Government Expenditure and Revenue Scotland 2008-09

4 PUBLIC SECTOR REVENUE

Introduction

This chapter provides detailed estimates of Scottish public sector revenue. As Chapter 5 discusses the treatment of North Sea revenue in detail, the focus of this chapter is on non-North Sea elements of 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 that revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. These methods are discussed in Appendix A and in the detailed revenue methodology paper on the GERS website ²⁴.

For certain revenue sources, there are theoretical and practical challenges in determining an appropriate share to allocate to Scotland. In some cases, a variety of methodologies could be applied, each leading to different estimates of public sector revenue in Scotland. GERS makes use of the best data sources and methodologies available and therefore represents as accurate a reflection of public sector revenue in Scotland as is currently possible. The effect that any change to the revenue estimates contained in this chapter would have on the estimate of total public sector revenue due to alternative methodologies is discussed in Appendix A. The appendix highlights that there are only a small number of taxes for which variations in the proportion assigned to Scotland will have a significant impact on the estimate of total public sector revenue in Scotland.

Estimated Revenue 2008-09

Table 4.1 highlights estimated public sector revenue in Scotland and the outturn data for the UK in 2008-09. The contribution of each element of taxation to the total estimated tax yield in Scotland, and the proportion of UK revenue raised in Scotland, are also included in the table.

On the basis of the assumptions and methodologies described in this report, in 2008-09, total public sector non-North Sea current revenue in Scotland was £43.5 billion. This is equivalent to 8.3 per cent of UK total non-North Sea current revenue which is in line with Scotland's share of the UK population ²⁵.

Table 4.1: Current Revenue: Scotland 2008-09

	Scotland		UK	Scotland as % of UK
	£ million	% of total non-North Sea revenue	£ million
Income tax	10,717	24.6%	144,451	7.4%
Corporation tax (excl North Sea)	2,791	6.4%	32,493	8.6%
Capital gains tax	547	1.3%	7,851	7.0%
Other taxes on income and wealth	265	0.6%	2,889	9.2%
National insurance contributions	7,988	18.4%	96,961	8.2%
VAT	7,481	17.2%	85,350	8.8%
Fuel duties	2,055	4.7%	24,615	8.3%
Stamp duties	593	1.4%	8,002	7.4%
Tobacco duties	940	2.2%	8,358	11.3%
Alcohol duties	784	1.8%	8,598	9.1%
Betting and gaming and duties	113	0.3%	994	11.4%
Air passenger duty	154	0.4%	1,835	8.4%
Insurance premium tax	191	0.4%	2,271	8.4%
Landfill tax	85	0.2%	863	9.9%
Climate change levy	66	0.2%	711	9.2%
Aggregates levy	53	0.1%	321	16.6%
Inheritance tax	178	0.4%	2,931	6.1%
Vehicle excise duty	446	1.0%	5,602	8.0%
Non-domestic rates 1	1,736	4.0%	21,924	7.9%
Council tax	1,961	4.5%	24,543	8.0%
Other taxes and royalties 2	667	1.5%	7,178	9.3%
Interest and dividends	659	1.5%	7,723	8.5%
Gross operating surplus	2,613	6.0%	22,662	11.5%
Rent and other current transfers	381	0.9%	1,530	24.9%
Total current revenue (excluding North Sea revenue)	43,466	100.0%	520,656	8.3%
North Sea revenue 3
Per capita share	1,088		12,925
Geographical share	11,771		12,925
Total current revenue (including North Sea revenue)
Per capita share	44,553		533,581	8.3%
Geographical share	55,236		533,581	10.4%

1. Excludes non-domestic rates that local authorities pay themselves
2. Although this group includes some 13 separate revenues (as set out in the detailed methodology paper on the GERS website), the two largest - TV Licences and National Lottery Distribution Fund - account for 63.6% (£424 million) of this estimate for Scotland.
3. A full discussion of North Sea revenue is provided in Chapter 5.

Income tax is the single largest source of public sector revenue in Scotland. In 2008-09, income tax revenue was estimated at £10.7 billion - approximately a quarter of all public sector revenue in Scotland (excluding revenues from the North Sea). Scottish income tax revenue is estimated on the basis of residence of the tax-payer. A full discussion of the methodology used to estimate Scottish income tax receipts is provided in the revenue methodology paper on the GERS website.

