Scottish Economic Statistics 2008

A1 Producing current price GDP estimates for Scotland

Sandy Stewart, Scottish Government

Introduction

There are currently no official statistics for Gross Domestic Product ( GDP) in cash terms for Scotland. The Office for National Statistics ( ONS) produces an annual estimate for Gross Value Added ( GVA) for onshore activity in Scotland as part of the Regional GVA exercise. These figures are used in Scotland to constrain the Scottish Input-Output tables which, in turn, provide the weights for the Scottish Government's own production-based GVA estimates in real terms.

This article sets out how a Scottish cash GDP estimate may be derived by adding the appropriate product taxes less subsidies to the official GVA figures. It draws on work carried out by Sandy Stewart ( SG) and Martin Kellaway ( ONS), as part of the 2006-07 Government Expenditure and Revenue Scotland ( GERS) exercise, isolating individual detailed revenue streams to form a basic price adjustment for Scotland. Moreover, the article considers how the value added from the Extra Regio area, as defined by ONS, might be reasonably assigned to Scotland. The figures in this paper are "experimental" and not official national statistics.

This work forms part of a wider exercise to attempt to produce balanced National Accounts estimates for Scotland based on data collected for Scotland and UK apportionments. For more information see SNAP - Scottish National Accounts Project - web link: http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/nationalaccountsproject.

Adjusted Gross Value Added ( GVA) from the ONS Regional GVA estimates

The starting point for this exercise is the ONS Regional GVA estimates, last published in December 2007. These figures, which are consistent with the 2007 Blue Book, can be seen in Table A1.1.

Table A1.1: Annual GVA cash estimates for Scotland

		1998	1999	2000	2001	2002	2003	2004	2005	2006
Scotland	Reg GVA	63,899	65,211	66,074	70,103	74,183	77,696	82,443	86,292	91,355
Extra Regio	Reg GVA	12,656	14,249	21,905	20,635	19,907	20,166	20,581	23,708	26,709
Statistical Discrepancy	Reg GVA	0	0	0	0	0	0	0	-916	-551
UK	Reg GVA	768,594	805,989	846,683	889,063	937,323	993,507	1,051,934	1,096,629	1,154,959
Scotland	Adjusted GVA	63,899	65,211	66,074	70,103	74,183	77,696	82,443	86,220	91,311
Extra Regio	Adjusted GVA	12,656	14,249	21,905	20,635	19,907	20,166	20,581	23,688	26,696

The regional GVA figures were estimated using an income-based approach. These, however, were not balanced to the expenditure-based GVA estimates and the differences (seen in 2005 and 2006) were presented as accounting adjustments (labelled statistical discrepancy). For this exercise, the statistical discrepancies were re-allocated across all regions and countries, including Extra Regio, pro-rated by GVA. The bottom two rows of the table show the adjusted GVA estimates for Scotland and Extra Regio.

Note, the figures presented above are the raw GVA figures, not the smoothed headline figures often quoted.

Link between Gross Value Added ( GVA) and Gross Domestic Product ( GDP)

Gross Domestic Product ( GDP) differs from Gross Value Added ( GVA) as it includes taxes on products and excludes subsidies on products. GVA is conventionally used to make comparisons between industries within a country, and GDP for comparisons at an aggregate level between countries.

Table A2.2 shows the link between GVA at basic prices and GDP at market prices. The link applies to both current prices and constant prices - only current prices is considered in this paper.

Table A1.2: Link between Gross Value Added and Gross Domestic Product

	Gross Value Added at basic prices
plus	Taxes on products
less	Subsidies on products
equals	Gross Domestic Product at market prices.

Taxes on products

The ESA 95 definition of taxes on products is:

"Taxes on products are taxes that are payable per unit of some good or service produced or transacted. The tax may be a specific amount of money per unit or quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods and services produced or transacted. As a general principle, taxes in fact assessed on a product, irrespective of which institutional unit pays the tax, are to be included in taxes on products, unless specifically included in another heading."

