Government Expenditure and Revenue Scotland: 2017-2018

Chapter 1: Public Sector Revenue

Total Public Sector Revenue: Scotland 2017-18

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 are discussed in the methodology paper on the GERS website. ^[8]

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 non-savings non-dividend income tax have been devolved. Chapter 4 provides more information on current and future devolved taxes.

2017-18 marks the first year of the operation of the new Scottish Income Tax powers, where the Scottish Government has the power to set the rates and bands for income tax for Scottish residents. ^[9] HMRC published its first estimate of income tax collected on this basis in July 2017, which relates to 2016-17. ^[10] The information collected by HMRC is presented differently from the GERS presentation, which is consistent with the UK Public Sector Finances. The Scottish Government is currently reviewing the latest income tax data provided by HMRC and how best to incorporated it into GERS. Further information is provided in Box 1.1.

For taxes where there is no direct measure of Scottish revenue, 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.

GERS reports tax and non-tax revenue separately. Non-tax revenues are primarily non-cash items such as capital consumption included for accounting purposes in gross operating surplus, and the operating surplus of public corporations such as Scottish Water. These are discussed in more detail below.

Estimated Revenue 2017-18

Table 1.1 reports estimated public sector revenue in Scotland and the preliminary outturn data for the UK in 2017-18. 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 standard 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 2017-18

	Scotland		UK	Scotland as % of UK
	£ million	% of total non-North Sea taxes	£ million
Income tax	12,544	23.5%	180,700	6.9%
National insurance contributions	10,592	19.9%	133,049	8.0%
Value added tax	10,146	19.0%	125,127	8.1%
Corporation tax (excluding North Sea)	3,930	7.4%	56,403	7.0%
Fuel duties	2,361	4.4%	27,878	8.5%
Non-domestic rates	2,774	5.2%	30,141	9.2%
Council tax	2,261	4.2%	32,178	7.0%
VAT refunds	1,245	2.3%	13,786	9.0%
Capital gains tax	341	0.6%	7,879	4.3%
Inheritance tax	311	0.6%	5,287	5.9%
Reserved stamp duties	317	0.6%	16,569	1.9%
Scottish Land & Buildings transaction tax	546	1.0%	546	100.0%
Scottish landfill tax	149	0.3%	149	100.0%
Air passenger duty	275	0.5%	3,360	8.2%
Tobacco duties	972	1.8%	8,766	11.1%
Alcohol duties	1,122	2.1%	11,586	9.7%
Insurance premium tax	408	0.8%	5,943	6.9%
Vehicle excise duties	503	0.9%	6,378	7.9%
Environmental levies	752	1.4%	6,514	11.5%
Other taxes 1	1,742	3.3%	20,848	8.4%
Total Non-North Sea taxes	53,292	100%	693,087	7.7%
North Sea taxes 2
Population share	98		1,192	8.2%
Geographical share	1,327		1,192	111.3%
Other revenue
Interest and dividends	339		7,149	4.7%
Gross operating surplus	4,625		45,901	10.1%
Other receipts	373		2,774	13.4%
Total revenue
Excluding North Sea	58,630		748,911	7.8%
Including population share of the North Sea	58,728		750,103	7.8%
Including illustrative geographical share of the North Sea	59,957		750,103	8.0%
of which: revenue accounting adjustments	4,667		50,540	9.2%

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 2017-18. This is discussed in more detail in Chapter 2.

Box 1.1: Developments in Scottish income tax data

2017-18 was the first year of operation of the new Scottish Income Tax powers, introduced in Scotland Act 2016. These gave the Scottish Government the power to vary the tax rates and bands on non-savings and non-dividend income tax. This covers around 90% of income tax. Income tax on savings (around 1% of income tax receipts) and dividends (around 9% of receipts) remains reserved to the UK Government.

HMRC remains responsible for the collection of income tax in Scotland. In its July 2018 Annual Report, HMRC has published the first figure for non-saving non-dividend income tax raised in Scotland in 2016-17, which is £10.7 billion. HMRC will publish data for 2017-18 in summer 2019 as part of its annual trust statement. No comparable outturn data are available for years prior to 2016-17.

Use of income tax data in GERS

The publication of this data represents an important development in the availability of Scottish income tax data. It is the first time that an outturn figure for the revenue raised by non-savings and non-dividend income tax in Scotland has been produced by HMRC.

At present, the estimate of Scottish income tax receipts used in GERS is based on the Survey of Personal Incomes, a representative survey of tax payers currently available for the years to 2015-16.

For this edition of GERS, the income tax figures in Chapter 1 of GERS remain based on the Survey of Personal Incomes. Although both the Survey of Personal Incomes and the latest HMRC Scottish Income Tax data suggest that Scotland’s share of UK income tax is currently around 6.9%, further work is required to integrate the new HMRC data. This is because the HMRC Scottish Income Tax data is on a different basis from the headline income tax figures reported in GERS.