Box 4.1 - Income Tax

Income tax is a tax paid on an individual's income. Taxable income includes earnings from employment, earnings from self employment, earnings from non-incorporated businesses (e.g. partnerships) most pension income, interest on most savings, income from shares (dividends), rental income and income paid from trusts. The table below provides a breakdown of estimated income tax receipts in Scotland and the UK by source of income. The estimated number of taxpayers by source is also listed. The results show that in both Scotland and the UK, income from employment accounts for just under three quarters of income tax receipts. Self employed income is the second largest source in both Scotland and the UK. It accounts for approximately 11 per cent of income tax receipts in Scotland and 12 per cent of receipts in the UK. Total income tax receipts in Scotland in 2008-09 accounted for approximately 7.4 per cent of total UK income tax receipts, while Scotland's share of UK taxpayers was 8.6 per cent. 2008-09 Income Tax Revenue By Source of Income (£ million) (Thousands) UK Revenue Scottish Revenue Scottish Share of UK Revenue Number of UK Tax payers Number of Scottish Tax payers Scottish Share of UK Taxpayers Self employed 17,533 1,192 6.8% 2,690 183 6.8% Employed 105,023 7,984 7.6% 22,900 2,050 9.0% Pensions 9,790 779 8.0% 5,290 452 8.5% Investment 12,105 762 6.3% 1,570 93 5.9% Savings 3,213 219 6.8% n/a n/a n/a Dividends 6,766 427 6.3% n/a n/a n/a Property 1,152 54 4.7% n/a n/a n/a Other Incomes 974 62 6.4% n/a n/a n/a Total Income Tax Receipts 144,451 10,717 7.4% 32,500 2,780 8.6% Note: Non National Statistics: Estimates based upon the 2007-08 Survey of Personal Incomes (latest year of survey). This table depicts income tax revenue by source of income and the number of taxpayers for which each classification is their largest source of income. Figures relating to the number of taxpayers may not add due to rounding. Taxable income is subject to different tax rates depending upon the source of income and the value of income. The table below present estimates of the revenue raised from income tax in Scotland and the UK from each tax band in 2008-09. The total number of taxpayers liable for tax under each band is also listed. 2008-09 Income Tax Revenue By Tax Band (£ million) (Thousands) UK Revenue Scottish Revenue Scottish Share of UK Revenue Number of UK Tax payers Number of Scottish Tax payers Scottish Share of UK Taxpayers Starting Rate 628 45 7.2% 3,440 283 8.2% Savers Rate 968 61 6.3% 1,070 73 6.8% Basic Rate (Earnings, savings and dividends) 60,108 5,400 9.0% 24,100 2,140 8.9% Higher Rate (Earnings, savings and dividends) 82,748 5,211 6.3% 3,870 288 7.4% Total Income Tax Receipts 144,451 10,717 7.4% 32,500 2,780 8.6% Note: Non National Statistics: Estimates based upon the 2007-08 Survey of Personal Incomes (latest year of survey). Figures relating to the number of taxpayers may not sum due to rounding. In Scotland, 50 per cent of income tax revenue is raised from the basic rate, whilst in the UK as a whole the comparable figure is 42 per cent. Revenue paid at the higher rate accounted for 49 per cent of the income tax revenue raised in Scotland during 2008-09, compared to 57 per cent of the revenue raised in the UK as a whole. In total, there were approximately 2.8 million income tax payers during 2008-09, equivalent to 8.6 per cent of the UK total. 10 per cent of Scottish tax payers are estimated to pay higher rate income tax, compared to 12 per cent of tax payers in the UK as a whole.

National insurance contributions represented the second largest revenue source in Scotland, an estimated £8.0 billion in 2008-09 - 18.4 per cent of total non-North Sea revenues. VAT represented the third largest source of revenue and was the largest source of revenue from indirect taxes - accounting for 17.2 percent of total non-North Sea revenues.

Corporation tax revenue (excluding that from the North Sea) was estimated at £2.8 billion in Scotland during 2008-09, 6.4 per cent of total non-North Sea current revenue collected in Scotland. In GERS, corporation tax revenue is allocated on the basis of the profits generated in Scotland. A full discussion of the methodology used to estimate corporation tax revenue is presented in the detailed revenue methodology paper on the GERS website.