Currently, the range of taxes on products includes, for example:

• value added tax ( VAT) (introduced 1 April 1973)
• aggregates levy (introduced 1 April 2002)
• air passenger duty (introduced 1 October 1994)
• excise duties, covering oil, alcohol and tobacco
• import duties
• levies on products such as fossil fuels and sugar
• betting duties, which include the lottery duty and payments to the National Lottery Distribution Fund (introduced 19 November 1994)
• insurance premium tax (introduced 1 October 1994)
• landfill tax (introduced 1 October 1996)
• climate change levy (introduced 1 April 2001)
• stamp duties, covering property, stocks and shares
• renewable obligation certificates (introduced 1 June 2002)

Two distinct apportionment methodologies might be considered to be appropriate: product taxes raised throughout the UK on products made in or supplied from Scotland; and, product taxes raised in Scotland from products consumed in Scotland. The former assumes, for instance, that taxes raised from whisky produced in Scotland would accrue to Scotland but no tobacco based taxes would accrue to Scotland reflecting nil production. The latter assumes, for example, that only the whisky taxes raised by consumption in Scotland would accrue to Scotland, but taxes relating to tobacco consumption would also accrue to Scotland despite nil production. Both methods probably show broadly similar results - it is important, however, not to confuse the two concepts, or to cherry-pick from both methods inappropriately.

The GERS methodology adopts the consumption-based approach. This has also been used in this paper. Some of the assumptions used are set out in Table A1.3 below.

Table A1.3: Methodology for apportioning UK product taxes to Scotland

Revenue	Apportionment Methodology	Source
VAT	Scotland's share of UK household VAT expenditure	Expenditure and Food Survey, ONS
Import duties	Scotland's share of UK less Extra Regio GVA	Regional Accounts: ONS
Beer	Scotland's share of UK household Beer expenditure	Expenditure and Food Survey, ONS
Wines, cider, perry and spirits	Scotland's share of UK household Wines and Spirits expenditure	Expenditure and Food Survey, ONS
Tobacco	Scotland's share of UK household Tobacco expenditure	Expenditure and Food Survey, ONS
Hydrocarbon oils	Scotland's share of UK road traffic fuel consumption	Fuel Consumption Statistics, BERR
Betting, gaming and lottery	Spend on betting and gaming in Scotland/ UK	Expenditure and Food Survey, ONS
Air passenger duty	Scotland/ UK population	ONS & GROS
Insurance premium tax	Scotland/ UK population	ONS & GROS
Landfill tax	Scotland's share of UK tonnage of waste sent to landfill	SEPA, Environment Agency, Dept of Environment Northern Ireland.
Stamp duties	Land and property stamp duty: actual outturns for Scotland Stocks and shares: Scottish/ UK ratio of adults owning shares	Land and property stamp duty: HMRC Stocks and shares: Family Resources Survey: DWP
Camelot payments to National Lottery Distribution Fund	Spend on betting and gaming in Scotland/ UK	Expenditure and Food Survey, ONS
Hydro-benefit	100% to Scotland
Aggregates levy	Scotland's share of UK aggregates production	UK Minerals Yearbook: BGS
Climate change levy	Electricity: Scotland's share of UK electricity consumption Gas: Scotland's share of UK gas sales to commercial and industrial users Solid and other fuels: Scotland's share of UK (less Extra Regio) GVA	Electricity: BERR Gas: BERR Solid and other fuels: Regional Accounts: ONS
Other product taxes	various	various

Tables A1.4a and A1.4b below show the Scottish element of the UK product tax streams, based on the above assumptions, for calendar year and financial year respectively. These are derived using the same methodology that was used in the GERS 2006-07 publication. GERS, however, differs slightly in that the revenue estimates were taken from the Budget 2007 snapshot whereas the above reconciles with the Blue Book 2007 snapshot. GERS also uses the smoothed headline figures, whereas this analysis uses the raw estimates analysed on a quarterly, not annual, basis. Future estimates will be produced on a quarterly basis using the latest quarterly National Accounts estimates.

