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Government Expenditure & Revenue Scotland 2012-13

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3 PUBLIC SECTOR REVENUE

Introduction

This chapter provides detailed estimates of Scottish public sector revenue, including analysis of the tax revenues which are currently devolved, and those which will be devolved via the Scotland Act 2012. As discussed in Chapter 2, public sector revenue estimates presented in this chapter exclude the revenues associated with the Bank of England Asset Purchase Facility.

As Chapter 4 discusses the treatment of North Sea revenue in detail, the focus of this chapter is on non-North Sea elements of 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 that revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. These methods are discussed in Annex A and in the detailed revenue methodology paper on the GERS website.[11]

GERS makes use of the best data sources and methodologies available and therefore represents as accurate a reflection of public sector revenue in Scotland as is currently possible. In some cases, a variety of methodologies could be applied, each leading to different estimates of public sector revenue in Scotland. As discussed in the Preface, HMRC published experimental estimates of some taxes for the four countries in the UK in October 2013. Box 3.1 compares the HMRC estimates with those in this publication.

Estimated Revenue 2012-13

Table 3.1 highlights estimated public sector revenue in Scotland and the outturn data for the UK in 2012-13. The contribution of each element of taxation to the total estimated tax yield in Scotland, and the proportion of UK revenue raised in Scotland, are also included in the table.

On the basis of the assumptions and methodologies described in this report, in 2012-13, total public sector non-North Sea current revenue in Scotland was estimated to be £47.6 billion. This is equivalent to 8.2% of UK total non-North Sea current revenue which is broadly in line with Scotland's share of the UK population.[12]

Table 3.1: Current Revenue: Scotland 2012-13

  Scotland UK
£ million
Scotland as %
of UK
£ million % of total non-North Sea revenue
Income tax 10,865 22.8% 147,731 7.4%
Corporation tax (excluding North Sea) 2,872 6.0% 34,384 8.4%
Capital gains tax 292 0.6% 3,926 7.4%
Other taxes on income and wealth 271 0.6% 3,122 8.7%
National insurance contributions 8,521 17.9% 104,483 8.2%
VAT 9,347 19.7% 112,072 8.3%
Fuel duties 2,258 4.7% 26,571 8.5%
Stamp duties 472 1.0% 9,140 5.2%
Tobacco duties 1,128 2.4% 9,590 11.8%
Alcohol duties 980 2.1% 10,139 9.7%
Betting and gaming and duties 120 0.3% 1,228 9.8%
Air passenger duty 234 0.5% 2,818 8.3%
Insurance premium tax 207 0.4% 3,033 6.8%
Landfill tax 100 0.2% 1,116 8.9%
Climate change levy 62 0.1% 654 9.5%
Aggregates levy 45 0.1% 261 17.3%
Inheritance tax 243 0.5% 3,150 7.7%
Vehicle excise duty 481 1.0% 6,003 8.0%
Non-domestic rates 1 1,981 4.2% 25,072 7.9%
Council tax 2,006 4.2% 26,279 7.6%
Other taxes, royalties and adjustments2 1,082 2.3% 12,895 8.4%
Interest and dividends 623 1.3% 7,617 8.2%
Gross operating surplus 3,247 6.8% 27,591 11.8%
Rent and other current transfers 128 0.3% 1,418 9.0%
Total current revenue (excluding North Sea revenue) 47,566 100% 580,293 8.2%
North Sea revenue 3
Per capita share 552   6,632 8.3%
Geographical share 5,581   6,632 84.2%
Total current revenue (including North Sea revenue)
Per capita share 48,118   586,925 8.2%
Geographical share 53,147   586,925 9.1%

1. Excludes non-domestic rates that local authorities pay themselves.
2. Although this group includes some 11 separate revenues (as set out in the detailed methodology paper on the GERS website), the two largest - TV Licences and National Lottery Distribution Fund - account for 43.2% (£450 million) of this estimate for Scotland. This group also contains a small accounting adjustment to align the revenue estimates to those in the February 2013 UK Public Sector Finances Statistical Bulletin. This adjustment is apportioned to Scotland on a population share basis.
3. A full discussion of North Sea revenue is provided in Chapter 4.

