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Government Expenditure & Revenue Scotland 2016-17

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Chapter 1: Public Sector Revenue

Total Public Sector Revenue: Scotland 2016-17

Introduction

This chapter provides detailed estimates of Scottish 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 revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. These methods are discussed in the methodology paper on the GERS website.[12]

Following the implementation of the Scotland Act 2012 and Scotland Act 2016, an increasing amount of revenue is being devolved to the Scottish Parliament, and direct Scottish measures of these revenues will be available. To date, landfill tax, property transaction taxes, and some powers over income tax have been devolved. Chapter 4 provides more information on current and future devolved taxes.

GERS uses a set of data sources and methodologies developed over a number of years following consultation with, and feedback from, users. In some cases, a variety of methodologies could be applied, each leading to different estimates of public sector revenue in Scotland. Table A.5 in Annex A provides analysis of the confidence intervals around revenue estimates based on survey data.

Changes to revenue presentation in GERS 2016-17

Following the recent user consultation, the presentation of revenues has been changed in GERS 2016-17 to align more closely with the presentation used by the Office for Budget Responsibility in its Economic and Fiscal Outlook report.

These changes are purely presentational, and the estimate of total revenue is unaffected. The main changes relate to the presentation of income tax, corporation tax, and VAT. For income tax and corporation tax, elements of revenues which were previously reported as 'other taxes on income and wealth' are now incorporated into these lines, and the 'other taxes on income and wealth' line has been removed. VAT is now split into two lines: VAT, which represents the net cash received by government, and VAT refunds, which represents the value of VAT refunds paid to government departments and local government. In the public finances, these refunds are recorded as both a revenue and expenditure, and so do not affect the net fiscal balance. These changes are discussed in more detail in the consultation document, available at: http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS/GERSConsultation2017

Another change introduced in this year's GERS is the reporting of tax and non-tax revenue separately. This follows requests from a number of users for this breakdown. Non-tax revenues are primarily non-cash accounting adjustments in gross operating surplus, and the operating surplus of public corporations such as Scottish Water. These are discussed in more detail below.

Estimated Revenue 2016-17

Table 1.1 reports estimated public sector revenue in Scotland and the preliminary outturn data for the UK in 2016-17. The contribution of each element of revenue to the Scottish total, and the proportion of UK revenue raised in Scotland, are also included in the table. Income tax, national insurance contributions, and value added tax account for around two thirds of total non-North Sea revenue. In order to report revenue on a National Accounts basis, the international reporting standards used by governments, a number of accounting adjustments are included in the total revenue estimate. These are primarily symmetric adjustments that also form part of expenditure, and therefore have little impact on the net fiscal balance.

Table 1.1: Revenue: Scotland and UK 2016-17

Scotland UK Scotland as % of UK
£ million % of total non-North Sea taxes £ million
Income tax 12,760 24.2% 175,923 7.3%
National insurance contributions 10,367 19.7% 125,937 8.2%
Value added tax 10,193 19.4% 121,520 8.4%
Corporation tax (excluding North Sea) 3,908 7.4% 55,211 7.1%
Fuel duties 2,362 4.5% 27,936 8.5%
Non-domestic rates 2,732 5.2% 29,319 9.3%
Council tax 2,082 4.0% 30,525 6.8%
VAT refunds 1,220 2.3% 13,735 8.9%
Capital gains tax 381 0.7% 8,704 4.4%
Inheritance tax 280 0.5% 4,908 5.7%
Reserved stamp duties 317 0.6% 15,208 2.1%
Scottish Land & Buildings transaction tax 466 0.9% 466 100.0%
Scottish landfill tax 149 0.3% 149 100.0%
Air passenger duty 264 0.5% 3,228 8.2%
Tobacco duties 1,100 2.1% 8,681 12.7%
Alcohol duties 1,038 2.0% 11,117 9.3%
Insurance premium tax 330 0.6% 4,809 6.9%
Vehicle excise duties 466 0.9% 5,997 7.8%
Environmental levies 591 1.1% 5,195 11.4%
Other taxes1 1,643 3.1% 19,469 8.4%
Total Non-North Sea taxes 52,652 100% 668,037 7.9%
North Sea taxes
Population share 7 84 8.2%
Geographical share 208 84 247.9%2
Other revenue
Interest and dividends 381 6,256 6.1%
Gross operating surplus 4,322 47,618 9.1%
Other receipts 388 2,401 16.2%
Total revenue
Excluding North Sea 57,743 724,312 8.0%
Including population share of the North Sea 57,750 724,396 8.0%
Including illustrative geographical share of the North Sea 57,952 724,396 8.0%
of which: revenue accounting adjustments 4,263 48,839 8.7%

