Government Expenditure and Revenue Scotland 2009-2010

6 PUBLIC SECTOR EXPENDITURE

Introduction

This chapter provides detailed estimates of public sector expenditure for Scotland.

The primary data source used to estimate Scottish public sector expenditure is the Country and Regional Analysis ( CRA) contained in the National Statistics publication Public Expenditure Statistical Analyses ( PESA) published by HM Treasury ²⁷.

In GERS, public sector expenditure is divided into three categories: identifiable expenditure, non-identifiable expenditure and an accounting adjustment. Identifiable expenditure is expenditure that can be clearly allocated to Scotland in terms of having been spent for the benefit of Scottish residents and enterprises. Examples of identifiable expenditure include unemployment benefits, local economic development expenditure and most education and health expenditure.

Non-identifiable expenditure is expenditure that cannot be allocated to a particular country of the UK or English region but is instead incurred on behalf of the UK as a whole. The largest element of non-identifiable expenditure is defence expenditure.

Finally, an accounting adjustment ensures that public sector expenditure reported in PESA is consistent with Total Managed Expenditure ( TME), the UK Government's principal measure of public sector expenditure used in the UK Public Sector Finance Accounts.

For total expenditure and each expenditure component, a detailed breakdown according to current and capital is provided.

Each element of expenditure is discussed in detail below. Appendix B discusses the revisions from previous reports and the relevant apportionment methodologies applied.

As discussed in Chapter 3, the estimates in GERS include a share of the permanent effects of the UK Government's financial sector interventions. This is consistent with the methodology used by HM Treasury and the OBR. The UK Government's net financial sector interventions are classified as non-identifiable and are recorded in the Enterprise and Economic Development ( EED) expenditure programme lines in both PESA and GERS. The outlays by the UK Government are recorded as a capital expenditure, whilst the fees received are recorded as a negative current expenditure ( i.e. revenue received), as summarised in Box 3.1. The scale of the financial sector interventions, relative to other spending on EED, means that there is a significant increase in expenditure within this category between 2007-08 and 2008-09.

Total Public Sector Expenditure

Estimated total public sector expenditure for Scotland by spending category for 2009-10 is shown in Table 6.1. On the basis of the assumptions and methodologies described in this report, in 2009-10, total public sector expenditure for Scotland was £59.2 billion, this was equivalent to 9.3 per cent of comparable total UK public sector expenditure in 2009-10. Social protection was the largest Scottish expenditure programme. Together with health expenditure, it accounts for approximately 52 per cent of total public sector expenditure for Scotland in 2009-10.

Table 6.1: Total Expenditure: Scotland 2009-10

	Scotland
	£ million	% of total expenditure
General public services
Public and common services	1,567	2.6%
International services	672	1.1%
Public sector debt interest	2,635	4.5%
Defence	3,160	5.3%
Public order and safety	2,635	4.5%
Economic affairs
Enterprise and economic development	1,089	1.8%
Science and technology	446	0.8%
Employment policies	280	0.5%
Agriculture, forestry and fisheries	858	1.5%
Transport	2,853	4.8%
Environment protection	1,185	2.0%
Housing and community amenities	1,920	3.2%
Health	10,712	18.1%
Recreation, culture and religion	1,466	2.5%
Education and training	7,739	13.1%
Social protection	20,189	34.1%
EU transactions	-236	-0.4%
Total	59,170	100.0%

1 In the TME presentation, expenditure on grants abroad is shown net of grants payable to the UK. This is why the EU transaction shows negative net expenditure.

Current expenditure is the sum of the current expenditure of general government ( i.e. the Scottish Government, the UK Government in Scotland and Scottish local authorities) and certain distributive transactions (interest and dividends) payable by public corporations to the private sector and abroad. It does not include expenditure incurred by public corporations in producing goods and services for sale. Instead, the surplus of sale receipts over operating costs for public corporations is scored as a public sector revenue and does not affect the expenditure measure. Public sector current expenditure is defined to be net of certain revenue items, such as some sales of goods and services by general government. As it is defined at the public sector level, any transactions between parts of the public sector are also excluded.

Public sector capital expenditure refers to new capital formation, the net acquisition of land, and expenditure on capital grants. Capital expenditure leads to the holding of assets that can be used repeatedly to produce goods and services and generally have an economic life of more than one year. Table 6.2 provides a summary of total current and capital expenditure over the years 2005-06 to 2009-10.

Total public sector expenditure for Scotland is estimated to have increased from £47.7 billion in 2005-06 to £59.2 billion in 2009-10, an increase of approximately 24 per cent in nominal terms. Over the same period, equivalent UK public sector expenditure increased from £501.2 billion to £639.2 billion, an increase of 28 per cent in nominal terms.

Chapters four and five illustrated that Scottish tax revenue fell sharply in 2008-09 and 2009-10 as a result of the recession. Aggregate, public expenditure has not been as volatile and has grown, on average, by approximately 5.5 per cent in nominal terms in each of the last five years. Aggregate current expenditure has also remained fairly stable over this period. However, when capital expenditure is considered in isolation, it is shown to be considerably more volatile, increasing by 24 per cent between 2007-08 and 2008-09. This reflects the UK Government's financial sector interventions, which accounted for nearly two thirds of the growth in capital expenditure for Scotland between 2007-08 and 2008-09. Capital expenditure fell slightly in 2009-10, but remained significantly higher than in the three years prior to 2008-09. This is because whilst the expenditure associated with the UK Government's financial sector interventions fell in 2009-10, there was a significant increase in infrastructure investment, as both the Scottish and UK Governments brought forward capital expenditure planned for 2010-11 into 2009-10 to support the economy.

Table 6.2: Total Current and Capital Expenditure Scotland and UK 2005-06 to 2009-10

	(£ million)
	Scotland					UK
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
Current	43,471	45,231	48,078	49,866	52,770	463,696	482,029	510,068	537,792	574,511
Capital	4,261	5,043	5,221	6,476	6,400	37,512	40,824	45,552	64,310	64,726
Total	47,732	50,274	53,299	56,342	59,170	501,208	522,853	555,619	602,102	639,238

Table 6.3 highlights the share of total expenditure according to current and capital expenditure. Between 2005-06 and 2007-08, capital expenditure for Scotland varied between 8.9 per cent and 10.0 per cent of total expenditure. In 2008-09, capital expenditure for Scotland subsequently increased to 11.5 per cent of total expenditure, reflecting the impact of the UK Government's financial sector interventions. Capital expenditure subsequently fell to 10.8 per cent of total expenditure in 2009-10, although this remains a larger share of total expenditure than in the years prior to 2008-09.