Gross operating surplus ( GOS) refers to the operating (or trading) surpluses (or losses) of central government, local government and public corporation trading activity. It is the fifth largest revenue source in Scotland generating £2.6 billion in revenue during 2008-09, 6.0 per cent of total non-North Sea revenue in Scotland.

Scotland accounted for 11.5 per cent of the total UKGOS in 2008-09. Scotland's large share of the UKGOS is partly due to Scottish Water which is one of the greatest contributors to UK public corporations' GOS. The equivalent water companies in England and Wales are outside the public sector and hence do not contribute to their GOS. A more detailed discussion of GOS is provided in the detailed revenue methodology paper on the GERS website.

After these five main categories, all other types of tax listed each accounted for less than 5 per cent of total non-North Sea revenue in Scotland in 2008-09. Together, council tax and non-domestic rates raised £3.7 billion (8.5 per cent of total non-North Sea revenue) while fuel duties raised £2.1 billion.

The Scottish share of total UK revenue for each element of revenue varies according to the particular tax being estimated. For income tax, the Scottish percentage was slightly less than both a per capita share and a GVA share ²⁶. For national insurance contributions the Scottish percentage was slightly less than a per capita share but in line with a GVA share. For VAT and corporation tax (excluding North Sea), the Scottish percentage was broadly in line with a per capita share. In contrast, revenue from duties on betting and gaming, alcohol and tobacco were considerably higher than Scotland's share of the UK population or GVA.

The estimated Scottish share of revenue from stamp duties and capital gains tax were lower than both a GVA share and a per capita share. This is largely explained by the lower value of asset sales relative to other parts of the UK, and in particular London and the South East of England.

Environmental taxes, such as aggregates levy, climate change levy and landfill tax contribute relatively small amounts of revenue to the overall total with each contributing less than 0.5 per cent of revenue in Scotland and the UK.

Box 4.2 - Stamp Duty

Stamp duty is levied on two types of transactions - i) conveyances and transfers of land and property (stamp duty land tax) and ii) share and marketable security transactions (stamp duty reserve tax). The revenue raised from both sources is reported jointly as a consolidated estimate in Table 4.1. Property or Land - Stamp Duty Land Tax Stamp Duty Land Tax ( SDLT) is generally payable on transactions above a certain threshold value. In 2008-09, this rate was set at £125,000 for residential properties or land (or £150,000 if in an area has been designated as 'disadvantaged') and £150,000 for non-residential properties. If the property or land value is above this threshold, SDLT is charged on the entire value. SDLT is calculated on a sliding scale, with charges of between 1 per cent and 4 per cent. The table below estimates the revenue raised from SDLT in Scotland and the UK for each year between 2004-05 and 2008-09. In 2008-09, SDLT raised £319 million in Scotland, 6.6 per cent of the UK total. This is lower than Scotland's share of the UK population and GVA and reflects the lower average price of property in Scotland relative to other parts of the UK, such as London and the South East. Over the period 2004-05 to 2007-08, SDLT both in Scotland and UK grew significantly in nominal terms, with growth of 78.5 percent and 59.3 percent respectively. Both Scotland and the UK recording significant drops in SDLT revenue between 2007-08 and 2008-09. This reflects a fall in average house prices and the number of transactions over the year. Stamp Duty Land Tax 2004-05 to 2008-09 (£ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Scotland 311 284 423 555 319 UK 6,250 7,454 9,637 9,958 4,798 Scotland as % of the UK 5.0% 3.8% 4.4% 5.6% 6.6% Stocks and Shares - Stamp Duty Reserve Tax Stamp duty reserve tax ( SDRT) is charged on the transfer of stocks, shares, units in unit trusts and shares in open-ended investment companies. It is payable at a flat rate of 0.5% of the value of the financial transactions. The table below estimates the revenue raised from SDLT in Scotland and the UK for each year between 2004-5 and 2008-09. Stamp Duty Reserve Tax 2004-05 to 2008-09 (£ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Scotland 208 259 286 339 274 UK 2,716 3,464 3,756 4,165 3,204 Scotland as % of the UK 7.7% 7.5% 7.6% 8.1% 8.5% The results show that in 2008-09, SDRT raised £274 million in Scotland. This is equivalent to 8.5 per cent of total UKSDRT receipts in that year, broadly in line with Scotland's share of the UK population. Over the period 2004-05 to 2007-08, SDRT revenue both in Scotland and UK grew significantly in nominal terms, with growth of 63.0 per cent and 53.4 per cent respectively. As with SDLT revenue, SDRT revenue fell significantly in 2008-09 both in Scotland and the UK.