1 A description of the other taxes line is provided in the detailed methodology paper on the GERS website.
2 As the receipts for UK Petroleum Revenue Tax are negative, the Scottish share appears unusually high in 2016-17. This is discussed in more detail in Chapter 2.

Unlike the expenditure accounting adjustments, which are shown in a separate expenditure line, the revenue accounting adjustments are included within different revenue lines, as is set out in Table A.9 in Annex A. In order to aid transparency, a revenue accounting adjustments line is shown at the bottom of Table 1.1 and 1.4. This is a sub-total of revenue, and does not add to the revenue totals reported in these tables.

Total public sector non-North Sea current revenue in Scotland was estimated to be £57.7 billion in 2016-17. This is equivalent to 8.0% of UK total non-North Sea current revenue which is 0.2 percentage points lower than Scotland's share of the UK population.[13] In general, Scotland's share of most large revenues is close to either its population or GVA share. However, there are some exceptions to this, discussed below.

Revenues where Scotland's share of UK revenue is relatively low are those associated with property or assets, such as capital gains tax (4.4%), and inheritance tax (5.7%). This reflects the fact that properties and assets in Scotland tend to have lower prices than the UK average.[14] Scotland also has a relatively low share of interest and dividend income. This reflects the fact that the Scottish Government receives proportionally less income from student loans, as the use of such loans is lower in Scotland.

Revenues where Scotland has a relatively large share include non-domestic rates (9.3%), and gross operating surplus (GOS), which is the surpluses (or losses) of public corporations. Scotland is estimated to generate approximately 9.1% of UK public sector GOS, higher than Scotland's population share. Scotland's GOS includes Scottish Water, which is a large contributor to UK public corporations' GOS. The equivalent water companies in England and Wales are outside the public sector and hence do not contribute to UK GOS.[15] Scotland's estimated share of UK GOS has increased compared to the figures published in GERS 2015-16 due to the inclusion of Scottish housing associations.

Scotland tends to also have relatively high shares of duties associated with tobacco and alcohol. This reflects the greater incidence of smoking in Scotland,[16] and also the fact that Scotland has higher consumption of spirits than the rest of the UK.[17] Scotland also has a relatively high share of 'other receipts', as for the UK this line nets out refunds of non‑domestic rates paid by local authorities. Due to the different structure of reporting non‑domestic rates in Scotland, these refunds are not separated out for Scotland.

Table 1.2 below provides a time series of Scotland's share of the largest UK revenues. Although Scotland's share of the larger taxes has been relatively stable over time, Scotland's share of other revenue has been declining. To a degree, this reflects the increasing importance of taxes such as capital gains tax and property taxes in the UK public sector finances, where Scotland has a lower share.

Table 1.2: Non-North Sea Revenue: Scotland as share of UK

per cent of UK revenue
2012-13 2013-14 2014-15 2015-16 2016-17
Income Tax 7.3% 7.2% 7.3% 7.3% 7.3%
Corporation tax (excl North Sea) 7.0% 7.0% 7.3% 7.1% 7.1%
National insurance contributions 8.2% 8.2% 8.2% 8.2% 8.2%
Value added tax 8.3% 8.5% 8.4% 8.4% 8.4%
Local authority revenue 8.2% 8.0% 8.1% 8.0% 8.0%
All other revenue 8.9% 8.8% 8.6% 8.5% 8.4%
Total current non-North Sea revenue 8.1% 8.1% 8.0% 8.0% 8.0%