Income tax was the single largest source of public sector revenue in Scotland. In 2012-13, income tax revenue was estimated at £10.9 billion - almost a quarter of all public sector revenue in Scotland (excluding revenue from the North Sea).

VAT represented the second largest revenue source in Scotland, and was the largest source of revenue from indirect taxes, raising an estimated £9.3 billion in 2012-13 - 19.7% of total non-North Sea revenues. National insurance contributions represented the third largest source of revenue, accounting for 17.9% of total non-North Sea revenues.

Gross operating surplus (GOS) refers to the operating (or trading) surpluses (or losses) of central government, local government and public corporation trading activity. It was the fourth largest revenue source in Scotland during 2012-13, generating approximately £3.2 billion in revenue, 6.8% of total non-North Sea revenue in Scotland.

Scotland accounted for 11.8% of the total UK GOS in 2012-13. Scotland's relatively large share of the UK GOS is partly due to Scottish Water which is one of the largest contributors to UK public corporations' GOS. The equivalent water companies in England and Wales are outside the public sector and hence do not contribute to their GOS.[13]

Corporation tax (excluding that from the North Sea) represented the fifth largest revenue source in Scotland in 2012-13 with receipts of £2.9 billion. This was equivalent to 6.0% of total non-North Sea current revenue.[14]

After these five main categories, all other types of tax listed each individually accounted for 4.7%, or less, of total non-North Sea revenue in Scotland in 2012-13.

The Scottish share of total UK revenue for each element of revenue varies according to the particular tax being estimated. For income tax, Scotland's share of UK revenue was lower than its share of the UK population, reflecting in part differing income distributions, with relatively fewer higher rate tax payers in Scotland. For VAT, corporation tax (excluding North Sea) and national insurance contributions, Scotland's share of UK revenue was broadly in line with its share of the UK population. Revenue from duties on betting and gaming, alcohol and tobacco were higher than Scotland's share of the UK population.

Table 3.2 shows estimates of Scotland's share of UK revenue for five key tax groups between 2008-09 and 2012-13. In each year during this period, total non-North Sea revenue in Scotland has accounted for between 8.1% and 8.4% of UK non-North Sea revenue, broadly in line with Scotland's share of the UK population.

Table 3.2: Non-North Sea Current Revenue: Scotland as Share of UK 2008-09 to 2012-13

  (per cent of UK revenue)
2008-09 2009-10 2010-11 2011-12 2012-13
Income tax 7.3% 7.3% 7.2% 7.4% 7.4%
Corporation tax (excluding North Sea revenue) 8.5% 8.3% 8.0% 8.4% 8.4%
National Insurance contributions 8.3% 8.2% 8.2% 8.2% 8.2%
Value added tax 8.6% 8.6% 8.4% 8.3% 8.3%
Local authority revenue 1 7.9% 7.9% 8.0% 7.8% 7.8%
All other revenue 9.6% 9.4% 9.0% 9.2% 9.2%
Total non-North Sea current revenue 8.4% 8.2% 8.1% 8.2% 8.2%

1. Council tax and non-domestic rates

Box 3.1: Comparison between GERS and experimental HMRC estimates

Any analysis of public sector receipts in Scotland relies on estimation, and as such alternative estimates are possible. GERS has always sought to use the best possible methodologies, derived in consultation with its users. The methodologies used in GERS have been developed over time to ensure they meet user needs, in particular following a major review in 2007.

In a new addition to data available in this area, HM Revenue & Customs (HMRC) published in October 2013 experimental statistics on the breakdown of taxes collected by HMRC in the four countries of the UK. The statistical estimates remain in development and are currently the subject of a consultation which closes at the end of March 2014. In the meantime, HMRC advise that they are used with caution.