Firstly, the HMRC data only cover non-saving non-dividend income, whilst GERS income tax covers all income tax, and so includes tax from savings and dividend income. Secondly, to ensure consistency with the UK public finances, GERS reports income tax at the time it is paid, whereas the HMRC measure shows income tax at the time the income was earned. For pay-as-you-earn ( PAYE) income tax there is little difference between the two, but for self-assessment the difference can be much larger.

The figures in Chapter 4, which focus on non-savings and non-dividend income tax on a liabilities basis, have incorporated the HMRC income tax figure for 2016-17.

The Scottish Government will continue to review the methodology for estimating Scottish income tax receipts, in consultation with users over the coming years.

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 is not additional to the revenue totals reported in these tables.

Total public sector non-North Sea revenue in Scotland was estimated to be £58.6 billion in 2017-18. This is equivalent to 7.8% of UK total non-North Sea current revenue which is 0.4 percentage points lower than Scotland’s share of the UK population. ^[11] In general, Scotland’s share of most large revenues is close to either its population or GDP 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 (4.3%), and inheritance tax (5.9%). This reflects the fact that properties and assets in Scotland tend to have lower values than the UK average. ^[12] Scotland’s share of income tax (6.9%) is also relatively low. In part, this reflects the shifting of income tax onto higher earners, through the introduction of the additional rate of income tax and increases in the personal allowance. Scotland has relatively few additional rate tax payers, with only around 5% of the UK total. Scotland also has a relatively low share of interest and dividend revenue. 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 (9.2%), and gross operating surplus ( GOS), which is the surpluses of public corporations. Scotland is estimated to generate approximately 10.1% 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. ¹³ Scotland’s estimated share of UK GOS has increased compared to the figures published in GERS 2016-17 due to the removal of English housing associations from the UK total from November 2017, whilst the corresponding Scottish housing associations remain classified as part of the public sector.

Scotland tends to also have relatively high shares of duties associated with tobacco and alcohol. This reflects the greater incidence of smoking in Scotland, ^[14] and also the fact that Scotland has higher consumption of spirits than the rest of the UK. ^[15] 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. In general, Scotland’s share of UK revenue has been declining over time. In part, this reflects the fact that Scotland’s share of the UK population has fallen, but to a degree it also 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
	2013-14	2014-15	2015-16	2016-17	2017-18
Income Tax	7.2%	7.3%	7.1%	6.9%	6.9%
Corporation tax (excl North Sea)	7.1%	7.0%	6.9%	7.0%	7.0%
National insurance contributions	8.2%	8.2%	8.0%	8.0%	8.0%
Value added tax	8.5%	8.4%	8.3%	8.1%	8.1%
Council tax and non-domestic rates	7.9%	8.1%	8.0%	8.0%	8.1%
All other revenue	8.9%	8.7%	8.5%	8.4%	8.6%
Total current non-North Sea revenue	8.1%	8.0%	7.9%	7.8%	7.8%

Estimated Revenue: Scotland and the UK, 2013-14 to 2017-18

Table 1.4 overleaf shows estimated current revenue in Scotland and the UK between 2013‑14 and 2017-18. Non-North Sea revenue in Scotland is estimated to have grown by 14.8% between 2013-14 and 2017-18 in nominal terms, less than for the UK as a whole (18.7%). Around half of this difference is due to slower growth in income tax and VAT 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.

The structure of revenue in Scotland is changing with the devolution of additional tax powers. Table 1.4 shows separately the new fully devolved taxes for Scotland, land and buildings transaction tax and Scottish landfill tax. These taxes were only introduced in 2015‑16. Prior to 2015-16, Scottish revenue from landfill tax is included within the ‘other taxes’ line, and Scottish revenue from property transaction tax is included in the ‘ UK stamp duties’ line. From 2015-16 onwards, the ‘ UK stamp duties’ line for Scotland shows estimated receipts from stamp duty on shares and the annual tax on enveloped dwellings.

Table 1.3 shows estimates of revenue per person for Scotland and the UK between 2013‑14 and 2017-18. Excluding North Sea revenue, revenue per person in Scotland is lower than in the UK by £533 in 2017-18. Including an illustrative geographical share of North Sea revenue the difference is £306.

Table 1.3: Revenue Per Person: Scotland and UK 2013-14 to 2017-18

	£ per person
	2013-14	2014-15	2015-16	2016-17	2017-18
Scotland
Excluding North Sea revenue	9,580	9,892	10,025	10,464	10,808
Including North Sea revenue (population share)	9,651	9,918	10,023	10,465	10,826
Including North Sea revenue (geographical share)	10,227	10,149	10,034	10,513	11,052
UK
Excluding North Sea revenue	9,826	10,170	10,490	11,046	11,340
Including North Sea revenue	9,896	10,196	10,488	11,047	11,358
Difference (Scotland minus UK)
Excluding North Sea revenue	-245	-279	-465	-582	-533
Including North Sea revenue (population share)	-245	-279	-465	-582	-533
Including North Sea revenue (geographical share)	331	-48	-454	-534	-306

Box 1.2: 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 latest estimates covering the period to 2016-17 were published on 1 August 2018. 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. 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.

