Government Expenditure and Revenue Scotland: 2017-2018

Chapter 4: Devolved Revenue and Expenditure

Devolved and Reserved Revenue in Scotland 2017-18

Devolved and Reserved Expenditure in Scotland 2017-18

Introduction

Following the implementation of Scotland Act 2012 and Scotland Act 2016, the powers of the Scottish Parliament over taxation and expenditure in Scotland are changing. This chapter sets out the amount of public sector revenue and expenditure currently devolved and how this will change with the implementation of the Scotland Act 2016.

Devolved Revenue

The table below sets out revenue raised in Scotland from taxes currently devolved to the Scottish Parliament. Total devolved tax revenue in 2017-18 was estimated to reach £16,620 million.

2017-18 was the first year when non-saving non-dividend income tax was devolved. Since 2016-17, HMRC has put in place new infrastructure to identify Scottish income tax payers and tax revenue, and this provides an important new statistical source in GERS. However, it also creates a discontinuity in the income tax series in Table 4.1 as comparable data is not available for earlier years. As a result, the income tax estimates for 2013-14 to 2015-16 in the shaded cells are not comparable to the estimates for later years. Similarly, there is a discontinuity in the estimates of Scottish landfill tax and land and building transaction tax following the creation of Revenue Scotland, which is now responsible for collecting these taxes.

Table 4.1: Currently devolved taxes

	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
Council tax	1,973	2,007	2,037	2,075	2,261
Non-domestic rates	2,367	2,511	2,579	2,732	2,774
Land and buildings transaction tax 1 (devolved from 2015-16)	388	488	425	484	546
Scottish landfill tax (devolved from 2015-16) 2	153	149	147	149	149
Non-savings and non-dividend income tax liabilities (devolved from 2017-18) 3	10,881	11,004	10,948	10,700	10,890
Total devolved taxes	15,762	16,042	16,136	16,139	16,620

¹ Figures for 2015-16 onwards are from Revenue Scotland. Previous years are based on HMRC estimates

² Figures for 2015-16 onwards are from Revenue Scotland. Previous years are based on ONS estimates

³ 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 1.1. Figures for 2015-16 and earlier are based on the Survey of Personal Incomes. The figure for 2016-17 is from HMRC accounts, and the figure for 2017-18 is based on SFC forecasts.

Note: Shaded cells represent estimates for years when tax devolution has not occurred. These are not directly comparable to outturn data in other cells.

Further devolution of taxes is due to continue in the next few years, following the Scotland Act 2016. As these taxes are not yet devolved, the table below shows the estimated historical revenues from these taxes

Table 4.2: Revenue to be devolved under Scotland Act 2016

	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
Air passenger duty (date of devolution to be decided)	226	240	250	265	275
Aggregates levy (date of devolution to be decided)	44	55	53	63	57

As well as devolving tax powers to the Scottish Government, the Scotland Act 2016 allows for the first 10p of the standard rate of VAT receipts and the first 2.5p of the reduced rate of VAT receipts in Scotland to be assigned to the Scottish Government, from 2019-20.

Table 4.3 shows the VAT that would have been assigned to Scotland under this approach, given the methodology used in GERS. The Scottish Government and HMRC are currently working together to agree a methodology that will be used for VAT assignment purposes.

Table 4.3: VAT Assignment: Scotland 2013-14 to 2017-18

	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
VAT assignment (from 2019-20)	4,534	4,673	4,865	4,939	5,073

Note: Assigned VAT receipts are 50% of total receipts in all years.

Further information on the planned devolution of taxes to the Scottish Government is available in the fiscal framework agreement between the Scottish and UK Governments. ^[21] The net impact on Scottish Government funding will depend in part on how the block grant received by the Scottish Government is adjusted to reflect the devolution of new revenue streams. This adjustment will be based in part on the relative growth in tax per head for each devolved tax in Scotland and the rest of the UK. Table 4.4 below shows tax per head for Scotland and the rest of the UK for each of the relevant taxes.

Table 4.4: Devolved revenue per head: Scotland and rest of UK

	£ per person
	Scotland					Rest of UK
	2013-14	2014-15	2015-16	2016-17	2017-18	2013-14	2014-15	2015-16	2016-17	2017-18
Income tax	2,040	2,055	2,035	1,978	2,007	2,366	2,373	2,422	2,522	2,601
VAT	850	873	904	913	935	827	858	893	928	948
APD	42	45	46	49	51	47	50	47	49	51
LBTT	74	92	80	91	102	152	175	181	198	215
Landfill tax	29	28	27	28	27	17	16	15	14	12
AL	8	10	10	12	11	4	5	5	6	5

Notes: Income tax refers to non-savings non-dividend income tax liabilities

Shaded cells represent estimates for years when tax devolution has not occurred. These are not directly comparable to figures in other cells.

Income tax figures for 2016-17 for Scotland is taken from HMRC’s July 2018 Annual Report. A comparable rest of UK figure is not currently available. This means that the growth rate in income tax between 2015-16 and 2016-17 for Scotland and the rest of the UK are not comparable. Figures for 2017-18 for Scotland, and 2016-17 and 2017-18 for the rest of the UK, are based on official forecasts from the Scottish Fiscal Commission and Office for Budget Responsibility respectively.