In most cases, the two sets of estimates in GERS and the HMRC publication are very similar. For some taxes, there are definitional differences which mean that the figures in the two publications should not be directly compared. For example, within GERS VAT receipts are shown before the removal of VAT refunds, whilst HMRC figures present VAT receipts including the removal of VAT refunds. For other taxes, notably corporation tax and revenues from oil and gas production, there are methodological differences between the different publications.

HMRC and the devolved administrations recognise that it is helpful to users of their publications to have consistent sets of official statistics wherever possible. HMRC and the devolved administrations are committed to working together to reconcile, and where possible, align methodologies for estimating regional tax receipts. While some differences may remain, the aim is to ensure a clear understanding of the reasons for any differences and to highlight these to users and the impact that this may have on any results. HMRC, the Scottish Government, and the Northern Ireland Executive have published a joint statement on this issue, which is available on the GERS website.[15] This work is ongoing and updates will be added in the future.

The table below compares the estimates in GERS with those implied by the HMRC publication, both in cash terms and as a share of GDP.

Estimates of Total Scottish Tax Revenues 2008-09 to 2012-13
  £ million
2008-09 2009-10 2010-11 2011-12 2012-13
Cash estimates: onshore revenues
GERS 43,772 42,054 44,318 46,315 47,566
HMRC 1 43,579 42,025 44,701 46,198 47,717
Difference 193 29 -383 117 -151
Difference (% GDP) 0.2% 0.0% -0.3% 0.1% -0.1%
Cash estimates: geographical share of North Sea revenues
GERS 11,577 5,679 7,454 10,000 5,581
HMRC1 10,490 5,257 7,206 9,372 5,231
Difference 1,087 423 249 628 350
Difference (% GDP) 0.8% 0.3% 0.2% 0.4% 0.2%
Share of UK total: onshore revenues
GERS 8.4% 8.2% 8.1% 8.2% 8.2%
HMRC1 8.3% 8.2% 8.2% 8.2% 8.2%
Difference (% point) 0.0% 0.0% -0.1% 0.0% 0.0%
Share of UK total: geographical share of North Sea revenues
GERS 92.9% 94.8% 88.7% 88.2% 84.2%
HMRC 84.2% 87.7% 85.7% 82.7% 78.9%
Difference (% point) 8.7% 7.1% 3.0% 5.5% 5.3%

1 For revenues not estimated by HMRC, the GERS estimate has been included in the HMRC figure to allow the totals to be comparable

Further information on the HMRC results and methodology is available at:
https://www.gov.uk/government/publications/disaggregation-of-hmrc-tax-receipts

Note to users:

A clerical error was discovered in the above table relating to the estimate of North Sea revenue published by HMRC.  This error did not reflect any issue with underlying data and had no impact on any of the GERS statistics or on any other result in the publication. It has now been corrected.

 

Estimated Revenue: Scotland and the UK, 2008-09 to 2012-13

Table 3.3 overleaf shows estimated current revenue in Scotland and the UK between 2008-09 and 2012-13. Current non-North Sea revenue in Scotland is estimated to have grown by 8.7% between 2008-09 and 2012-13 in nominal terms, less than for the UK as a whole (10.8%). This difference is largely explained by the slower estimated growth in gross operating surplus, VAT, and stamp duties in Scotland compared to the UK as a whole. The effect of the recession on the public finances is clearly visible, with non-North Sea revenues falling in both Scotland and the UK during 2009-10. From 2009-10, receipts recovered and have continued to increase in both Scotland and the UK.

