Government Expenditure and Revenue in Scotland (GERS): 2018 to 2019

Chapter 1: Public Sector Revenue

Total Public Sector Revenue: Scotland 2018-19

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 are becoming 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.

2018-19 is the second year of the operation of the new, more extensive 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 a release on these receipts on 18^th July. These figures are shown in Chapter 4, and show the amount of non-savings non-dividend (NSND) income tax paid on earnings in a given year. The income tax figures in this chapter cover all income tax, and are presented on a slightly different basis consistent with the UK Public Sector Finances, but are consistent with the HMRC figures. Further information is provided in Box 1.1.

On 30 May, HMRC also published the initial results of work between the Scottish Government and HMRC to provide estimates of VAT for Scotland, to be used to assign VAT to the Scottish Government budget. These estimates are used to apportion VAT to Scotland in this edition of GERS. Further information is provided in Box 1.2.

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 2018-19

Table 1.1 reports estimated public sector revenue in Scotland and the preliminary outturn data for the UK in 2018-19. 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, an 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 2018-19

	Scotland		UK £ million	Scotland as % of UK
	£ million	% of total non-North Sea taxes
Income tax	12,814	22.8%	192,259	6.7%
National insurance contributions	10,949	19.5%	137,703	8.0%
Value added tax	11,153	19.9%	132,606	8.4%
Corporation tax (excluding North Sea)	4,067	7.3%	58,365	7.0%
Fuel duties	2,373	4.2%	27,993	8.5%
Non-domestic rates	2,847	5.1%	30,698	9.3%
Council tax	2,360	4.2%	34,477	6.8%
VAT refunds	1,642	2.9%	18,266	9.0%
Capital gains tax	401	0.7%	9,242	4.3%
Inheritance tax	291	0.5%	5,460	5.3%
Reserved stamp duties	305	0.5%	16,696	1.8%
Scottish land & buildings transaction tax	557	1.0%	557	100.0%
Scottish landfill tax	143	0.3%	143	100.0%
Air passenger duty	338	0.6%	3,625	9.3%
Tobacco duties	1,102	2.0%	9,152	12.0%
Alcohol duties	1,179	2.1%	12,128	9.7%
Insurance premium tax	405	0.7%	6,291	6.4%
Vehicle excise duties	530	0.9%	6,767	7.8%
Environmental levies	761	1.4%	6,606	11.5%
Other taxes1	1,876	3.3%	21,919	8.6%
Total Non-North Sea taxes	56,090	100%	730,952	7.7%
North Sea taxes2
Population share	102		1,237	8.2%
Geographical share	1,430		1,237	115.6%
Other revenue
Interest and dividends	355		8,549	4.2%
Gross operating surplus	4,406		42,376	10.4%
Other receipts	426		3,380	12.6%
Total revenue
Excluding North Sea	61,278		785,257	7.8%
Including population share of the North Sea	61,380		786,494	7.8%
Including illustrative geographical share of the North Sea	62,708		786,494	8.0%
of which: revenue accounting adjustments	5,034		55,618	9.1%

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 of North Sea revenue appears unusually high in 2018-19. This is discussed in more detail in Chapter 2.

Box 1.1: Developments in Scottish income tax data

2018-19 was the second year of operation of the new, more extensive Scottish Income Tax powers introduced in Scotland Act 2016. These give the Scottish Government the power to vary the tax rates and bands on non-savings and non-dividend (NSND) 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.

As the Scottish Government has exercised these new tax powers since 2017-18, the Scottish and rest of UK NSND income tax regimes have started to diverge. Further information on the Scottish rates and bands is available at: https://www.gov.scot/policies/taxes/income-tax/

HMRC remains responsible for the collection of income tax in Scotland. It published a statistical publication on Scottish Income Tax receipts on 18 July 2019,^[10] alongside its annual trust statement. Outturn figures for NSND income tax raised in Scotland are now available for 2016-17 and 2017-18. It has also published indicative estimates of 2018-19 income tax from Pay as You Earn (PAYE) employment from its Real Time Information system. PAYE income tax accounts for around 90% of total Scottish Income Tax.

Use of income tax data in GERS

The publication of this data represents an important development in the availability of Scottish income tax data. However, for a number of reasons it is not possible to directly use the published HMRC statistics in GERS. This is because, firstly, the HMRC statistics only cover NSND income tax, whereas GERS includes estimates of all income tax raised in Scotland. Secondly, GERS shows income tax receipts, whilst the HMRC statistics publication shows income tax liabilities. Broadly speaking, this means that GERS shows income tax in the year when it is paid, whilst the HMRC publication shows income tax in the year that the income was earned. For PAYE income tax there is little difference between the two, but for self-assessment the difference can be much larger. Finally, HMRC only provides figures for Scottish Income Tax back to 2016-17 whilst GERS provides estimates back to 1998-99.