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 in 2016-17 is largely due to VAT, where GERS has taken on more recent household spending data. This accounts for £258 million of the difference. The differences in other non‑North Sea receipts are primarily due to using different data sources for interest and dividends, where GERS uses specific data for interest income from Scottish student loans.

Estimates of Total Scottish Revenues 2013-14 to 2017-18
	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
Non-North Sea taxes
GERS	46,091	47,707	48,688	51,351	53,292
ONS	46,093	47,857	48,746	51,687	n/a
Difference	-2	-150	-58	-336	n/a
Other non-North Sea receipts
GERS	4,998	5,252	5,254	5,257	5,337
ONS	5,001	5,286	5,279	5,321	n/a
Difference	-3	-34	-25	-64	n/a
Geographical share of North Sea revenues
GERS	3,446	1,377	50	266	1,327
ONS	3,446	1,373	53	259	n/a
Difference	0	4	-3	7	n/a

Table 1.4: Revenue: Scotland and UK 2013-14 to 2017-18

	£ million
	Scotland					UK
	2013-14	2014-15	2015-16	2016-17	2017-18	2013-14	2014-15	2015-16	2016-17	2017-18
Income tax	11,393	11,865	11,976	12,309	12,544	157,619	163,619	168,874	177,247	180,700
National insurance contributions	8,798	9,069	9,082	10,038	10,592	107,306	110,260	114,061	126,011	133,049
Value added tax	9,069	9,346	9,729	9,877	10,146	106,521	111,244	116,703	121,855	125,127
Corporation tax (excluding North Sea)	2,710	2,956	3,118	3,744	3,930	38,335	42,523	45,183	53,731	56,403
Fuel duties	2,277	2,301	2,331	2,366	2,361	26,881	27,155	27,621	27,937	27,878
Non-domestic rates	2,367	2,511	2,579	2,732	2,774	27,336	27,885	28,607	29,464	30,141
Council tax	1,973	2,007	2,037	2,075	2,261	27,364	28,144	28,986	30,361	32,178
VAT refunds	1,202	1,193	1,254	1,241	1,245	13,646	13,602	14,012	13,735	13,786
Capital gains tax	318	347	373	363	341	3,907	5,559	7,060	8,380	7,879
Inheritance tax	208	240	277	288	311	3,541	3,879	4,712	4,897	5,287
UK stamp duties	661	741	280	337	317	12,481	13,779	14,181	15,657	16,569
Scottish land & buildings transaction tax	0	0	425	484	546	0	0	425	484	546
Scottish landfill tax	0	0	147	149	149	0	0	147	149	149
Air passenger duty	226	240	250	265	275	3,003	3,205	3,040	3,236	3,360
Tobacco duties	1,243	1,131	995	970	972	9,556	9,251	9,106	8,681	8,766
Alcohol duties	980	1,001	1,030	1,076	1,122	10,308	10,449	10,697	11,117	11,586
Insurance premium tax	211	204	255	334	408	3,018	2,973	3,717	4,872	5,943
Vehicle excise duties	494	463	466	475	503	6,121	5,910	5,922	5,997	6,378
Environmental levies	343	406	507	590	752	3,128	3,657	4,527	5,172	6,514
Other taxes	1,620	1,685	1,577	1,639	1,742	17,915	18,900	19,498	19,739	20,848
Total Non-North Sea taxes	46,091	47,707	48,688	51,351	53,292	577,986	601,994	627,079	668,722	693,087
North Sea taxes
Population share of North Sea revenue	374	140	-7	3	98	4,499	1,691	-85	36	1,192
Illustrative geographical share of North Sea revenue	3,446	1,377	50	266	1,327	4,499	1,691	-85	36	1,192
Other receipts
Interest and dividends	393	368	422	368	339	6,183	6,663	6,978	6,528	7,149
Gross operating surplus	4,243	4,400	4,412	4,473	4,625	44,193	45,650	47,036	47,783	45,901
Other receipts	362	483	419	416	373	2,733	3,956	3,300	3,226	2,774
Total revenue (excl North Sea revenue)	51,089	52,959	53,942	56,608	58,630	631,095	658,263	684,393	726,259	748,911
Total revenue (incl pop share North Sea revenue)	51,463	53,099	53,935	56,611	58,728	635,594	659,954	684,308	726,295	750,103
Total revenue (incl geog share North Sea revenue)	54,535	54,336	53,993	56,874	59,957	635,594	659,954	684,308	726,295	750,103
Of which, revenue accounting adjustment	4,051	4,125	4,271	4,439	4,667	43,915	45,277	47,413	48,404	50,540