Table 6.3: Current and Capital Expenditure (% of Total Expenditure): Scotland 2005-06 to 2009-10

	(per cent)
	2005-06	2006-07	2007-08	2008-09	2009-10
Current	91.1%	90.0%	90.2%	88.5%	89.2%
Capital	8.9%	10.0%	9.8%	11.5%	10.8%

Tables 6.4 and 6.5 provide a more detailed breakdown of total public sector expenditure by current and capital split for Scotland and the UK.

Table 6.4: Total Expenditure: Scotland 2005-06 to 2009-10

	(£ million)
	Current					Capital					Total
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	1,395	1,247	1,311	1,291	1,485	180	140	61	297	82	1,574	1,387	1,372	1,588	1,567
International services	495	497	531	572	620	28	32	36	40	53	524	529	567	611	672
Public sector debt interest	2,261	2,428	2,645	2,656	2,635	0	0	0	0	0	2,261	2,428	2,645	2,656	2,635
Defence	2,523	2,639	2,619	2,796	2,822	90	75	214	292	338	2,613	2,715	2,832	3,088	3,160
Public order and safety	2,116	2,105	2,204	2,289	2,389	168	183	165	226	245	2,284	2,288	2,369	2,515	2,635
Economic affairs
Enterprise and economic development	721	698	782	529	432	147	205	235	1,040	657	867	902	1,016	1,569	1,089
Science and technology	307	267	337	319	367	68	59	120	106	79	375	326	457	425	446
Employment policies	241	246	253	260	273	33	13	1	1	7	274	259	254	261	280
Agriculture, forestry and fisheries	605	592	677	700	765	45	73	71	100	94	650	666	748	800	858
Transport	929	1,446	1,543	1,527	1,514	913	1,278	1,243	1,124	1,340	1,842	2,724	2,785	2,651	2,853
Environment protection	730	836	831	866	981	206	162	190	196	204	937	998	1,021	1,062	1,185
Housing and community amenities	162	182	333	281	260	1,363	1,497	1,413	1,521	1,660	1,526	1,679	1,746	1,802	1,920
Health	8,355	8,804	9,363	9,751	10,133	251	297	447	512	579	8,606	9,102	9,810	10,264	10,712
Recreation, culture and religion	1,057	1,095	1,112	1,119	1,182	190	201	239	276	284	1,247	1,296	1,351	1,395	1,466
Education and training	6,088	6,411	6,662	6,909	7,076	480	724	696	649	664	6,568	7,134	7,358	7,558	7,739
Social protection	15,847	16,090	17,114	18,492	20,074	101	103	91	96	115	15,948	16,193	17,205	18,589	20,189
EU transactions	-362	-352	-237	-493	-236	0	0	0	0	0	-362	-352	-237	-493	-236
Total	43,471	45,231	48,078	49,866	52,770	4,261	5,043	5,221	6,476	6,400	47,732	50,274	53,299	56,342	59,170

Table 6.5: Total Expenditure: UK 2005-06 to 2009-10

	(£ million)
	Current					Capital					Total
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	11,076	11,389	11,286	11,810	11,903	1,603	1,193	1,329	2,013	1,726	12,678	12,582	12,615	13,823	13,629
International services	5,865	5,884	6,303	6,798	7,380	341	388	443	473	627	6,206	6,272	6,745	7,271	8,007
Public sector debt interest	26,746	28,749	31,363	31,555	31,363	0	0	0	0	0	26,746	28,749	31,363	31,555	31,363
Defence	29,846	31,250	31,056	33,243	33,561	1,072	899	2,539	3,468	4,024	30,918	32,149	33,595	36,710	37,585
Public order and safety	27,673	28,621	29,637	30,907	31,796	1,608	1,817	2,022	2,746	2,694	29,281	30,438	31,659	33,653	34,490
Economic affairs
Enterprise and economic development	5,244	5,003	5,508	4,146	3,112	1,322	1,534	1,414	11,409	6,412	6,566	6,537	6,922	15,555	9,524
Science and technology	2,242	2,146	2,426	2,541	2,896	757	675	785	625	733	2,999	2,821	3,211	3,165	3,629
Employment policies	2,987	3,155	3,210	3,017	3,377	355	195	72	85	111	3,342	3,349	3,282	3,102	3,489
Agriculture, forestry and fisheries	5,319	4,783	4,701	5,037	5,574	282	321	289	377	270	5,601	5,105	4,990	5,415	5,844
Transport	8,459	9,417	9,872	9,019	9,822	8,580	10,460	10,630	11,801	12,863	17,039	19,878	20,501	20,820	22,686
Environment protection	6,324	7,142	7,243	7,105	8,217	2,213	2,250	2,284	2,608	2,835	8,537	9,392	9,526	9,713	11,052
Housing and community amenities	3,559	3,601	3,879	3,760	4,032	7,138	7,948	9,037	11,207	11,907	10,697	11,549	12,916	14,967	15,939
Health	86,467	90,623	97,432	104,626	112,577	3,115	3,889	4,719	5,346	6,203	89,582	94,512	102,151	109,972	118,780
Recreation, culture and religion	9,110	9,462	9,760	9,932	10,246	1,699	1,786	2,278	3,082	3,288	10,809	11,248	12,038	13,014	13,533
Education and training	63,254	66,266	71,162	74,387	77,853	6,450	6,665	6,936	8,315	9,945	69,704	72,931	78,098	82,702	87,797
Social protection	170,124	176,340	186,762	202,840	220,729	976	804	775	755	1,089	171,100	177,144	187,537	203,596	221,818
EU transactions	-598	-1,802	-1,531	-2,931	73	0	0	0	0	0	-598	-1,802	-1,531	-2,931	73
Total	463,696	482,029	510,068	537,792	574,511	37,512	40,824	45,552	64,310	64,726	501,208	522,853	555,619	602,102	639,238