Table 3.3: Current Revenue: Scotland and UK 2008-09 to 2012-13,

  (£ million)
Scotland UK
2008-09 2009-10 2010-11 2011-12 2012-13 2008-09 2009-10 2010-11 2011-12 2012-13
Income tax 10,547 10,277 10,589 10,776 10,865 143,791 140,606 146,627 146,548 147,731
Corporation tax (excl North Sea) 2,816 2,535 2,787 2,762 2,872 33,025 30,538 34,968 32,695 34,384
Capital gains tax 568 164 202 278 292 7,851 2,504 3,590 4,336 3,926
Other taxes on income and wealth 249 210 354 261 271 2,741 2,361 6,134 2,974 3,122
National insurance contributions 7,987 7,912 7,967 8,284 8,521 96,613 96,638 97,747 101,597 104,483
VAT 7,377 7,161 8,143 9,136 9,347 85,350 83,710 97,277 109,800 112,072
Fuel duties 2,095 2,234 2,324 2,276 2,258 24,615 26,197 27,256 26,798 26,571
Stamp duties 594 517 573 511 472 8,002 7,904 8,931 8,919 9,140
Tobacco duties 842 1,024 1,064 1,168 1,128 7,896 9,462 9,305 9,878 9,590
Alcohol duties 814 892 910 978 980 8,598 9,246 9,434 10,180 10,139
Betting and gaming and duties 105 106 98 122 120 994 1,029 1,069 1,221 1,228
Air passenger duty 168 162 183 227 234 1,835 1,870 2,183 2,637 2,818
Insurance premium tax 167 165 173 205 207 2,271 2,262 2,509 3,002 3,033
Landfill tax 82 85 98 96 100 863 944 1,094 1,075 1,116
Climate change levy 64 61 62 64 62 711 687 660 678 654
Aggregates levy 50 49 55 48 45 321 276 294 283 261
Inheritance tax 245 206 175 229 243 2,931 2,431 2,722 2,955 3,150
Vehicle excise duty 458 466 470 477 481 5,602 5,692 5,789 5,930 6,003
Non-domestic rates 1,736 1,822 1,892 1,933 1,981 21,925 22,639 22,715 23,980 25,072
Council tax 1,960 1,961 1,969 1,984 2,006 24,651 25,210 25,732 25,964 26,279
Other taxes, royalties and adjustments 717 806 837 988 1,082 8,012 9,174 9,617 11,881 12,895
Interest and dividends 634 276 410 454 623 7,614 3,407 4,947 5,489 7,617
Gross operating surplus 3,416 2,897 2,936 3,012 3,247 26,698 24,617 25,980 26,258 27,591
Rent and other current transfers 81 64 46 47 128 905 714 520 519 1,418
Total current revenue
(excluding North Sea revenue)
43,772 42,054 44,318 46,315 47,566 523,815 510,118 547,100 565,597 580,293
North Sea revenue
Per capita share 1,048 503 705 948 552 12,456 5,991 8,406 11,336 6,632
Geographical share 11,577 5,679 7,454 10,000 5,581 12,456 5,991 8,406 11,336 6,632
Total current revenue
(including North Sea revenue)
Per capita share 44,820 42,557 45,023 47,264 48,118 536,271 516,109 555,506 576,933 586,925
Geographical share 55,349 47,733 51,773 56,315 53,147 536,271 516,109 555,506 576,933 586,925

Table 3.4 shows per capita tax receipts for Scotland and the UK between 2008-09 and 2012-13. Excluding North Sea revenue, per capita receipts in Scotland are estimated to be £8,947 in 2012‑13. Including an illustrative geographical share of North Sea revenue, Scottish per capita receipts in Scotland 2012-13 are estimated to be £9,997. UK per capita receipts, which include all North Sea revenues, were £9,200 in 2012-13. When oil and gas receipts are excluded, UK per capita receipts were £9,096 in 2012-13.

Table 3.4: Current Revenue Per Capita: Scotland and UK 2008-09 to 2012-13

  2008-09 2009-10 2010-11 2011-12 2012-13
Scotland
Excluding North Sea revenue 8,401 8,028 8,406 8,730 8,947
Including North Sea revenue (per capita share) 8,602 8,124 8,540 8,909 9,051
Including North Sea revenue (geographical share) 10,623 9,112 9,820 10,615 9,997
UK
Excluding North Sea revenue 8,457 8,178 8,699 8,921 9,096
Including North Sea revenue 8,659 8,274 8,832 9,100 9,200
Difference (Scotland minus UK)
Excluding North Sea revenue -57 -151 -292 -191 -148
Including North Sea revenue (per capita share) -57 -151 -293 -191 -148
Including North Sea revenue (geographical share) 1,964 838 988 1,515 798

