Government Expenditure & Revenue Scotland 2012-13

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%