Box 6.1 - Social Protection Expenditure

In the public accounts, social protection expenditure comprises spending on personal social services and social security. Personal social services covers both social work and social care services provided by local authorities. Examples include residential care homes for the elderly and home care services. Social security comprises cash benefits that are given to eligible individuals defined by states of need, such as unemployment, disability, sickness, old age etc. Total social protection expenditure for Scotland is estimated to have increased from £15.9 billion in 2005-06 to £20.2 billion in 2009-10, an increase of approximately 27 per cent in nominal terms. Expenditure on social protection grew particularly rapidly in 2008-09 and 2009-10, accounting for half the growth observed in total public expenditure for Scotland in these years. The rapid growth in expenditure on social protection in 2008-09 and 2009-10 partly reflects the impact of the recession which has increased the number of people eligible for social security benefits. For example, the table below shows that expenditure on unemployment related benefits in Scotland increased from £406 million in 2007-08 to £605 million in 2009-10, a rise of 49.0 per cent. Across the UK as a whole, expenditure unemployment related benefits increased by 66.4 per cent over the same time period. Social Protection Expenditure Scotland and UK 2005-06 to 2009-10 (£ million) Scotland UK 2005-06 2006-07 2007-08 2008-09 2009-10 2005-06 2006-07 2007-08 2008-09 2009-10 Central Government: Sickness and Disability 2,553 2,610 2,706 3,000 3,216 26,108 26,961 28,191 31,046 33,147 Pensions 5,495 5,732 6,140 6,831 7,261 61,905 64,405 69,776 76,783 80,603 Widow's Benefits 191 187 192 193 193 1,846 1,811 1,808 1,814 1,816 Family Benefits 1 1,887 1,872 1,945 1,831 1,875 21,458 21,462 22,481 21,490 22,121 Unemployment related benefits and services 394 451 406 472 605 4,011 4,580 4,273 5,264 7,110 Social exclusion 1,313 1,424 1,522 1,643 1,983 14,449 15,649 16,998 20,103 23,905 Other social protection 303 222 180 200 303 3,385 2,490 2,047 2,168 3,365 Local Government 3,813 3,694 4,114 4,418 4,753 37,938 39,786 41,963 44,927 49,750 Total Social Protection 15,948 16,193 17,205 18,589 20,189 171,100 177,144 187,537 203,596 221,818 1 Income support; Tax Credits and Personal Social Services

Table 6.6 shows estimated total public sector expenditure for Scotland and the UK on a per capita basis. The table also highlights the absolute per capita difference between Scotland and the UK and Scottish expenditure relative to the UK level. Total expenditure per capita for Scotland is estimated to have been £11,370 in 2009-10, £1,050 (or 10.2 per cent) higher than the UK average. It should be noted that UK Government departments may have classified certain expenditures to particular categories using a different approach to that taken by Scottish Government statisticians. Therefore, allocations of certain expenditure for Scotland may differ from those for the UK, not as a result of different levels of actual expenditure, but as a result of different classifications of similar expenditures. Caution should therefore be exercised when comparing expenditure per capita for Scotland with UK figures for individual expenditure categories.

Table 6.6: Total Expenditure per capita: Scotland and UK 2009-10

	Scotland (£)	UK (£)	Per Capita Difference (Scotland less UK) (£)	Relative expenditure for Scotland ( UK = 100)
General public services
Public and common services	301	220	81	137
International services	129	129	0	100
Public sector debt interest	506	506	0	100
Defence	607	607	0	100
Public order and safety	506	557	-51	91
Economic affairs
Enterprise and economic development	209	154	55	136
Science and technology	86	59	27	146
Employment policies	54	56	-2	96
Agriculture, forestry and fisheries	165	94	71	175
Transport	548	366	182	150
Environment protection	228	178	49	128
Housing and community amenities	369	257	112	143
Health	2,058	1,918	141	107
Recreation, culture and religion	282	218	63	129
Education and training	1,487	1,417	70	105
Social protection	3,880	3,581	298	108
EU transactions 1	-45	1	-47	N/A
Total	11,370	10,320	1,050	110

1 EU transactions are recorded as a negative net expenditure for Scotland, but a positive net expenditure for the UK as whole. This is due to changes at the component level with differing shares of each being attributed to Scotland. The UK figure has become positive in 2009-10 largely to an increase in EU contributions (£8.6 billion to £10.6 billion) and a reduction in some receipts from the EU. For each of these changes, Scotland is apportioned between 8.1 and 8.7 per cent depending on the component. However, Scotland receives a comparatively large share of EUDEL receipts (approximately 13 per cent) which have remained stable and act to maintain Scotland's position as a net recipient from the EU.

With the exception of defence, international services, public sector debt interest payments, public order and safety and employment policies, public expenditure per capita for Scotland was estimated to be higher than the UK average across all programme types. The biggest absolute differences were in social protection, health and transport, where per capita expenditure for Scotland was estimated to be between £141 and £298 higher than the UK average. In relative terms, the greatest differences in expenditure per capita occurred in transport and agriculture, forestry and fisheries expenditure.

Within the UK, the levels of public expenditure vary from one constituent part to another, reflecting the needs rather than the wealth or tax capacity of an area.

There are number of reasons why public expenditure for Scotland often lies above the UK average. In some cases, higher expenditure per capita reflects the greater relative importance of particular activities for Scotland. Agriculture, fisheries and forestry is one such example. Scotland also has a lower population density than the UK which increases the cost of providing the same level of public service activity, particularly in areas such as education, health and transport.

The scope and remit of the public sector also differs in Scotland compared to the UK. For example, water and sewage services are a public sector responsibility in Scotland, and are therefore included in Scottish public expenditure, whilst in England they are operated by the private sector. The inclusion of Scottish Water in the public sector is one reason why net investment in Scotland is relatively higher than for the UK as a whole.

In other areas, the higher Scottish expenditure often observed reflects greater demand for Scottish-based providers. For example, the strength of Scottish universities has created a net inflow of students from other parts of the UK. Additionally, Scottish university courses are typically longer - the honours degree course takes four years, compared with a typical three year course in England and Wales. Therefore, expenditure on education and training for Scotland will be relatively higher than the rest of the UK. However, this benefits the UK as a whole. Scottish universities have also been able to attract above average levels of research funding which has contributed to the high level of public expenditure for science and technology in Scotland. Finally, higher public expenditure also reflects Scotland's greater need for some public services such as in health and housing.

Box 6.2 - Private Finance Initiative and Non-Profit Distributing Financing

The Private Finance Initiative ( PFI) is a method to provide financial support for Public Private Partnerships ( PPPs) between the public and private sectors. PFI projects are long-term contracts for services that include the provision of associated facilities or properties. Under the contract, the private sector is generally responsible for various roles including designing and constructing a building or facility and maintaining and servicing it throughout the contract term. The public sector retains accountability for the main public services. The private sector is responsible for financing the project up front and only receives payment from the public sector once construction has been completed and the services have commenced. There was also another model of revenue finance in operation over this period called Non-Profit Distributing ( NPD). The NPD model is 100% debt funded which ensures that the returns to the private sector are capped and that there is no dividend bearing equity. Payments for both PFI and NPD projects take the form of a unitary charge which is usually paid annually over the lifetime of the contract. Public sector unitary charges paid on PFI and NPD projects in Scotland between 2005-06 and 2009-10 are presented in the table below. Public Sector Unitary Charge Expenditure in Scotland 2005-06 to 2009-10-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Scottish Public Sector Unitary Charges 1 392 435 508 585 729 Other UK Government Departments PFI Unitary Charges 12 13 20 23 23 Total Unitary Charges in Scotland 403 448 527 608 752 Source: Scottish Government March 2011 and HM Treasury PFI Signed Project List - March 2011. 1. Includes both PFI and NDP figures.