Table A1.4a - Scottish taxes on products - calendar year

Taxes on products	1998	1999	2000	2001	2002	2003	2004	2005	2006
VAT	4,787	5,198	5,365	5,596	5,897	6,391	6,815	7,026	7,434
Import duties	175	167	167	167	155	155	171	180	189
Beer	202	217	243	244	241	241	258	264	272
Wines, cider, perry and spirits	349	376	398	410	408	403	429	444	453
Tobacco	932	942	967	910	988	1,010	1,077	1,045	990
Hydrocarbon oils	1,718	1,810	1,877	1,797	1,790	1,836	1,927	1,930	1,945
Betting, gaming and lottery	150	154	149	135	98	92	89	88	95
Air passenger duty	71	76	81	71	69	66	73	76	81
Insurance premium tax	108	123	147	159	182	195	200	198	197
Landfill tax	38	49	52	52	51	57	62	67	73
Fossil fuel levy	15	9	4	7	3	0	0	0	0
Stamp duties	264	356	503	428	403	378	467	528	679
Camelot payments to National Lottery Distribution Fund	165	160	156	142	143	127	138	137	143
Hydro-benefit	32	35	42	46	44	44	40	10	0
Aggregates levy	0	0	0	0	30	48	49	50	50
Milk super levy	0	0	0	1	4	6	7	2	0
Climate change levy	0	0	0	60	85	85	78	77	74
Renewable energy obligations	0	0	0	0	21	38	45	24	22
Sugar levy	4	5	5	3	3	2	3	3	0
Total taxes on products	9,012	9,676	10,155	10,230	10,616	11,175	11,927	12,148	12,695

Table A1.4b - Scottish taxes on products - financial year

Taxes on products	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07
VAT	4,897	5,246	5,407	5,700	5,931	6,541	6,869	7,038	7,630
Import duties	172	168	169	163	153	156	177	182	189
Beer	203	223	247	243	241	243	260	267	274
Wines, cider, perry and spirits	362	378	407	410	411	402	434	444	461
Tobacco	927	953	974	889	1,021	1,007	1,102	1,021	981
Hydrocarbon oils	1,764	1,813	1,851	1,785	1,795	1,865	1,922	1,939	1,958
Betting, gaming and lottery	149	154	146	126	97	89	90	89	94
Air passenger duty	73	76	82	69	68	68	74	77	94
Insurance premium tax	108	130	150	164	186	196	200	199	196
Landfill tax	37	51	54	50	50	60	63	69	76
Fossil fuel levy	14	7	4	7	1	0	0	0	0
Stamp duties	275	410	492	403	403	390	473	584	686
Camelot payments to National Lottery Distribution Fund	167	164	148	146	138	130	140	141	135
Hydro-benefit	32	38	44	44	44	43	40	0	0
Aggregates levy	0	0	0	0	41	48	49	50	50
Milk super levy	0	0	0	2	4	6	8	0	0
Climate change levy	0	0	0	85	84	83	77	76	74
Renewable energy obligations	0	0	0	0	29	42	45	17	23
Sugar levy	4	5	4	3	3	2	3	3	0
Total taxes on products	9,183	9,816	10,181	10,289	10,700	11,372	12,025	12,196	12,921

Tables A1.5a and A1.5b below show how VAT and other product taxes raised in Scotland compare with the equivalent UK figures. These are shown for both calendar year and financial year.