Estimated Revenue: Scotland and the UK, 2004-05 to 2008-09

Table 4.2 shows estimated current revenue in Scotland and the UK between 2004-05 and 2008-09.

Current non-North Sea revenue in Scotland and the UK are estimated to have both grown by approximately 17.5 percent and 16.4 per cent respectively since 2004-05 in nominal terms.

In general, tax revenue in Scotland and the UK are estimated to have followed similar patterns of growth between 2004-05 and 2008-09. Income tax revenue in Scotland grew by 22.0 per cent in nominal terms between 2004-05 and 2008-09 compared to growth of 19.1 per cent at the UK level, while VAT rose by 10.4 per cent in Scotland and 6.7 per cent in the UK. National insurance contributions increased by approximately 22.3 per cent in Scotland and 19.8 per cent in the UK.

Among some of the smaller taxes, there was greater variation in the growth rates between Scotland and the UK. The greatest variation was in stamp duties and inheritance tax where Scottish revenue rose considerably faster than the UK average. In contrast, other taxes and royalties and non domestic rates increased faster in the UK than they did in Scotland.

Table 4.2: Current Revenue: Scotland and UK 2004-05 to 2008-09

	(£ million)
	Scotland					UK
	2004-05	2005-06	2006-07	2007-08	2008-09	2004-05	2005-06	2006-07	2007-08	2008-09
Income tax	8,788	9,605	10,444	11,266	10,717	121,271	130,562	140,927	152,028	144,451
Corporation tax (excl North Sea)	2,463	2,910	3,217	3,432	2,791	29,720	34,278	37,307	40,017	32,493
Capital gains tax	119	175	230	305	547	2,278	3,041	3,812	5,267	7,851
Other taxes on income and wealth	180	221	262	252	265	2,016	2,512	2,996	2,764	2,889
National insurance contributions	6,533	6,925	7,304	7,873	7,988	80,923	85,559	90,916	95,437	96,961
VAT	6,778	7,074	7,599	7,883	7,481	79,979	81,505	87,739	89,891	85,350
Fuel duties	1,924	1,945	1,967	2,079	2,055	23,313	23,438	23,585	24,905	24,615
Stamp duties	519	543	709	893	593	8,966	10,918	13,393	14,123	8,002
Tobacco duties	1,041	1,023	964	896	940	8,113	7,952	8,146	8,031	8,358
Alcohol duties	717	723	722	750	784	7,889	7,876	7,914	8,215	8,598
Betting and gaming and duties	89	95	106	110	113	876	884	961	961	994
Air passenger duty	74	77	94	164	154	872	906	1,112	1,949	1,835
Insurance premium tax	200	198	195	194	191	2,353	2,347	2,304	2,302	2,271
Landfill tax	62	68	78	89	85	673	753	825	897	863
Climate change levy	68	65	63	65	66	750	741	696	705	711
Aggregates levy	50	50	50	57	53	326	323	324	339	321
Inheritance tax	164	198	227	269	178	2,931	3,276	3,618	3,890	2,931
Vehicle excise duty	365	389	400	425	446	4,737	4,950	5,139	5,412	5,602
Non-domestic rates	1,622	1,736	1,741	1,724	1,736	17,800	18,816	19,846	20,357	21,924
Council tax	1,663	1,773	1,862	1,935	1,961	20,054	21,226	22,340	23,504	24,543
Other taxes and royalties	536	485	524	578	667	5,710	5,641	6,072	6,386	7,178
Interest and dividends	537	602	554	766	659	6,142	6,847	6,469	8,925	7,723
Gross operating surplus	2,103	2,492	2,505	2,566	2,613	17,891	21,038	21,991	22,759	22,662
Rent and other current transfers	388	413	382	395	381	1,743	1,760	1,627	1,557	1,530
Total current revenue (excluding North Sea revenue)	36,983	39,787	42,198	44,966	43,466	447,326	477,149	510,059	540,621	520,656
North Sea revenue
Per capita share	440	793	754	660	1,088	5,183	9,384	8,924	7,831	12,925
Geographical share	4,532	8,128	7,496	7,450	11,771	5,183	9,384	8,924	7,831	12,925
Total current revenue (including North Sea revenue)
Per capita share	37,422	40,580	42,952	45,627	44,553	452,509	486,533	518,983	548,452	533,581
Geographical share	41,515	47,914	49,694	52,417	55,236	452,509	486,533	518,983	548,452	533,581

Table 4.3 shows estimates of Scotland's share of UK revenue for five key taxes between 2004-05 and 2008-09. Over this period, Scotland's share of UK revenue has remained relatively stable.