Identifiable and Non-identifiable Expenditure

GERS classifies public sector expenditure for Scotland according to three categories: identifiable expenditure, non-identifiable expenditure and accounting adjustments.

In the vast majority of cases, GERS uses the data on identifiable expenditure contained in PESACRA directly. It is a fundamental principle of PESA that the apportionment of UK expenditure adheres to the 'who benefits' principle whereby spending is allocated to a given region if the benefit of the service derived from the expenditure is thought to accrue to residents and enterprises of that region. As highlighted in the PESA publication, there are limitations in the ability to capture precisely 'who benefits' from a given item of expenditure:

• there are practical difficulties. For example, schools are not used solely by the residents of a region in which the facility is located and roads serve the needs of more than the geographical area through which they pass. Definitional and border problems become increasingly significant the smaller the geographical unit considered;
• there are also significant definitional problems associated with assessing 'who benefits'. For example, agricultural support is treated as benefiting the farmers who receive subsidies rather than the final consumers of food; and
• there are also issues around collecting accurate country and regional data in a cost efficient way. UK government departments are encouraged but not required to allocate all expenditure on the basis of 'who benefits'. If spending is not significant (less than £20 million on capital or current) and/or relevant data for allocating this to regions are not available, departments may use some statistical proxy instead. For example: using straight per capita shares, or using the regional allocation proportions for related spending. Further, it is not practical or cost effective to collect local government spending data on the basis of 'who benefits'. Instead, local government spending is assumed to benefit the area where the expenditure occurs.

Following a detailed review of all 1,400 programme object groups in PESA 2011, a number of important modifications have been made to a small number of programme expenditures before being used for the GERS report. These changes reflect the fact that in certain circumstances, officials in the Scottish Government believe a more accurate assessment of 'who benefits' is thought possible than is currently presented in PESA. The principal changes relates to the treatment of expenditure on nuclear decommissioning by the UK Atomic Energy Authority ( UKAEA), the expenditure on the London Olympics, as outlined in the Appendix B and Box 6.3 respectively.

Appendix B contains a detailed list of all amendments to PESA implemented in this report. The development of PESA continues to be work in progress and further improvements in the regional apportionment of public sector expenditure will be reflected in future GERS reports.

In 2009-10 UK identifiable expenditure covered approximately 84.4 per cent of UK total public. The remaining spending cannot be attributed to individual locations, for example, because it is spent for the benefit of the UK as a whole. A proportion of such UK non-identifiable expenditure is allocated to the public sector for Scotland either on the basis of Scotland's share of the UK population, GVA or a more specific apportionment variable. Information on the methodologies used to apportion each element of expenditure is provided in Appendix B.

Table 6.7 illustrates the estimated level of identifiable and non-identifiable expenditure assigned to Scotland for each year between 2005-06 and 2009-10. Identifiable expenditure was estimated to be £51.2 billion in 2009-10. In comparison, non-identifiable expenditure was £8 billion in 2009-10, approximately 13.5 per cent of estimated total public sector expenditure for Scotland.

Across most programme categories, the level of non-identifiable expenditure is relatively modest. This, in part, reflects development work that has been undertaken in compiling the PESACRA database in recent years to identify more specifically particular elements of expenditure on a regional basis. Debt interest payments, defence and international services are typically the largest elements of non-identifiable expenditure. Collectively, these three elements of expenditure accounted for 80.5 per cent of total non-identifiable expenditure for Scotland in 2009-10.

Box 6.3 - The London Olympics and Glasgow Commonwealth Games

In PESA 2011, HM Treasury classified expenditure on the London Olympics as non-identifiable expenditure. This implies the benefits from the Olympics are shared equally by all UK residents. There is some debate as to whether or not all the expenditures classified as being part of the 2012 Olympics are non-identifiable, and therefore of equal benefit to all UK regions. For example, a significant proportion of spending on the Olympics is for investment in infrastructure and re-development of areas in the east end of London which will have lasting benefits for the city. Previous regeneration schemes have generally been classified in PESA as identifiable to the region in which they occur. Expenditure on the 2014 Commonwealth Games is also reported in PESA. PESA classifies all the expenditure associated with the Commonwealth Games as being identifiable to Scotland. This implies that all the resulting benefits also accrue to Scotland. The classifications used in PESA imply that Scottish residents are the sole beneficiaries of the expenditure associated with the Commonwealth Games, whilst all UK residents benefit equally from the expenditure associated with the London Olympics. This creates an asymmetry in the treatment of the expenditures associated with the two events. The Scottish Government published a discussion paper in May 2011 proposing a number of changes to the treatment of the expenditure on the London Olympics and Commonwealth Games in GERS to more accurately capture the benefits accruing to Scotland from this expenditure. As a result of this consultation the following changes have been made to the data in PESA 2011 before being used in GERS: All capital expenditure associated with the Olympics has been assigned to London, on the basis that this will capture the lasting benefit to the city of the infrastructure and regeneration associated with the games. Current expenditure on the Olympics has been assigned across the countries and regions of the UK using the projected regional distribution of the associated increase in tourism expenditure. All current and capital expenditure associated with the Commonwealth Games continues to be assigned to Scotland. These adjustments reduce the estimates of Scottish public sector expenditure by £92 million in 2008-09 and £91 million in 2009-10, as summarised in the table below. Further information on the changes is available on the GERS website: ( http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/GERS/GERSolympicstreatment) Expenditure on the 2012 Olympic Games: 2005-06 to 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Total UK Olympic Expenditure 0.0 99 386 1,096 1,088 Population Share - Previous apportionment method used to assigned expenditure to Scotland 0.0 8.4 32.5 92.2 91.4 Revised apportionment to Scotland in GERS 2009-10 0.0 0.0 0.1 0 0.1

Table 6.7: Total Expenditure, Identifiable and Non-identifiable: Scotland 2005-06 to 2009-10