Table A1.5a - Scotland and UK taxes on products - calendar year

Taxes on products	1998	1999	2000	2001	2002	2003	2004	2005	2006
VAT - Scotland	4,787	5,198	5,365	5,596	5,897	6,391	6,815	7,026	7,434
Other product taxes - Scotland	4,225	4,478	4,790	4,634	4,720	4,783	5,112	5,122	5,261
Total taxes on products - Scotland	9,012	9,676	10,155	10,230	10,616	11,175	11,927	12,148	12,695
VAT - UK	56,541	61,512	64,189	67,097	71,059	77,335	81,540	83,382	87,679
Other product taxes - UK	46,999	50,512	54,086	52,845	53,945	54,813	58,102	59,076	62,752
Total taxes on products - UK	103,540	112,024	118,275	119,942	125,004	132,148	139,642	142,458	150,431
VAT - Scot as % of UK	8.47%	8.45%	8.36%	8.34%	8.30%	8.26%	8.36%	8.43%	8.48%
Other product taxes -
Scot as % of UK	8.99%	8.87%	8.86%	8.77%	8.75%	8.73%	8.80%	8.67%	8.38%
Total taxes on products - Scot as % of UK	8.70%	8.64%	8.59%	8.53%	8.49%	8.46%	8.54%	8.53%	8.44%

Table A1.5b - Scotland and UK taxes on products - financial year

Taxes on products	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07
VAT - Scotland	4,897	5,246	5,407	5,700	5,931	6,541	6,869	7,038	7,630
Other product taxes - Scotland	4,286	4,570	4,773	4,589	4,769	4,831	5,156	5,158	5,291
Total taxes on products - Scotland	9,183	9,816	10,181	10,289	10,700	11,372	12,025	12,196	12,921
VAT - UK	57,845	62,127	64,908	68,322	71,599	79,201	81,869	83,421	89,855
Other product taxes - UK	47,655	51,863	53,528	52,602	54,404	55,600	58,196	60,209	63,381
Total taxes on products - UK	105,500	113,990	118,436	120,924	126,003	134,801	140,065	143,630	153,236
VAT - Scot as % of UK	8.47%	8.44%	8.33%	8.34%	8.28%	8.26%	8.39%	8.44%	8.49%
Other product taxes - Scot as % of UK	8.99%	8.81%	8.92%	8.72%	8.77%	8.69%	8.86%	8.57%	8.35%
Total taxes on products - Scot as % of UK	8.70%	8.61%	8.60%	8.51%	8.49%	8.44%	8.59%	8.49%	8.43%

Subsidies on products

The ESA 95 definition of subsidies on products is:

"Subsidies on products are subsidies payable per unit of a good or service produced or imported. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specific percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the actual market price actually paid by a buyer. A subsidy on a product usually becomes payable when the good is produced, sold or imported. By convention, subsidies on products can only pertain to market output or to output for own final use."

A similar apportionment methodology is used to allocate UK subsidies on products to Scotland. For subsidies from Central Government relating to housing, transport, coal, electricity, recreation and economic affairs, the ratio of Scottish GVA to UK less Extra Regio was used. The GVA ratios for the appropriate industry grouping was used for agriculture, construction and health. For subsidies from Local Government (transport and other economic affairs), the figures provided by the Scottish Government to ONS for the UK National Accounts were used directly.

The methodology equates broadly to that used by ONS in the Regional Accounts for taxes and subsidies on production. Further refinements will be considered in due course as part of the SNAP exercise.

Tables A1.6a and A1.6b below show the estimated Scottish and UK subsidies on products for both calendar year and financial year respectively.

Table A1.6a - Subsidies on products - calendar year

Subsidies on products	1998	1999	2000	2001	2002	2003	2004	2005	2006
Subsidies - Scotland	621	582	572	526	580	622	580	338	400
Subsidies - UK	6,424	6,068	6,027	5,708	6,534	7,410	7,280	5,111	5,768
Total subsidies on products - Scot as % of UK	9.66%	9.59%	9.48%	9.22%	8.88%	8.40%	7.97%	6.62%	6.94%

Table A1.6b - Subsidies on products - financial year

Subsidies on products	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07
Subsidies - Scotland	621	580	555	520	596	611	542	343	373
Subsidies - UK	6,414	6,030	5,958	5,563	6,796	7,400	7,042	5,145	5,480
Total subsidies on products - Scot as % of UK	9.69%	9.62%	9.31%	9.35%	8.76%	8.25%	7.69%	6.67%	6.80%

Calculating GDP from GVA

Using the definition in Table A1.2, the GVA figure from Regional Accounts may now be adjusted to include the estimates of taxes less subsidies on products to form an estimate of GDP for onshore Scotland.