Note: Local authority revenue consists of non-domestic rates and council tax

Estimated Revenue: Scotland and the UK, 2012-13 to 2016-17

Table 1.4 overleaf shows estimated current revenue in Scotland and the UK between 2012‑13 and 2016‑17. Non-North Sea revenue in Scotland is estimated to have grown by 18.1% between 2012-13 and 2016-17 in nominal terms, less than for the UK as a whole (19.9%). Around a third of the difference is due to slower growth in capital gains tax in Scotland. More generally, the difference reflects the fact that Scotland's population, and therefore its tax base, has grown more slowly than in the UK as a whole.

Table 1.3 shows estimates of revenue per person for Scotland and the UK between 2012‑13 and 2016‑17. Excluding North Sea revenue, revenue per person in Scotland has been lower than in the UK by approximately £300 per year. Including an illustrative geographical share of North Sea revenue the difference is more variable.

Table 1.3: Revenue Per Person: Scotland and UK 2012-13 to 2016-17

£ per person
2012-13 2013-14 2014-15 2015-16 2016-17
Scotland
Excluding North Sea revenue 9,199 9,527 9,832 10,118 10,684
Including North Sea revenue (population share) 9,293 9,597 9,858 10,117 10,685
Including North Sea revenue (geographical share) 10,072 10,174 10,089 10,129 10,722
UK
Excluding North Sea revenue 9,467 9,808 10,134 10,451 11,033
Including North Sea revenue 9,562 9,879 10,160 10,450 11,035
Difference (Scotland minus UK)
Excluding North Sea revenue -268 -281 -302 -333 -349
Including North Sea revenue (population share) -268 -281 -302 -333 -349
Including North Sea revenue (geographical share) 511 295 -71 -321 -312

Box 1.1: Comparison between GERS and ONS estimates

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 apportionment methodologies, refined over a number of years following consultation with, and feedback from, users.

The Office for National Statistics (ONS) now publishes public sector finances for the countries and regions of the UK. The first estimates covering the period to 2015-16 were published earlier in 2017. Further information, including details of the ONS methodology, is available at: https://www.ons.gov.uk/releases/countryandregionalpublicsectorfinances

In most cases, the estimates in GERS and the ONS publication are very similar. For some taxes, notably capital gains tax and air passenger duty, there are methodological differences between the two publications. ONS, HMRC and the devolved administrations are working together to reconcile, and where possible align, methodologies for estimating tax receipts for the UK countries and regions. For capital gains tax, the ONS uses estimates covering only individuals reported on an accruals basis, whilst GERS uses estimates covering individuals and trusts reported on a cash basis. For air passenger duty, GERS uses a bottom up estimate of Scottish receipts based on Scottish Civil Aviation Authority data, whilst the ONS use a top-down apportionment using UK data. Together, these two differences result in the estimates of Scottish receipts in GERS being £119 million lower in 2015-16 than estimated by the ONS, and explain the majority of the overall difference between the publications.

The table below compares the estimates in GERS with those published by ONS. For Non‑North Sea taxes; the difference between the ONS and GERS is largely due to air passenger duty and capital gains tax as discussed above. The differences in other Non‑North Sea receipts are primarily due to using different data sources for government gross operating surplus. This is an accounting adjustment which is included as both a revenue and expenditure, and so makes no difference to estimates of the net fiscal balance. Following the alignment of North Sea methodologies, discussed in more detail in Chapter 2, estimates are now largely identical.