	(£ million)
	Identifiable					Non-identifiable					Total
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	1,134	959	941	1,137	1,134	440	427	431	450	433	1,574	1,387	1,372	1,588	1,567
International services	18	16	16	21	20	506	513	550	590	653	524	529	567	611	672
Public sector debt interest	0	0	0	0	0	2,261	2,428	2,645	2,656	2,635	2,261	2,428	2,645	2,656	2,635
Defence	6	7	7	5	9	2,607	2,707	2,825	3,083	3,151	2,613	2,715	2,832	3,088	3,160
Public order and safety	2,120	2,117	2,194	2,341	2,451	164	170	174	174	184	2,284	2,288	2,369	2,515	2,635
Economic affairs
Enterprise and economic development	842	849	965	815	866	25	53	51	755	223	867	902	1,016	1,569	1,089
Science and technology	324	266	407	368	388	51	60	51	58	58	375	326	457	425	446
Employment policies	273	258	253	260	278	1	1	1	1	2	274	259	254	261	280
Agriculture, forestry and fisheries	650	666	748	800	858	0	0	0	0	0	650	666	748	800	858
Transport	1,823	2,706	2,766	2,628	2,831	19	19	20	23	22	1,842	2,724	2,785	2,651	2,853
Environment protection	826	859	900	964	1,022	111	140	121	98	162	937	998	1,021	1,062	1,185
Housing and community amenities	1,526	1,679	1,746	1,802	1,920	0	0	0	0	0	1,526	1,679	1,746	1,802	1,920
Health	8,562	9,035	9,727	10,179	10,616	44	67	82	85	96	8,606	9,102	9,810	10,264	10,712
Recreation, culture and religion	952	991	1,030	1,082	1,140	295	305	321	313	326	1,247	1,296	1,351	1,395	1,466
Education and training	6,566	7,131	7,354	7,555	7,736	2	3	4	3	3	6,568	7,134	7,358	7,558	7,739
Social protection	15,728	15,967	16,964	18,321	19,905	220	227	241	268	284	15,948	16,193	17,205	18,589	20,189
EU transactions	0	0	0	0	0	-362	-352	-237	-493	-236	-362	-352	-237	-493	-236
Total	41,349	43,505	46,018	48,276	51,173	6,384	6,769	7,281	8,066	7,998	47,732	50,274	53,299	56,342	59,170

Analysis of Identifiable Expenditure

This section provides a more detailed analysis of identifiable expenditure for Scotland.

Table 6.8 disaggregates identifiable expenditure for Scotland into expenditure by the Scottish Government and by other UK Government departments for the years 2005-06 to 2009-10 ²⁸. Tables 6.9 and 6.10 provide a similar disaggregation but with an additional split for current and capital expenditure. Finally, Table 6.11 provides an assessment of the contribution of each expenditure programme to overall identifiable expenditure for Scotland and the UK as a whole.

The Scottish Government accounted for over two thirds of total Scottish identifiable public expenditure in each year between 2005-06 and 2009-10 with the majority of such expenditure on health and education. It should be noted that the figures presented for Scottish Government expenditure in GERS do not reconcile directly with Scottish Government budget statements. The identifiable expenditure figures contained in GERS include expenditure by non-ministerial departments, such as the General Register Office for Scotland ( GROS), and by public corporations. They exclude a small expenditure by the Scottish Government on services outside Scotland. Furthermore, the figures presented in GERS are consistent with the National Accounts framework for public sector expenditure and will therefore differ from the Scottish Government budget documents in their treatment of certain cash and non-cash items. There are also important differences in classification of expenditure.

UK Government departments accounted for a third of Scottish identifiable expenditure. Their spending is dominated by expenditure on social protection - i.e. welfare payments and unemployment benefits. Social protection is the only function where the majority of identifiable expenditure is not undertaken by the Scottish Government.

Decomposing the data into current and capital components shows that the Scottish Government's share of identifiable current expenditure increased from 66 per cent in 2005-06 to 67 per cent in 2007-08. This subsequently fell to 65 per cent by 2009-10. Over the same period the proportion of identifiable capital expenditure undertaken by the Scottish Government increased from 89 per cent in 2005-06 to 97 per cent in 2008-09, then falling marginally to 96 per cent in 2009-10. A significant element of this increase reflects the transfer of responsibility for elements of railways expenditure from the Department for Transport to the Scottish Government. This issue is set out more in detail in Box 6.1 in GERS 2007-08.

As Table 6.11 highlights, the pattern of identifiable expenditure for Scotland was broadly similar to that for the UK as a whole, with social protection and health being the dominant expenditure components.

Table 6.8: Total Identifiable Expenditure: Scotland 2005-06 to 2009-10

	(£ million)
	Scottish Government and Local Authorities					Other UK Government					Total
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	1,062	898	873	1,079	1,084	72	61	68	59	50	1,134	959	941	1,137	1,134
International services	0	0	0	0	0	18	16	16	21	20	18	16	16	21	20
Public sector debt interest	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Defence	6	7	7	5	9	0	0	0	0	0	6	7	7	5	9
Public order and safety	2,104	2,091	2,165	2,306	2,368	16	27	29	35	83	2,120	2,117	2,194	2,341	2,451
Economic affairs
Enterprise and econ development	664	689	818	664	734	178	160	147	151	132	842	849	965	815	866
Science and technology	135	88	195	137	110	189	178	211	231	278	324	266	407	368	388
Employment policies	0	0	1	4	3	273	258	252	256	275	273	258	253	260	278
Agriculture, forestry and fisheries	637	652	734	787	845	13	14	14	13	13	650	666	748	800	858
Transport	1,586	2,554	2,692	2,604	2,768	237	151	74	23	63	1,823	2,706	2,766	2,628	2,831
Environment protection	776	815	862	927	981	50	44	38	37	41	826	859	900	964	1,022
Housing and community amenities	1,526	1,679	1,746	1,802	1,920	0	0	0	0	0	1,526	1,679	1,746	1,802	1,920
Health	8,517	8,992	9,689	10,130	10,567	45	43	39	48	48	8,562	9,035	9,727	10,179	10,616
Recreation, culture and religion	835	892	945	999	1,058	118	99	85	83	81	952	991	1,030	1,082	1,140
Education and training	6,528	7,098	7,330	7,522	7,713	37	33	24	33	22	6,566	7,131	7,354	7,555	7,736
Social protection	3,819	3,768	4,263	4,479	4,866	11,908	12,199	12,701	13,842	15,039	15,728	15,967	16,964	18,321	19,905
EU transactions	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
Total	28,194	30,223	32,321	33,444	35,026	13,154	13,283	13,697	14,832	16,146	41,349	43,505	46,018	48,276	51,173

Table 6.9: Identifiable Expenditure - Scottish Government and Local Authorities: Scotland 2005-06 to 2009-10