Box 3.2 The Emissions Trading Scheme and Carbon Reduction Commitment

This box sets out the methodology used to assign Scotland a share of UK receipts from the Emissions Trading Scheme (ETS) and the Carbon Reduction Commitment. Prior to September 2013, ETS receipts were not included in the UK Public Sector Finances and so were not reflected in GERS 2011-12. These revenues are classified as other taxes, royalties, and adjustments, with the exception of estimated ETS revenue from offshore oil and gas, which is classified as a North Sea revenue.

Emissions Trading Scheme

Receipts from the EU Emissions Trading Scheme have not previously been included in the ONS UK Public Sector Finances. Following a change in European guidance on their treatment, these receipts were included for the first time in the September 2013 Public Sector Finances publication. This affects historical receipts from 2009-10 onwards.

The Emissions Trading Scheme operates by requiring firms to have allowances to emit greenhouse gases. The scheme covers power stations, oil refineries, offshore platforms, aviation and many other industries.

To calculate Scotland's share of ETS revenues, the UK total has been split into onshore, overseas (including Ministry of Defence (MoD)), and North Sea oil and gas revenues using data on ETS allowances provided by the Environment Agency and the Scottish Environment Protection Agency.

Scotland's share of onshore ETS receipts has been estimated using data on allowances held by Scottish installations. MoD and overseas ETS revenues are allocated to Scotland on a population basis, consistent with the GERS methodology in similar areas. Similarly, revenues from offshore oil and gas platforms have three treatments, and are allocated to Scotland on either a zero share, a per capita share, or an illustrative geographical production share. The results are set out in the table below. Further detail is provided in the revenue methodology paper on the GERS website.

Emissions Trading Scheme Revenues 2008-09 to 2012-13
  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
UK revenues
Onshore revenues 0 54 230 321 552
MoD and overseas revenues 0.0 0.1 0.2 0.3 0.5
North Sea revenues 0 3 14 19 33
Scottish revenues
Onshore revenues 0 5 23 32 55
MoD and overseas revenues 0.00 0.00 0.02 0.03 0.04
North Sea revenues - per capita share 0 0 1 2 3
North Sea revenues - production share 0 3 11 15 25

Carbon Reduction Commitment

The Carbon Reduction Commitment Energy Efficiency Scheme is a mandatory scheme aimed at improving energy efficiency and cutting emissions in large public and private sector organisations. Participants include supermarkets, water companies, banks, local authorities and all central government departments. Charges are based on an organisation's electricity consumption. The first receipts for the scheme are accrued to 2012-13.

UK receipts for the scheme in 2012-13 were £257 million. Based on its share of industrial electricity consumption, Scotland's estimated receipts are 7.7% of these revenues, or £19.7 million.

See Annex A for further details of the apportionment methodologies and data.

Devolved Taxation

Council Tax and Non-domestic Rates are the only two taxes which are currently set and administered by the Scottish Government and Scottish Local Authorities. Collectively the two taxes raised almost £4.0 billion during 2012-13 as outlined in the table below. This is equivalent to 8.4% of Scottish onshore tax revenue in this year.

Table 3.5: Existing Devolved Taxes Revenue: Scotland 2008-09 to 2012-13

  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
Council Tax 1,960 1,961 1,969 1,984 2,006
Non Domestic Rates 1,736 1,822 1,892 1,933 1,981
Total 3,696 3,783 3,861 3,917 3,987

The Scotland Act 2012 gives the Scottish Parliament new powers over taxation and borrowing.