For this edition of GERS, the latest income tax figures in Chapter 1 of GERS are now based on HMRC's statistics. Broadly speaking, it is assumed that Scotland's share of income tax from savings and dividends is the same as its share from NSND income tax. Further information is provided in the GERS revenue methodology document.^[11]

The figures in Chapter 4, which focus on NSND income tax on a liabilities basis, are directly consistent with the published HMRC Scottish Income Tax outturn figures.

The Scottish Government will continue to review this methodology 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 £61.3 billion in 2018-19, an increase of 5.1%. 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.^[12] 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 (5.3%). This reflects the fact that properties and assets in Scotland tend to have lower values than the UK average.^[13] Scotland's share of income tax (6.7%) 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 fewer additional rate tax payers, with only around 4% 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 (9.3%), and gross operating surplus (GOS), which includes the surpluses of public corporations. Scotland is estimated to generate approximately 10.4% 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.^[14]

Scotland tends to also have relatively high shares of duties associated with tobacco and alcohol. This reflects the greater incidence of smoking in Scotland,^[15] and also the fact that Scotland has higher consumption of spirits than the rest of the UK.^[16] 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
	2014-15	2015-16	2016-17	2017-18	2018-19
Income Tax	7.3%	6.9%	6.7%	6.6%	6.7%
Corporation tax (excl North Sea)	7.0%	6.9%	7.0%	7.0%	7.0%
National insurance contributions	8.2%	7.9%	8.0%	8.0%	8.0%
Value added tax	8.5%	8.4%	8.2%	8.3%	8.4%
Council tax and non-domestic rates	8.1%	8.0%	8.0%	8.0%	8.0%
All other revenue	8.6%	8.4%	8.4%	8.5%	8.6%
Total current non-North Sea revenue	8.0%	7.9%	7.7%	7.8%	7.8%

Box 1.2: Developments in Scottish VAT data

Following the recommendations of the Smith Commission, Scotland Act 2016 allows for receipts from half of the VAT raised in Scotland to be assigned to the Scottish Government, although the power to set the VAT rates and base will remain reserved to the UK Government. As businesses do not report VAT separately for Scotland, the Scottish and UK Governments have been working together to develop a methodology to estimate VAT for Scotland. The initial results from this work were published on 30 May 2019.^[17] This followed the publication of methodology documents in November 2018.^[18]

The approach used in the VAT assignment model is very similar to that previously used in GERS. VAT is split between a number of sectors, such as households, business and government, and Scotland's share of these sectors is estimated individually to derive an estimate of overall VAT. The VAT assignment methodology extends the approach previously used in GERS to explicitly consider VAT from tourism, and incorporates adjustments for elements such as the Retail Export Scheme and traders below the VAT schedule.

These new estimates have been incorporated into this edition of GERS. In general, the estimates of VAT from the assignment model are slightly higher than those previously estimated in GERS. This is shown in the table below. HMRC has published results up to and including 2016-17. The latest estimates for years 2017-18 and 2018-19 are Scottish Government estimates based on movements in household spending from the Living Costs and Food Survey since 2016-17.

Estimates of the Scottish share of UK VAT

	2014-15	2015-16	2016-17	2017-18	2018-19
GERS 2017-18	8.4%	8.3%	8.1%	8.1%	-
Latest estimate	8.5%	8.4%	8.2%	8.3%	8.4%
Difference	0.1%	0.1%	0.1%	0.2%	-

Estimated Revenue: Scotland and the UK, 2014-15 to 2018-19

Table 1.4 overleaf shows estimated current revenue in Scotland and the UK between 2014‑15 and 2018-19. Non-North Sea revenue in Scotland is estimated to have grown by 15.5% between 2014-15 and 2018-19 in nominal terms, less than for the UK as a whole (19.2%). The majority of this difference is due to relatively slower growth in income tax in Scotland, which occurred in 2015-16 and 2016-17. However, based on HMRC's indicative PAYE income tax liabilities, income tax in Scotland is estimated to have grown more quickly than the UK as a whole in 2018-19. More generally, slower growth in revenue in Scotland 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 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 taxes 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 2014-15 and 2018-19. Excluding North Sea revenue, revenue per person in Scotland is lower than in the UK by £552 in 2018-19. Including an illustrative geographical share of North Sea revenue the difference is £307.

Table 1.3: Revenue Per Person: Scotland and UK 2014-15 to 2018-19

	£ per person
	2014-15	2015-16	2016-17	2017-18	2018-19
Scotland
Excluding North Sea revenue	9,906	9,999	10,397	10,745	11,268
Including North Sea revenue (population share)	9,932	9,998	10,398	10,765	11,287
Including North Sea revenue (geographical share)	10,163	10,008	10,446	11,008	11,531
UK
Excluding North Sea revenue	10,180	10,499	11,058	11,367	11,820
Including North Sea revenue	10,206	10,498	11,059	11,386	11,838
Difference (Scotland minus UK)
Excluding North Sea revenue	-274	-500	-661	-621	-552
Including North Sea revenue (population share)	-274	-500	-661	-621	-551
Including North Sea revenue (geographical share)	-43	-489	-613	-378	-307

Box 1.3: 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 2017-18 were published on 28 May 2019. Further information, including details of the ONS methodology, is available at: https://www.ons.gov.uk/releases/countryandregionalpublicsectorfinances

The table below compares the estimates in GERS with those published by ONS. In the previous edition of GERS, the estimates in GERS and the ONS publication were very similar. This reflects the fact that 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. However, this year differences are larger, reflecting the fact that GERS has taken on data relating to Scottish income tax and VAT released after the ONS publication.