	(£ million)
	Current					Capital
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	923	769	837	827	1,034	139	129	36	252	50
International services	0	0	0	0	0	0	0	0	0	0
Public sector debt interest	0	0	0	0	0	0	0	0	0	0
Defence	6	7	7	5	9	0	0	0	0	0
Public order and safety	1,945	1,918	2,013	2,100	2,149	159	173	152	206	218
Economic affairs
Enterprise and econ development	532	532	627	470	492	132	157	192	194	242
Science and technology	105	69	110	68	80	30	18	85	69	30
Employment policies	0	0	1	4	3	0	0	0	0	0
Agriculture, forestry and fisheries	593	579	663	687	752	44	73	70	100	93
Transport	889	1,395	1,476	1,505	1,459	696	1,159	1,215	1,099	1,310
Environment protection	681	766	772	841	887	95	49	90	85	94
Housing and community amenities	162	182	333	281	260	1,363	1,497	1,413	1,521	1,660
Health	8,282	8,715	9,250	9,626	9,993	234	277	439	504	575
Recreation, culture and religion	707	735	742	755	812	128	157	203	244	247
Education and training	6,068	6,390	6,637	6,874	7,050	460	709	694	648	663
Social protection	3,773	3,710	4,198	4,413	4,805	46	58	65	65	61
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	24,667	25,768	27,666	28,456	29,785	3,527	4,455	4,655	4,988	5,241

Table 6.10: Identifiable Expenditure - Other UK Government: Scotland 2005-06 to 2009-10

	(£ million)
	Current					Capital
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	67	56	63	54	44	5	5	4	5	6
International services	17	15	16	21	19	1	0	1	0	0
Public sector debt interest	0	0	0	0	0	0	0	0	0	0
Defence	0	0	0	0	0	0	0	0	0	0
Public order and safety	14	26	29	33	81	2	1	1	1	2
Economic affairs
Enterprise and econ development	166	142	128	120	104	12	18	19	31	28
Science and technology	166	152	188	205	239	24	27	23	25	40
Employment policies	240	245	251	255	268	33	13	1	1	7
Agriculture, forestry and fisheries	12	13	13	12	13	1	1	1	1	1
Transport	28	40	54	8	42	209	112	20	15	22
Environment protection	26	22	31	31	30	24	22	7	6	11
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	25	27	35	46	47	20	16	3	2	2
Recreation, culture and religion	67	66	58	61	56	50	33	27	22	25
Education and training	18	18	21	32	22	19	15	3	1	1
Social protection	11,855	12,154	12,675	13,811	14,985	53	44	25	31	53
EU transactions	0	0	0	0	0	0	0	0	0	0
Total	12,702	12,975	13,564	14,690	15,949	453	307	134	141	197

Table 6.11: Identifiable Expenditure: Scotland and UK 2009-10

	Scotland						UK
	Scottish Government and Local Authorities		Other UK Government		Total		Total
	Expenditure (£ million)	Share of identifiable expenditure	Expenditure (£ million)	Share of identifiable expenditure	Expenditure (£ million)	Share of identifiable expenditure	Expenditure ( £ million)	Share of identifiable expenditure
General public services
Public and common services	1,084	2.1%	50	0.1%	1,134	2.2%	8,408	1.6%
International services	0	0.0%	20	0.0%	20	0.0%	236	0.0%
Public sector debt interest	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Defence	9	0.0%	0	0.0%	9	0.0%	82	0.0%
Public order and safety	2,368	4.6%	83	0.2%	2,451	4.8%	32,304	6.0%
Economic affairs	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Enterprise and econ development	734	1.4%	132	0.3%	866	1.7%	6,808	1.3%
Science and technology	110	0.2%	278	0.5%	388	0.8%	2,917	0.5%
Employment policies	3	0.0%	275	0.5%	278	0.5%	3,464	0.6%
Agriculture, forestry and fisheries	845	1.7%	13	0.0%	858	1.7%	5,844	1.1%
Transport	2,768	5.4%	63	0.1%	2,831	5.5%	22,345	4.1%
Environment protection	981	1.9%	41	0.1%	1,022	2.0%	9,104	1.7%
Housing and community amenities	1,920	3.8%	0	0.0%	1,920	3.8%	15,939	3.0%
Health	10,567	20.6%	48	0.1%	10,616	20.7%	117,627	21.8%
Recreation, culture and religion	1,058	2.1%	81	0.2%	1,140	2.2%	8,532	1.6%
Education and training	7,713	15.1%	22	0.0%	7,736	15.1%	87,757	16.3%
Social protection	4,866	9.5%	15,039	29.4%	19,905	38.9%	218,295	40.5%
EU transactions	0	0.0%	0	0.0%	0	0.0%	0	0.0%
Total	35,026	68.4%	16,146	31.6%	51,173	100.0%	539,661	100.0%

Analysis of Non-Identifiable Expenditure

This section provides a more detailed analysis of non-identifiable expenditure. There are a number of possible ways in which to allocate a share of UK non-identifiable expenditure to Scotland including Scotland's share of UKGVA or population. The methodologies used to apportion each element of non-identifiable expenditure are discussed in Appendix B.

In addition to non-identifiable expenditure, PESA also includes a small amount of UK Government expenditure which is classified as identifiable but for programmes outside the UK. This includes expenditure on international development programmes. This category is included in GERS within non-identifiable expenditure for both Scotland and the UK. This treatment is consistent with the view that expenditure outside the UK is non-identifiable from the perspective of the UK's constituent countries, as the benefits are shared between them. To make the Scottish non-identifiable expenditure comparable with UK data, this category is therefore included in UK non-identifiable expenditure.

Table 6.12 presents total non-identifiable expenditure for Scotland and the UK between 2005--06 and 2009-10. Tables 6.13 and 6.14 decompose Scottish and UK non-identifiable expenditure into their current and capital components.

Total non-identifiable expenditure for Scotland was estimated to be £8.0 billion in 2009-10, 8 per cent of the equivalent UK figure.

Defence and debt interest payments comprise the largest components. As Tables 6.13 and 6.14 highlight, current expenditure was the major component of non-identifiable expenditure for both Scotland and the UK in 2009-10.

As outlined in the introduction to Chapter 6, the UK Government's financial sector interventions are classified as non-identifiable expenditure and are recorded in the Enterprise and Economic Development ( EED) expenditure programme lines. The scale of the financial sector interventions, relative to other spending on this category, means that total non-identifiable expenditure on EED for Scotland is estimated to increase from £51 million in 2007-08 to £755 million in 2008-09, before falling back to £223 million in 2009-10.

The fees received from the various schemes are recorded as a negative current expenditure ( i.e. revenue received). These fees exceeded the current expenditure on other elements of EED in both 2008-09 and 2009-10. As such, total current expenditure on non-identifiable EED is negative in both of these years.

