5 billion of interest expenditure associated with public sector pensions, and £1.7 billion of interest income.

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 2019-20, accounting adjustments added £6.5 billion to the estimate of Scottish public sector revenue and £6.9 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.