Tables A1.7a and A1.7b show the Scottish and UKGVA and GDP disaggregation for both calendar year and financial year respectively.

Table A1.7a - Scottish and UKGVA and GDP disaggregation - calendar year

	1998	1999	2000	2001	2002	2003	2004	2005	2006
UK - GVA	768,594	805,989	846,683	889,063	937,323	993,507	1,051,934	1,096,629	1,154,959
UK - taxes on products	103,540	112,024	118,275	119,942	125,004	132,148	139,642	142,458	150,431
UK - subsidies on products	-6,424	-6,068	-6,027	-5,708	-6,534	-7,410	-7,280	-5,111	-5,768
UK - GDP	865,710	911,945	958,931	1,003,297	1,055,793	1,118,245	1,184,296	1,233,976	1,299,622
Scotland - GVA	63,899	65,211	66,074	70,103	74,183	77,696	82,443	86,220	91,311
Scotland - taxes on products	9,012	9,676	10,155	10,230	10,616	11,175	11,927	12,148	12,695
Scotland - subsidies on products	-621	-582	-572	-526	-580	-622	-580	-338	-400
Scotland - GDP	72,290	74,304	75,658	79,806	84,219	88,249	93,790	98,030	103,606
GVA - Scotland/ UK	8.31%	8.09%	7.80%	7.89%	7.91%	7.82%	7.84%	7.86%	7.91%
GDP - Scotland/ UK	8.35%	8.15%	7.89%	7.95%	7.98%	7.89%	7.92%	7.94%	7.97%

Table A1.7b - Scottish and UKGVA and GDP disaggregation - financial year

	1998-99	1999-00	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07
UK - GVA	777,185	819,370	858,844	898,007	952,262	1,008,792	1,062,495	1,109,993	1,172,855
UK - taxes on products	105,500	113,990	118,436	120,924	126,003	134,801	140,065	143,630	153,236
UK - subsidies on products	-6,414	-6,030	-5,958	-5,563	-6,796	-7,400	-7,042	-5,145	-5,480
UK - GDP	876,271	927,330	971,322	1,013,368	1,071,469	1,136,193	1,195,518	1,248,478	1,320,611
Scotland - GVA	64,179	65,696	67,202	70,875	75,136	78,935	83,338	87,395	92,726
Scotland - taxes on products	9,183	9,816	10,181	10,289	10,700	11,372	12,025	12,196	12,921
Scotland - subsidies on products	-621	-580	-555	-520	-596	-611	-542	-343	-373
Scotland - GDP	72,740	74,932	76,828	80,645	85,241	89,697	94,822	99,248	105,274
GVA - Scotland/ UK	8.26%	8.02%	7.82%	7.89%	7.89%	7.82%	7.84%	7.87%	7.91%
GDP - Scotland/ UK	8.30%	8.08%	7.91%	7.96%	7.96%	7.89%	7.93%	7.95%	7.97%

The methodology described above is more sophisticated than the conventional, and more limited but internationally-accepted approach, which applies a national GDP/ GVA scaling factor to all regions uniformly within a nation. This new approach is possible, because a basic price adjustment may be derived from the GERS calculations (not generally available regionally); and desirable as it helps us to move to a more coherent set of economic accounts for Scotland. More work of this nature will appear as part of the SNAP programme of work.

The difference between the two approaches is small as can be seen in Chart A1.1 below.

Chart A1.1: Scottish GVA and GDP estimates

Inclusion of Extra Regio

The calculations in this paper so far have only considered onshore Scottish activity.

In the GERS 2006-07 publication, Scotland's capital and current budgets were shown as a percentage of GDP. Care was taken to adopt the same assumptions in estimating GDP as those made in the corresponding budget calculations.