Between 2004-05 and 2008-09 total non-North Sea revenue in Scotland accounted for 8.3 per cent of UK non-North Sea revenue, broadly in line with Scotland's share of the UK population and slightly higher than a GVA share. Scotland's share of UK income tax, corporation tax and VAT both increased over this period but this was offset by a decline in Scotland's share of both local authority revenue and the 'other revenue' categories (however, in 2008-09 the latter grew back to its 2004-05 share of UK revenues).

Table 4.3: Non-North Sea Current Revenue: Scotland/ UK Share 2004-05 to 2008-09

	(per cent of UK revenue)
	2004-05	2005-06	2006-07	2007-08	2008-09
Income tax	7.2%	7.4%	7.4%	7.4%	7.4%
Corporation tax (excluding North Sea revenue)	8.3%	8.5%	8.6%	8.6%	8.6%
National Insurance contributions	8.1%	8.1%	8.0%	8.2%	8.2%
Value added tax	8.5%	8.7%	8.7%	8.8%	8.8%
Local authority revenue 1	8.7%	8.8%	8.5%	8.3%	8.0%
All other revenue	9.4%	9.3%	9.0%	9.1%	9.4%
Total non-North Sea current revenue	8.3%	8.3%	8.3%	8.3%	8.3%

1. Includes council tax and non-domestic rates only ²⁷

Box 4.3: Scottish Tax Receipts and the Recession

From 2004-05 to 2007-08, most tax receipts in Scotland grew year on year, in line with the growth of the wider economy. Both Scotland and the UK entered recession in mid 2008. This had a corresponding impact on tax revenue, with receipts from many taxes falling in nominal terms between 2007-08 and 2008-09. The table below summarises the changes in total Scottish tax revenue, and in selected individual receipts. The estimates show a nominal drop in total Scottish tax revenue, excluding North Sea revenue, of £1.5 billion (3.5%) between 2007-08 and 2008-09. Income tax receipts fell by 4.9 per cent in 2008-09, while corporation tax was down 18.7 per cent compared to the previous year. Inheritance tax and stamp duty saw the greatest relative fall, with each declining by 33.7 per cent from the previous year. Summary of Scottish Tax Receipts: 2007-08 & 2008-09 (£ million) 2007-08 2008-09 Difference Difference in % terms Income Tax 11,266 10,717 -549 -4.9% Corporation Tax (excl North Sea) 3,432 2,791 -641 -18.7% Inheritance Tax 269 178 -90 -33.7% Stamp Duty 893 593 -301 -33.7% VAT 7,883 7,481 -402 -5.1% Total current Revenue (excluding North Sea revenue) 44,966 43,466 -1,501 -3.5% North Sea revenue 3 Per capita share 660 1,088 +428 +64.8% Geographical share 7,450 11,771 +4,321 +58.0% Total current revenue (including North Sea revenue) Per capita share 45,627 44,553 -1,074 -2.4% Geographical share 52,417 55,236 +2,819 +5.4% Whilst total onshore tax receipts fell during 2008-09, total UK North Sea revenues increased by almost two thirds compared to the previous year. This growth was driven by a rapid increase in oil prices during the first six months of 2008. Prices peaked at over $140 a barrel in July 2008, a record high in nominal terms, before falling back. Scotland's population share of North Sea revenue is estimated to have increased by 64.8 per cent between 2007-08 and 2008-09 whilst Scotland's illustrative geographical share of North Sea revenue is estimated to have grown by 58%. Total current revenue in Scotland, including a per capita share of North Sea revenue is estimated to have fallen by £1.1 billion (2.4%) between 2007-08 and 2008-09. Including an illustrative geographical share of North Sea revenue, Scottish tax revenue is estimated to have grown by £2.8 billion (5.4%).