APD: air passenger duty

LBTT: Land and Buildings Transaction Tax for Scotland, compared to LBTT and stamp duties on property for the UK

AL: aggregates levy

Devolved Social Security

The table below shows the expenditure in Scotland from social security benefits devolved to the Scottish Parliament prior to implementation of Scotland Act 2016.

Table 4.5: Social security devolved prior to Scotland Act 2016

	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
Council tax reduction 1	379	360	344	332	327
Scottish welfare fund	29	36	33	35	33
Discretionary housing payments	29	36	33	35	33
Total	436	431	410	401	392

Notes: ¹ Figures for 2013-14 show council tax benefit administered by the Department for Work and Pensions

The table below shows the latest available figures for social security benefits which are due to be devolved to the Scottish Government under the Scotland Act 2016.

Table 4.6: Devolved social security under Scotland Act 2016

	£ million
	2013-14	2014-15	2015-16	2016-17	2017-18
Disability living allowance	1,471	1,467	1,400	1,219	996
Attendance allowance	481	485	487	487	493
Carer's allowance	182	203	222	234	248
Winter fuel payment	186	184	181	178	175
Personal independence payment	20	163	317	550	878
Industrial injuries disablement benefit	88	89	87	84	82
Severe disablement allowance	91	77	51	22	11
Cold weather payment	1	7	3	1	21
Funeral payment	6	6	5	5	5
Sure Start maternity grant	3	3	3	3	3
Total expenditure on social security to be devolved	2,530	2,682	2,757	2,790	2,916

The fiscal framework agreement discussed above also covers the devolution of social security expenditure to the Scottish Government. The Scotland Act 2016 sets out that the final impact on the Scottish Government budget of devolution of these benefits will be determined through an adjustment to the Scottish block grant. As with devolved revenue, the adjustment made to the Scottish Government’s budget to reflect this additional spending responsibility will depend in part on the relative growth in expenditure per head for each newly devolved benefit in Scotland and the rest of GB.

Table 4.7 below shows expenditure per head for each of the relevant benefits for Scotland and the rest of Great Britain. For the majority of social security, expenditure per head is higher in Scotland than the rest of Great Britain, although overall the rate of growth in expenditure per head has been similar between Scotland and the rest of Great Britain since 2013-14 for each individual benefit.

Table 4.7: Devolved social security expenditure per head: Scotland and rest of GB

	£ per person
	Scotland					Rest of GB
	2013-14	2014-15	2015-16	2016-17	2017-18	2013-14	2014-15	2015-16	2016-17	2017-18
Disability living allowance	276	274	260	225	184	215	214	204	176	143
Attendance allowance	90	91	91	90	91	86	86	86	85	86
Carer's allowance	34	38	41	43	46	33	37	40	42	44
Winter fuel payment	35	34	34	33	32	34	34	33	32	31
Personal independence payments	4	30	59	102	162	2	3	4	79	123
Industrial Injuries disability benefit	17	17	16	16	15	14	14	14	13	13
Severe disablement allowance	17	14	9	4	2	13	11	7	4	2
Cold weather payment	0	1	1	0	4	0	0	0	0	0
Funeral expenses payments	1	1	1	1	1	1	1	1	1	1
Sure Start maternity grant	1	1	1	1	1	1	1	0	0	0

Summary of current and proposed devolved powers

The table below shows estimates of devolved receipts and expenditure before and after the implementation of the Scotland Acts 2012 and 2016.

Table 4.8: Fiscal powers before and after Scotland Act 2016, 2017-18 (£ million)

	Before Scotland Acts 2012 and 2016	After Scotland Acts 2012 and 2016
Non-saving non-dividend income tax liabilities (devolved from 2016-17)	-	10,890
Council tax	2,261	2,261
Non-domestic rates	2,774	2,774
Land and buildings transaction tax) (devolved from 2015-16)	-	546
Scottish landfill tax (devolved from 2015-16)	-	149
Air passenger duty (date to be decided)	-	275
Aggregates levy (date to be decided)	-	57
Total devolved taxes	5,035	16,952
Devolved taxes as % of non-North Sea Scottish revenue	9%	29%
as % of revenue incl geographical share of North Sea revenue 1	8%	28%
Assigned VAT 2 (assigned from 2019-20)		5,073
Total devolved and assigned taxes	5,035	22,025
Devolved and assigned taxes as % of non-North Sea Scottish revenue	9%	38%
as % of taxes incl geographical share of North Sea revenue 1	8%	37%
Devolved expenditure including housing benefit 3 ( HB)	42,848	45,764
Devolved taxes as % of estimated devolved expenditure	12%	37%
Devolved and Assigned taxes as % of estimated devolved expenditure	12%	48%

¹ Figures for the shares of devolved taxes as a share of total taxes including a population share of North Sea revenue are the same as the share when excluding North Sea taxes.

² Assigned VAT is shown on a gross basis, consistent with the National Accounts presentation. If net VAT were to be used, devolved expenditure would also need to be adjusted, as set out in Table A.9. In this case, devolved and assigned revenue would be 49% of devolved expenditure.

³ In GERS and the CRA, housing benefit is included in Scottish local government spending, as they make the payments to recipients, although it is set centrally and funded by the Department for Work and Pensions. Depending on definitions adopted, it could either be excluded or included in devolved expenditure.