Estimates of Total Scottish Revenues 2012-13 to 2016-17

£ million
2012-13 2013-14 2014-15 2015-16 2016-17
Non-North Sea taxes
GERS 44,161 45,917 47,678 49,450 52,652
ONS 44,197 45,983 47,770 49,565 n/a
Difference -36 -66 -92 -115 n/a
Other Non-North Sea receipts
GERS 4,751 4,887 4,961 4,996 5,091
ONS 4,867 5,045 5,265 5,348 n/a
Difference -116 -158 -304 -352 n/a
Geographical share of North Sea revenues
GERS 4,643 3,448 1,374 56 208
ONS 4,640 3,446 1,373 52 n/a
Difference 3 2 1 4 n/a

Table 1.4: Revenue: Scotland and UK 2012-13 to 2016-17

£ million
Scotland UK
2012-13 2013-14 2014-15 2015-16 2016-17 2012-13 2013-14 2014-15 2015-16 2016-17
Income tax 11,145 11,393 11,866 12,247 12,760 152,296 157,623 163,622 168,880 175,923
National insurance contributions 8,581 8,798 9,077 9,383 10,367 104,483 107,306 110,260 114,061 125,937
Value added tax 8,332 9,077 9,325 9,780 10,193 100,769 106,521 111,244 116,502 121,520
Corporation tax (excluding North Sea) 2,627 2,682 3,084 3,207 3,908 37,607 38,332 42,523 45,290 55,211
Fuel duties 2,257 2,290 2,310 2,333 2,362 26,571 26,881 27,155 27,621 27,936
Non-domestic rates 2,347 2,367 2,511 2,579 2,732 26,301 27,111 27,500 28,710 29,319
Council tax 1,938 1,964 1,995 2,047 2,082 26,139 27,355 28,128 28,989 30,525
VAT refunds 1,279 1,202 1,192 1,245 1,220 13,659 13,646 13,602 14,012 13,735
Capital gains tax 318 238 291 310 381 3,926 3,907 5,559 7,083 8,704
Inheritance tax 175 207 222 269 280 3,150 3,541 3,879 4,712 4,908
Reserved stamp duties 464 661 741 279 317 9,140 12,481 13,779 13,756 15,208
Scottish Land & Buildings transaction tax 0 0 0 425 466 0 0 0 425 466
Scottish landfill tax 0 0 0 147 149 0 0 0 147 149
Air passenger duty 213 225 243 247 264 2,818 3,003 3,205 3,040 3,228
Tobacco duties 1,281 1,232 1,170 1,155 1,100 9,590 9,556 9,251 9,106 8,681
Alcohol duties 946 972 961 996 1,038 10,139 10,308 10,449 10,697 11,117
Insurance premium tax 203 211 204 256 330 3,033 3,018 2,973 3,717 4,809
Vehicle excise duties 481 488 458 458 466 6,003 6,121 5,910 5,922 5,997
Environmental levies 269 343 406 507 591 2,464 3,128 3,657 4,526 5,195
Other taxes 1,306 1,568 1,623 1,579 1,643 14,969 17,601 18,346 19,138 19,469
Total Non-North Sea taxes 44,161 45,917 47,678 49,450 52,652 553,057 577,439 601,042 626,334 668,037
North Sea taxes
Population share of North Sea revenue 502 374 140 -7 7 6,020 4,499 1,691 -80 84
Illustrative geographical share of North Sea revenue 4,643 3,448 1,374 56 208 6,020 4,499 1,691 -80 84
Other receipts
Interest and dividends 488 465 394 418 381 6,365 6,471 6,352 6,593 6,256
Gross operating surplus 3,885 4,057 4,082 4,170 4,322 42,261 43,808 45,033 46,349 47,618
Other receipts 378 366 485 408 388 2,385 2,264 3,482 2,602 2,401
Total revenue (excl North Sea revenue) 48,912 50,805 52,640 54,446 57,743 604,069 629,982 655,909 681,878 724,312
Total revenue (incl pop share North Sea revenue) 49,414 51,178 52,780 54,439 57,750 610,089 634,481 657,600 681,798 724,396
Total revenue (incl geog share North Sea revenue) 53,556 54,252 54,014 54,501 57,952 610,089 634,481 657,600 681,798 724,396
Of which, revenue accounting adjustment 3,790 3,938 3,956 4,114 4,263 42,522 44,112 45,433 47,496 48,839