Table 6.12: Non-Identifiable Expenditure: Scotland and UK 2005-06 to 2009-10

	(£ million)
	Scotland					UK
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	440	427	431	450	433	5,241	5,114	5,161	5,396	5,221
International services	506	513	550	590	653	5,984	6,077	6,526	7,015	7,771
Public sector debt interest	2,261	2,428	2,645	2,656	2,635	26,746	28,749	31,363	31,555	31,363
Defence	2,607	2,707	2,825	3,083	3,151	30,841	32,058	33,504	36,628	37,503
Public order and safety	164	170	174	174	184	1,939	2,018	2,070	2,070	2,186
Economic affairs
Enterprise and economic development	25	53	51	755	223	358	692	669	9,027	2,715
Science and technology	51	60	51	58	58	621	733	618	699	712
Employment policies	1	1	1	1	2	15	18	13	17	25
Agriculture, forestry and fisheries	0	0	0	0	0	1	0	1	1	0
Transport	19	19	20	23	22	420	394	395	350	340
Environment protection	111	140	121	98	162	1,322	1,667	1,441	1,178	1,949
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	44	67	82	85	96	538	804	991	1,023	1,153
Recreation, culture and religion	295	305	321	313	326	3,517	3,756	4,240	4,871	5,002
Education and training	2	3	4	3	3	29	36	42	41	40
Social protection	220	227	241	268	284	2,718	2,813	3,008	3,341	3,524
EU transactions	-362	-352	-237	-493	-236	-598	-1,802	-1,531	-2,931	73
Total	6,384	6,769	7,281	8,066	7,998	79,692	83,127	88,510	100,284	99,577

Table 6.13: Non-Identifiable Expenditure: Scotland 2005-06 to 2009-10

	(£ million)
	Current					Capital
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	405	421	410	410	407	35	6	20	40	26
International services	478	482	515	551	601	28	32	35	39	52
Public sector debt interest	2,261	2,428	2,645	2,656	2,635	0	0	0	0	0
Defence	2,517	2,632	2,612	2,791	2,813	90	75	214	292	338
Public order and safety	157	161	162	156	159	7	9	12	18	25
Economic affairs
Enterprise and economic development	23	24	27	-61	-164	3	30	24	815	387
Science and technology	36	46	39	46	48	15	14	12	11	10
Employment policies	1	1	1	1	2	0	0	0	0	0
Agriculture, forestry and fisheries	0	0	0	0	0	0	0	0	0	0
Transport	12	11	13	14	14	7	7	7	9	8
Environment protection	23	48	28	-6	64	88	92	93	104	99
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	47	62	78	79	93	-3	4	5	6	3
Recreation, culture and religion	283	294	311	303	314	12	11	10	11	12
Education and training	2	3	4	3	3	0	0	0	0	0
Social protection	220	226	241	267	283	1	1	1	0	1
EU transactions	-362	-352	-237	-493	-236	0	0	0	0	0
Total	6,103	6,488	6,848	6,720	7,036	281	281	432	1,346	962

Table 6.14: Non-Identifiable Expenditure: UK 2005-06 to 2009-10

	(£ million)
	Current					Capital
	2005-06	2006-07	2007-08	2008-09	2009-10	2005-06	2006-07	2007-08	2008-09	2009-10
General public services
Public and common services	4,835	5,035	4,919	4,918	4,907	406	79	242	478	314
International services	5,655	5,702	6,111	6,550	7,148	329	375	415	465	623
Public sector debt interest	26,746	28,749	31,363	31,555	31,363	0	0	0	0	0
Defence	29,776	31,168	30,968	33,162	33,481	1,066	891	2,536	3,466	4,022
Public order and safety	1,860	1,909	1,930	1,856	1,889	79	109	140	214	297
Economic affairs
Enterprise and economic development	327	339	383	-662	-1,888	31	353	286	9,689	4,603
Science and technology	441	559	472	559	591	180	174	145	139	121
Employment policies	14	17	13	17	25	1	0	0	0	0
Agriculture, forestry and fisheries	1	0	1	1	0	0	0	0	0	0
Transport	206	207	241	254	241	215	188	153	96	99
Environment protection	283	581	335	-64	764	1,039	1,086	1,106	1,243	1,184
Housing and community amenities	0	0	0	0	0	0	0	0	0	0
Health	574	753	937	956	1,117	-36	50	54	67	37
Recreation, culture and religion	3,375	3,517	3,731	3,611	3,762	142	238	508	1,260	1,239
Education and training	29	36	42	41	40	0	0	0	0	0
Social protection	2,711	2,804	3,001	3,336	3,511	7	9	6	5	12
EU transactions	-598	-1,802	-1,531	-2,931	73	0	0	0	0	0
Total	76,232	79,575	82,917	83,160	87,025	3,459	3,552	5,593	17,123	12,551

Table 6.15 compares the composition of non-identifiable expenditure for Scotland and the UK for 2009-10. For both Scotland and the UK, the structure of non-identifiable expenditure is broadly similar, with debt interest and defence expenditure contributing the largest amounts.

Table 6.15: Non-Identifiable Expenditure: Scotland and UK 2009-10

	Scotland		UK
	Expenditure (£ million)	Share of non-identifiable expenditure	Expenditure (£ million)	Share of non-identifiable expenditure
General public services
Public and common services	433	5.4%	5,221	5.2%
International services	653	8.2%	7,771	7.8%
Public sector debt interest	2,635	32.9%	31,363	31.5%
Defence	3,151	39.4%	37,503	37.7%
Public order and safety	184	2.3%	2,186	2.2%
Economic affairs
Enterprise and economic development	223	2.8%	2,715	2.7%
Science and technology	58	0.7%	712	0.7%
Employment policies	2	0.0%	25	0.0%
Agriculture, forestry and fisheries	0	0.0%	0	0.0%
Transport	22	0.3%	340	0.3%
Environment protection	162	2.0%	1,949	2.0%
Housing and community amenities	0	0.0%	0	0.0%
Health	96	1.2%	1,153	1.2%
Recreation, culture and religion	326	4.1%	5,002	5.0%
Education and training	3	0.0%	40	0.0%
Social protection	284	3.6%	3,524	3.5%
EU transactions	-236	-3.0%	73	0.1%
Total	7,998	100%	99,577	100%

