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Government Expenditure and Revenue in Scotland 2004 - 2005

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Section 7: Long-term Developments

This section presents an overview of the fiscal positions of the UK and Scotland between 1980-81 and 2004-05. Although the Scottish pre-1999-2000 data are not directly comparable with the data presented in this edition of GERS, they provide a valuable context, especially alongside the broadly comparable UK data (all UK numbers in this section exclude North Sea revenues and extra-regio GVA). 6

Aggregate government expenditure and revenue

Chart 7.1 illustrates that, as a proportion of GDP, government expenditure in Scotland has been consistently above that of the UK. This gap averaged around 7 percentage points between 1980-81 and 1990-91 and increased to around 8 percentage points between 1991-92 and 2004-05. Despite these trends, the same cyclical pattern is evident for both Scotland and the UK. The latest data for 2004-05 show that the ratio of Scottish government expenditure to GDP was estimated at 51.0 per cent compared to a UK figure of 42.9 per cent.

Chart 7.1 Aggregate Government Expenditure, Percentage of GDP

The trend in estimated aggregate revenue as a proportion of GDP is very similar for both Scotland and the UK. Chart 7.2 shows that revenue as a proportion of GDP was higher in Scotland compared to the UK, until 1990-91. Since then, the UK and Scottish proportions have been very similar. In 2004-05, Scottish government revenue was estimated at 39.1 per cent of GDP which is marginally higher than the UK figure of 39.0 per cent.

Chart 7.2 Estimated Aggregate Receipts, Percentage of GDP

Over the period 1980-81 to 2004-05, Scottish government expenditure as a share of total UK expenditure has consistently exceeded its corresponding share of revenues (on the basis of GERS assumptions and definitions). This trend is shown in chart 7.3. Between 1980-81 and 1990-91, Scottish government expenditure averaged 10.2 per cent of UK expenditure while Scottish revenues averaged 9.1 per cent of UK revenues.

The corresponding figures for the period 1991-92 to 2004-05 were 10.0 per cent and 8.5 per cent respectively. The underlying relationship between the two series has been broadly stable with the expenditure share exceeding revenues by around 1 or 2 percentage points. The gap has slightly widened over recent years although this was also evident around the period 1986-1990.

Chart 7.3 Government Expenditure and Revenue, Scotland as share of UK

Per capita expenditure

Chart 7.4 illustrates the long-term trends in aggregate and identifiable expenditure per capita. Between 1980-81 and 2004-05, aggregate expenditure per capita has been on average around 14 per cent above that of the UK.

Data on identifiable expenditure per capita are only available from 1987-88. Between 1987-88 and 2004-05, identifiable expenditure per capita averaged around 18 per cent above the UK level. As with the aggregate expenditure, the series peaked in the late 1980s at around 22 per cent before falling back to a low of 14 per cent in the early 1990s. Since this point, the trend has been more stable around its long-term average, although we can observe an upwards movement from the late 1990s until the latest year.

Identifiable expenditure per head across the four countries converged to a degree in 2004-05, with Scotland's spending per head falling from 19.1% above the UK average to 15.8% above the UK average. This convergence occurred because expenditure elsewhere in the UK, particularly in England, grew faster than in Scotland.

Chart 7.4 Government Expenditure Per Capita, Scotland ( UK = 100)

image of Chart 7.4 Government Expenditure Per Capita, Scotland (UK = 100)

Net Borrowing

Chart 7.5 illustrates long-term Scottish net borrowing compared to the UK. Scottish net borrowing rose gradually through the 1980s (from around £2.5 billion to £4 billion) before increasing sharply in the early 1990s to a peak deficit of £8.4 billion in 1993-94. The series then decreased steadily to just over £4 billion in 1998-1999 before rising again to £11.3 billion in 2003-04, and fell very slightly in 2004-05 to £11.2 billion.

The trend in the UK net borrowing is similar but demonstrates a more pronounced cyclical pattern. A significant decline in the late 1980s towards fiscal balance in 1988-89 was followed by an equally significant increase to a peak deficit of £53 billion in 1993-94. Another sharp fall into surplus is seen between 1998-99 and 2000-01, followed by a rapid increase.

Chart 7.5 Net Borrowing, £ billion

image of Chart 7.5 Net Borrowing, £ billion

Chart 7.6 examines net borrowing in Scotland and the UK as a share of GDP between 1980-81 and 2004-05. Over this period, a similar trend is clearly evident for both with each peaking in 1993-94 and reaching a low in the late 1990s.

The Scottish series was around 6 percentage points above the UK through the 1980s but this has increased to an average of 8.8 percentage points since the turn of the millennium. Over the period since 1980-81, net borrowing in Scotland averaged just over 10 per cent of GDP in Scotland, compared to 3.5 per cent in the UK.

Chart 7.6 Net Borrowing as a percentage of GDP

image of Chart 7.6 Net Borrowing as a percentage of GDP