From April 2015, Stamp Duty Land Tax (SDLT), which is levied by the UK Government on the conveyances and transfers of land and property, will be withdrawn in Scotland and replaced with the Land and Buildings Transaction Tax (LBTT). LBTT bands and rates will be determined by Scottish Ministers and subject to the scrutiny of the Scottish Parliament. Further information on the reforms is provided on the Scottish Government website.[16]

The table below sets out the revenue raised by SDLT in Scotland and the UK as a whole between 2008-09 and 2012-13. In 2012-13, SDLT raised £283 million in Scotland, equivalent to 4.1% of total UK SDLT receipts. SDLT receipts have been volatile in recent years, falling to £250 million in 2009-10 before recovering to £330 million in 2010-11. SDLT receipts fell back again to £275 million in 2011-12 and increased only marginally in 2012-13 to £283 million, 11.6% below their 2008-09 level.

Table 3.6: Stamp Duty Land Tax Revenue: Scotland and UK 2008-09 to 2012-13

  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
Scotland 320 250 330 275 283
UK 4,797 4,885 5,961 6,125 6,906
Scotland as % of the UK 6.7% 5.1% 5.5% 4.5% 4.1%

Landfill Tax, which is levied on the disposal of waste to landfill, will also be withdrawn in Scotland from April 2015. It will be replaced by a new Scottish Landfill Tax set and administered by the Scottish Government. Landfill Tax is estimated to have raised £100 million in Scotland during 2012-13, as outlined in the table below. This is equivalent to 8.9% of total UK landfill tax receipts. Landfill Tax revenue in both Scotland and the UK as a whole have been on an upward trend since 2008-09. This reflects a decision to increase annually the rate of tax on active waste sent to landfill during this period.

Table 3.7: Landfill Tax Revenue: Scotland and UK 2008-09 to 2012-13

  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
Scotland 82 85 98 96 100
UK 863 944 1,094 1,075 1,116
Scotland as % of the UK 9.6% 9.0% 9.0% 8.9% 8.9%

From April 2016 the basic, higher and top rates of income tax levied on earned income by the UK Government in Scotland will be reduced by 10p. They will be replaced by a new Scottish Rate of Income Tax (SRIT), which will be set by the Scottish Government. The revenue collected from the SRIT will then form part of the Scottish budget. If the Scottish Government chooses to set the SRIT at 10p, the basic, higher and top rates of income tax in Scotland will remain at the same levels as in the rest of the UK.

The table below illustrates the revenue which would have been raised by the SRIT since 2008-09 assuming it was set at 10p in each year, therefore leaving the overall income tax rates unchanged. The table shows that in 2012-13 the SRIT would have generated approximately £4.2 billion.

Table 3.8: Scottish Rate of Income Tax Liabilities: Scotland 2008-09 to 2012-13

  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
Scottish Rate of Income Tax Liabilities 4,352 4,330 4,427 4,267 4,231

Note: this table shows Scottish Rate of Income Tax liabilities rather than receipts. They are therefore calculated on a different basis to the estimates of total Scottish income tax receipts in Table 3.1.

Collectively, existing devolved taxes (council tax and non-domestic rates), and the taxes which will be devolved under the Scotland Act generated an estimated £8.6 billion in revenue during 2012-13. This corresponds to approximately 18.1% of non-North Sea revenue in this year and 16.2% of total Scottish receipts when an illustrative geographical share of North Sea revenue is included.

Table 3.9: Devolved Taxes Revenue: Scotland 2008-09 to 2012-13

  (£ million)
2008-09 2009-10 2010-11 2011-12 2012-13
Scottish Rate of Income Tax Liabilities 4,352 4,330 4,427 4,267 4,231
Landfill Tax 82 85 98 96 100
Stamp Duty Land Tax 320 250 330 275 283
Council Tax 1,960 1,961 1,969 1,984 2,006
Non Domestic Rates 1,736 1,822 1,892 1,933 1,981
Total 8,450 8,449 8,716 8,555 8,601
Devolved Taxes as % of non-North Sea Revenue 19.3% 20.1% 19.7% 18.5% 18.1%
Devolved Taxes as % Total Revenue (Including a population share of North Sea) 18.9% 19.9% 19.4% 18.1% 17.9%
Devolved Taxes as % Total Revenue (Including a geographical share of North Sea) 15.3% 17.7% 16.8% 15.2% 16.2%