Box 6.4 - Debt Interest Payments

The debt interest payment expenditure in the above tables refers to payments to cover interest on outstanding UK Government debt. In GERS, such expenditure is classified as non-identifiable. For each year, a per capita share of UK Government debt interest expenditure is allocated for Scotland. The allocation on a per capita basis is based on the assumption that residents across the UK bear an equal burden of UK Government liabilities. As there is no separate identification of Scotland's share of UK public sector net debt in UK public financial accounts, a separate Scottish debt interest expenditure does not exist. An assessment of an implied 'debt position' for Scotland is inherently problematic, not least because general government borrowing is controlled by the UK Government. Debt interest payments can also be viewed as payments related to past UK public sector net borrowing and government expenditure. Current expenditure excluding debt interest payments represents expenditure on public services consumed within the current financial year. The difference between this estimate and estimated current revenue represents the current budget fiscal position for public services provided at a given point in time (the primary current balance). In GERS, an estimate of debt interest payments is then deducted from this balance to obtain the current budget balance which is presented in Chapter 3. Estimates for Scotland over the period 2005-06 to 2009-10, are highlighted in the table below, illustrating the current balance on public services consumed within each financial year. Current Balance on Public Services Consumed: Scotland 2009-10 (£ million) 2005-06 2006-07 2007-08 2008-09 2009-10 Current revenue Excluding North Sea revenue 39,839 42,272 45,031 43,131 42,201 Including North Sea revenue (per capita share) 40,632 43,026 45,661 44,219 42,747 Including North Sea revenue (geographical share) 47,856 49,775 52,147 54,871 48,132 Total current expenditure (including capital consumption and accounting adjustments) 47,116 49,071 52,143 54,083 57,098 Less debt interest payments (as used in headline GERS estimates) -2,261 -2,428 -2,645 -2,656 -2,635 Total current expenditure on services consumed within current financial year 44,856 46,643 49,498 51,427 54,463 Current balance on public services consumed within current financial year Excluding North Sea revenues -5,016 -4,371 -4,467 -8,296 -12,262 Including North Sea revenues (per capita share) -4,223 -3,618 -3,838 -7,208 -11,717 Including North Sea revenues (geographical share) 3,001 3,132 2,648 3,443 -6,331

Accounting Adjustments

The analysis of public sector expenditure in GERS focuses on Total Expenditure on Services ( TES). This is consistent with the departmental budget framework. In UK public finance documents, the principal measure of public sector expenditure is Total Managed Expenditure ( TME). TME is constructed from categories in the National Accounts framework. The main difference between TES and TME is that TES does not include general government capital consumption and does not reverse the deduction of certain VAT refunds in the budget-based expenditure data. It also contains a number of items that are in budgets but not in TME, for example the grant-equivalent element of student loans. In most years, TES amounts to approximately 95 per cent of TME. To reconcile TES and TME, an accounting adjustment is introduced such that TES plus the accounting adjustment equals TME.

The largest component of the UK accounting adjustment is general government capital consumption. It is a measure of the amount of fixed capital resources used up in the process of the provision of public services. In 2009-10, the UK capital consumption of £14.3 billion represented 46.8 per cent of the total UK accounting adjustment. Table 6.16 shows the component disaggregation of the UK accounting adjustment. The total UK accounting adjustments was estimated at £30.4 billion in 2009-10.

Table 6.16: Accounting Adjustment: UK 2005-06 to 2009-10

	(£ million)
	2005-06	2006-07	2007-08	2008-09	2009-10
UK total managed expenditure ( TME)	524,006	550,046	582,567	629,599	669,661
UK total expenditure on services ( TES)	501,208	522,853	555,619	602,102	639,238
UK accounting adjustment	22,798	27,193	26,948	27,497	30,423
of which:
Central government capital consumption	5,744	5,951	6,170	6,544	6,700
Local government capital consumption	5,960	6,466	6,774	7,164	7,550
Current VAT refunds	8,624	9,419	9,701	9,952	9,354
Capital VAT refunds	1,636	1,710	1,888	1,940	1,838
Nigerian debt cancellation	1,246	1,406	0	0	0
Student loans subsidy 1	-441	-305	-1,046	-814	-1,466
Imputed subsidy from Local Authorities to the Housing Revenue Account 2	1,431	1,528	1,535	1,603	1,433
Imputed flows for Renewable Obligation Certificates 3	370	474	542	472	470
Residual	-1,772	544	1,384	636	4,544

1 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.

2 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporation gross operating surplus, which scores on the revenue side of the account).

3 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.

The corresponding Scottish figures, as highlighted in Table 6.17, are calculated using a variety of apportionment methodologies. Firstly, estimates of general government capital consumption from the ONS Regional Accounts, together with information from local government returns, have been used to apportion capital consumption to UK countries and English regions. In 2009-10, general government capital consumption for Scotland was estimated at £1.3 billion (9.2 per cent of UK capital consumption). This is relatively high for Scotland, reflecting a higher stock of public sector assets ( e.g. roads, hospitals, schools) than elsewhere in the UK. These figures are identical to those used in the general government gross operating surplus calculations in the revenue account. The figures cancel out in the net borrowing calculation.

VAT refunds have been allocated to Scotland using the apportionments derived in the revenue calculations for VAT refunds which form part of the total VAT calculations (see Appendix A), and therefore cancel out in the calculation of net borrowing. The figures for Scottish student loan subsidies were provided by HM Treasury. The imputed subsidy from local authorities to the Housing Revenue Account adopt the same apportionment allocation as in the gross operating surplus calculations on the revenue side, and the imputed flows for Renewable Obligation Certificates adopts the same methodology used in 'other taxes, royalties and adjustments'. These items cancel in the net borrowing calculations. The Scottish share of the Nigerian debt write-off has been allocated on a per capita basis. The current and capital residuals are allocated to Scotland using the appropriate TES ratios.

In sum, the total Scottish public sector accounting adjustment was estimated at £2.9 billion in 2009-10, or 9.6 per cent of the total UK accounting adjustment. The relatively higher proportion compared to per capita or GVA shares reflects the high share of general government capital consumption for Scotland.

Table 6.17: Accounting Adjustment: Scotland 2005-06 to 2009-10

	(£ million)
	2005-06	2006-07	2007-08	2008-09	2009-10
Capital consumption: 1
Central government capital consumption	502	528	544	580	594
Local government capital consumption	652	610	656	683	723
Current expenditure:
Current VAT refunds	852	840	878	905	888
Student loans subsidy 2	-52	-42	-58	-17	-63
Imputed subsidy from Local Authorities to the Housing Revenue Account 3	159	158	146	137	114
Imputed flows for Renewable Obligation Certificates 4	33	35	52	56	55
Current expenditure residual	-87	155	202	151	232
Capital expenditure:
Capital VAT refunds	162	152	171	176	174
Nigerian debt cancellation	105	119	0	0	0
Capital expenditure residual	-96	-137	-86	-100	199
Total accounting adjustment	2,230	2,418	2,503	2,571	2,916
Percentage of UK accounting adjustment	9.8%	8.9%	9.3%	9.4%	9.6%

1 Public Corporations' capital consumption is included in gross operating surplus.

2 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.

3 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporations gross operating surplus, which scores on the revenue side of the account).

4 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.