Two distinct assumptions were made relating to Scotland's share of the value added from Extra Regio. The first assumption simply allocates to Scotland a population share of all components of Extra Regio. The second assumption assumes Scotland has a population share of the public administration and defence elements of the Extra Regio, and a Continental Shelf apportionment based on a hypothetical share based on Scotland's geographical share of the North Sea. This was based on academic research carried out by Professor Alex Kemp and Linda Stephen from the University of Aberdeen. For further details refer to Chapter 5 of GERS 2006-07.

Scotland's geographical share of the North Sea sector, used in this article, is highlighted in the following diagram. Demarcation by the median line is shown by the dark shaded area in Figure A1.1. All value added from oil and gas fields located in this region were apportioned to Scotland under the assumption of 'geographical share'.

Figure A1.1: UK Continental Shelf and Scottish boundary

Source: Scottish Government Marine Directorate

Tables A1.8a and A1.8b below show the decomposition of Extra Regio into the two components: Public Administration & Defence ( PAD); and Continental Shelf activity ( CS); and, how these may then be attributed to Scotland following the two assumptions detailed above. Estimates of Scottish GDP including Extra Regio are then derived for these two scenarios.

Table A1.8a: Estimates of Scottish GDP including Extra Regio using a (i) population and (ii) geographical assumption - calendar year

	1998	1999	2000	2001	2002	2003	2004	2005	2006
UK - Extra Regio	12,656	14,249	21,905	20,635	19,907	20,166	20,581	23,688	26,696
UK - ER - PAD	917	928	965	1,009	1,051	1,147	1,218	1,267	1,332
UK - ER - CS activity	11,739	13,321	20,940	19,626	18,856	19,019	19,363	22,421	25,364
Pop - ER - PAD	80	80	83	86	90	97	103	107	113
Pop - ER - CS activity	1,019	1,151	1,800	1,681	1,607	1,615	1,643	1,896	2,142
Geog - ER - CS activity	9,075	10,583	17,085	15,856	15,730	15,575	16,106	18,935	20,760
Scot - GDP - excl ER	72,290	74,304	75,658	79,806	84,219	88,249	93,790	98,030	103,606
GDP + pop ER	73,389	75,536	77,541	81,574	85,916	89,961	95,537	100,033	105,861
GDP + geog ER	81,445	84,968	92,826	95,748	100,038	103,921	110,000	117,072	124,479

Table A1.8b: Estimates of Scottish GDP including Extra Regio using a (i) population and (ii) geographical assumption - financial year

	1998-99	1999-00	2000-01	2001-02	2002-03		2003-04		2004-05		2005-06		2006-07
UK - Extra Regio	13,034	16,192	21,633	20,390	19,995		20,286		21,338		24,406		27,110
UK - ER - PA & Def	919	941	978	1,016	1,076		1,165		1,229		1,282		1,353
UK - ER - CS activity	12,115	15,251	20,655	19,374	18,919		19,121		20,108		23,124		25,757
Pop - ER - PAD	80	81	84	87	92		99		104		108		114
Pop - ER - CS activity	1,051	1,316	1,774	1,658	1,611		1,623		1,705		1,955		2,175
Geog - ER - CS activity	9,434	12,227	16,814	15,774	15,710		15,719		16,796		19,366		21,082
Scot - GDP - excl ER	72,740	74,932	76,828	80,645	85,241		89,697		94,822		99,248		105,274
GDP + pop ER	73,871	76,329	78,686	82,389	86,943		91,419		96,630		101,311		107,564
GDP + geog ER	82,254	87,240	93,725	96,505	101,043		105,515		111,722		118,722		126,470

Conclusions

The figures presented in this paper are "experimental" and the methodologies are still being developed. The figures will shortly be updated when the ONS issue the next release of Regional Accounts on 12 December 2008. These figures will incorporate an adjustment due to new methodology relating to Financial Intermediation Services Indirectly Measured ( FISIM) - for more information, see Article 3 (Mortimer and Croasdale).

Further details about the development of this exercise will be made available on the web in due course. Updates are likely to be quarterly.