Government Expenditure & Revenue Scotland 2013-14

Any analysis of public sector receipts in Scotland relies on estimation, and as such alternative estimates are possible. As discussed in the Preface, GERS estimates revenue using a set of appropriate apportionment methodologies, refined over a number of years following consultation with and feedback from users.

Since 2013, HMRC have published estimates of the breakdown of taxes they collect in the four countries of the UK. The latest set of estimates for 2013-14 were published as official statistics in October 2014.

In most cases, the 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 deduction of government VAT refunds, whilst HMRC figures present VAT receipts after the deduction of VAT refunds. For other taxes, notably corporation tax and revenues from oil and gas production, there are methodological differences between the two 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 working together to reconcile, and where possible, align methodologies for estimating regional tax receipts. Estimates of VAT and fuel duty have been more closely aligned in this year's GERS publication. While some differences remain, the aim is to ensure a clear understanding of the reasons for any differences and highlight these to users and the impact that this may have on any results.

Much of the work to date has been to understand the differences in approach and to ensure users are properly informed of the differences and the implications of using the different sets of estimates. More work is planned over the next year to make further progress on this issue, updates of which will be published on the GERS website.

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.

The move to report Scotland's public sector finances on an ESA10 basis has resulted in a number of changes to revenues. In general, these are accounting changes which increase both revenue and expenditure by equal amounts, leaving the overall fiscal position unchanged.

VAT: ESA10 changes the treatment of VAT based contributions to the EU. Previously, the VAT raised in the UK and paid to the EU was excluded from the UK public sector finances. Under ESA10, this VAT is now recorded as both a UK revenue and a UK payment to the EU. This increases UK VAT revenue by approximately £2 billion a year and estimated Scottish VAT revenue by approximately £200 million. A corresponding increase in expenditure is included within the expenditure accounting adjustment, leaving the net fiscal position unchanged.

Income tax: Previously, parts of the child tax credit and working tax credit schemes were treated as negative income tax receipts. Under ESA10, these schemes are now treated as a benefit expenditure. This increases UK revenue by approximately £2.7 billion in 2013-14, and estimated Scottish revenue by approximately £200 million. A corresponding increase in expenditure is included within the expenditure accounting adjustment, leaving the net fiscal position unchanged.

Council tax and non-domestic rates: Under ESA95, council tax and non-domestic rates were reported based on the expected amount of tax that would be collected, with written‑off tax treated as a capital payment to households. Under ESA10, written‑off tax is deducted from total tax. This change results in small reductions to both revenue and expenditure, but leaves the net fiscal position unchanged.

Gross operating surplus: For central and local government, gross operating surplus represents their capital consumption. As discussed in Box 5.1 spending on research and development and single use military equipment has increased capital spending. This leads to a corresponding increase in capital consumption and gross operating surplus. UK revenue increases by approximately £10 billion in 2013-14, with Scottish revenue increasing by approximately £800 million. A corresponding amount of expenditure is included within the expenditure accounting adjustment, leaving the net fiscal position unchanged.

Rent: Under ESA95, revenue from the sale of 3G and 4G licenses in 2000 and 2013 was treated as the sale of a capital asset, which decreased net investment. Under ESA10, this revenue will be treated as rent, with the revenue spread over a 20 year period. This increases revenue in all years after 2000-01. UK revenue increases by approximately £1 billion a year, with Scottish revenue estimated to increase by approximately £80 million.

Network Rail: Under ESA10, Network Rail is now classified as part of central government, as its debt is explicitly guaranteed by the Department for Transport and there is a statutory obligation on government to protect rail services. These factors, which were not relevant in classifying bodies under ESA95, were judged by ONS to be sufficient evidence that Network Rail is controlled by government, and should therefore be included in government accounts.

Information on Network Rail's revenue and expenditure in Scotland has been taken from Network Rail's regulatory financial statements, which provides a breakdown of Network Rail's accounts across England and Wales, and Scotland. Scotland has also been apportioned a share of Network Rail's activity associated with the East Coast and West Coast Mainlines.

Including Network Rail increases UK central government operating surplus by approximately £4.6 billion, and estimated central government operating surplus in Scotland by approximately £350 million.

The recent GERS consultation and user requests throughout the year have highlighted an interest in comparing GERS figures to other countries and regions of the UK. HMRC produces tax revenue figures for Scotland, Wales, Northern Ireland and England. However, as discussed in Box 3.1, these are only for the taxes collected by HMRC and are not directly comparable to the GERS figures, which cover all UK revenues. In addition, the HMRC estimates do not provide a breakdown of tax receipts for the English regions.

The chart below provides experimental estimates of public sector receipts for each of the UK countries and regions using the GERS methodology. Full details of the methodology is available on the GERS website: http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS/RelatedAreas

We welcome user feedback about this analysis, including comments on the methods used. As normal, please feedback to economic.statistics@scotland.gsi.gov.uk.

The chart below shows estimates of public sector revenue per head for each of the UK countries and regions relative to the UK average. Scotland is estimated to raise the fifth most onshore revenue per person of the UK regions. When an illustrative geographical share of North Sea revenue is included, revenue per person in Scotland is estimated to be the fourth highest of the UK countries and regions, behind London, the South East, and East England.

Revenue per head, 2013-14

Note: Relative revenue per head when a population share of the North Sea is assigned to each country and region is the same as onshore revenue.