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 2014-15 to 2018-19

	£ million
	2014-15	2015-16	2016-17	2017-18	2018-19
Non-North Sea taxes
GERS	47,868	48,627	51,026	53,094	56,090
ONS	47,930	48,819	51,778	53,871	n/a
Difference	-62	-192	-752	-777	n/a
Other non-North Sea receipts
GERS	5,166	5,178	5,218	5,233	5,226
ONS	5,333	5,335	5,410	5,511	n/a
Difference	-167	-157	-192	-278	n/a
Geographical share of North Sea revenues
GERS	1,377	50	266	1,426	1,430
ONS	1,373	53	259	1,426	n/a
Difference	4	-3	7	0	n/a

Table 1.4: Revenue: Scotland and UK 2014-15 to 2018-19

	£ million
	Scotland					UK
	2014-15	2015-16	2016-17	2017-18	2018-19	2014-15	2015-16	2016-17	2017-18	2018-19
Income tax	11,865	11,726	11,837	11,964	12,814	163,619	168,874	177,247	180,593	192,259
National insurance contributions	9,070	9,066	10,042	10,460	10,949	110,260	114,061	126,241	131,547	137,703
Value added tax	9,469	9,857	9,936	10,407	11,153	111,244	116,703	121,855	125,538	132,606
Corporation tax (excluding North Sea)	2,956	3,118	3,737	3,883	4,067	42,523	45,183	53,621	55,722	58,365
Fuel duties	2,301	2,331	2,366	2,362	2,373	27,155	27,621	27,937	27,878	27,993
Non-domestic rates	2,511	2,579	2,732	2,762	2,847	27,885	28,607	29,464	30,253	30,698
Council tax	2,011	2,042	2,070	2,257	2,360	28,144	28,986	30,361	32,137	34,477
VAT refunds	1,192	1,254	1,237	1,553	1,642	13,602	14,012	13,735	17,240	18,266
Capital gains tax	347	373	363	338	401	5,559	7,060	8,380	7,793	9,242
Inheritance tax	240	277	288	281	291	3,879	4,712	4,897	5,277	5,460
UK stamp duties	741	280	336	297	305	13,779	14,181	15,657	17,212	16,696
Scottish land & buildings transaction tax	0	425	484	557	557	0	425	484	557	557
Scottish landfill tax	0	147	149	148	143	0	147	149	148	143
Air passenger duty	282	299	301	313	338	3,205	3,040	3,236	3,360	3,625
Tobacco duties	1,125	1,017	1,059	1,049	1,102	9,251	9,106	8,681	8,766	9,152
Alcohol duties	1,001	1,030	1,076	1,122	1,179	10,449	10,697	11,117	11,585	12,128
Insurance premium tax	204	251	312	381	405	2,973	3,717	4,872	5,898	6,291
Vehicle excise duties	463	466	475	503	530	5,910	5,922	5,997	6,378	6,767
Environmental levies	406	507	590	675	761	3,656	4,526	5,172	5,872	6,606
Other taxes	1,683	1,583	1,638	1,781	1,876	18,900	19,498	19,748	21,438	21,919
Total Non-North Sea taxes	47,868	48,627	51,026	53,094	56,090	601,993	627,078	668,851	695,192	730,952
North Sea taxes
Population share of North Sea revenue	140	-7	3	107	102	1,691	-85	36	1,297	1,237
Illustrative geographical share of North Sea revenue	1,377	50	266	1,426	1,430	1,691	-85	36	1,297	1,237
Other receipts
Interest and dividends	370	424	371	335	355	6,663	6,978	6,532	7,171	8,549
Gross operating surplus	4,261	4,283	4,377	4,453	4,406	45,650	47,036	47,779	45,843	42,376
Other receipts	535	470	470	445	426	4,578	3,920	3,878	3,570	3,380
Total revenue (excl North Sea revenue)	53,034	53,805	56,245	58,327	61,278	658,884	685,012	727,040	751,776	785,257
Total revenue (incl pop share North Sea revenue)	53,174	53,798	56,248	58,433	61,380	660,575	684,927	727,076	753,073	786,494
Total revenue (incl geog share North Sea revenue)	54,411	53,855	56,511	59,752	62,708	660,575	684,927	727,076	753,073	786,494
Of which, revenue accounting adjustment	3,985	4,142	4,339	4,807	5,034	45,277	47,413	48,404	53,346	55,618