Publication - Statistics

Government Expenditure & Revenue Scotland 2013-14

Published: 11 Mar 2015
Part of:
Statistics
ISBN:
9781785441820

Government Expenditure and Revenue Scotland (GERS) is a National Statistics publication. It estimates the contribution of revenue raised in Scotland toward the goods and services provided for the benefit of Scotland. The estimates in this publication are consistent with the UK Public Sector Finances published in January 2015.

98 page PDF

1.9 MB

98 page PDF

1.9 MB

Contents
Government Expenditure & Revenue Scotland 2013-14
ANNEX B: EXPENDITURE METHODOLOGY

98 page PDF

1.9 MB

ANNEX B: EXPENDITURE METHODOLOGY

This annex outlines the methodologies used to estimate public sector expenditure for Scotland and highlights where these methodologies differ from those used in previous editions of GERS.

Methodology

Figures for UK and Scottish public sector expenditure are taken directly from official UK Government sources.

The primary data source used to estimate Scottish public sector expenditure is the Country and Regional Analysis (CRA) database, published by HM Treasury.[32] Within this, UK Government departments and devolved administrations have allocated expenditure programmes to Scotland, Wales, Northern Ireland and the English regions.

Box B.1 - The UK Government's Financial Sector Interventions

The most significant change in the UK Public Sector Finances in recent years has been the inclusion of the UK Government's interventions to support the banking sector at the height of the global financial crisis.

In the CRA the net outlays associated with the UK Government's financial sector interventions are recorded as a capital expenditure, whilst the fees received from the various schemes are recorded as a negative current expenditure (i.e. revenue received). The CRA classifies the permanent effects of the UK Government's financial sector interventions as UK non-identifiable expenditure - that is HM Treasury has deemed that the cost of such interventions cannot be assigned to particular countries or regions.

There are various methods that can be applied to apportion a share of such non-identifiable expenditure to Scotland. The method used in this edition of GERS assigns a population share to Scotland of the total UK expenditure, on the basis that all areas of the UK have benefited equally from the resulting stabilisation of the UK financial system. The expenditure assigned to Scotland under this apportionment methodology is summarised in the table below.

Scotland: Estimated Share of UK Government's Financial Stability Expenditure

(£ millions)

2009-10

2010-11

2011-12

2012-13

2013-14

Current

-30

-154

-82

-41

0

Capital

380

0

0

0

0

Total

350

-154

-82

-41

0

Methodology for Estimating the Accounting Adjustment

Table B.1 provides estimates of the two aspects of expenditure which form the accounting adjustment category reported in Chapter 5. It is important to note that the expenditure reported in the 'EU Transaction' line in Table B.1 is a balancing item. It does not report Scotland's total EU receipts or notional contribution.

Table B.1: Total Accounting Adjustment: Scotland and UK 2009-10 to 2013-14

(£ million)

2009-10

2010-11

2011-12

2012-13

2013-14

Scotland

Public Sector Finances accounting adjustment

4,611

5,312

5,432

5,884

4,495

EU transactions

-359

-600

-796

-432

-710

Total Scottish accounting adjustment

4,252

4,712

4,636

5,452

3,785

UK

Public Sector Finances accounting adjustment

48,534

51,239

53,450

61,021

44,679

EU transactions

904

3,628

2,035

4,307

5,048

Total UK accounting adjustment

49,438

54,867

55,485

65,328

49,727

The EU transaction line is estimated for Scotland using data from the Scottish Government Consolidated Accounts. This provides information on spending by the Scottish Government financed by the EU, such as the Common Agricultural Policy and European Structural Funds.

As discussed in Annex E of HM Treasury's Public Expenditure and Statistical Analyses,[33] under National Accounts classifications, these expenditures are reported as direct payments from the EU to enterprises and households, rather than being included within departmental budgets. In the transition to total managed expenditure, these spending lines are therefore included as negative spending, to remove them from departmental spending. As Scotland receives a relatively high share of this spending, particularly relating to the Common Agricultural Policy, these negative spending lines outweigh the estimated Scottish contribution to the EU, and so the overall EU transactions line for Scotland is negative.

Further information on how the public sector finances accounting adjustment line in Table B.1 is estimated is provided in the section below.

Public Sector Finances Accounting Adjustment

The primary data source used to estimate Scottish public sector expenditure is the CRA database, published by HM Treasury. The estimates of public spending published in the CRA are calculated on the basis of Total Expenditure on Services (TES).

TES is produced on a different basis to Total Managed Expenditure (TME), which is the primary measure of total public spending reported in the ONS National Accounts and the UK Public Sector Finances. 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. An accounting adjustment is therefore introduced into GERS to ensure that the estimates of total public spending for Scotland and the UK are reported on the basis of TME.

UK Accounting Adjustment

The accounting adjustments required to reconcile UK TME and TES are set out in Table B.2.

The largest component of the UK accounting adjustment is general government capital consumption (central and local government combined). It is a measure of the amount of fixed capital resources used up in the process of the provision of public services. Table B.2 shows the component disaggregation of the UK accounting adjustment.

Table B.2: Public Sector Finances Accounting Adjustment: UK 2009-10 to 2013-14

(£ million)

2009-10

2010-11

2011-12

2012-13

2013-14

UK total managed expenditure (TME)

686,295

706,520

706,190

720,836

721,489

UK total expenditure on services (TES)

637,761

655,282

652,740

659,816

676,810

UK accounting adjustment

48,534

51,239

53,450

61,021

44,679

of which current expenditure:

Central government capital consumption

14,895

15,790

16,607

17,126

17,440

Local government capital consumption

7,550

8,037

8,524

9,008

9,494

Current VAT refunds

9,374

11,095

11,672

11,553

11,607

VAT receipts paid to the EU

1,120

2,267

2,276

1,370

2,163

Student loans subsidy1

-1,401

-4,317

-2,300

-3,685

-6,302

Imputed subsidy from Local Authorities to the Housing Revenue Account2

-1,357

-1,525

-894

-228

-228

Imputed flows for Renewable Obligation Certificates3

1,119

1,283

1,471

2,170

2,529

Bank of England Asset Purchase Facility flows

-5,616

-7,720

-8,750

-12,058

-12,565

Royal Mail Pension Plan

0

0

0

9,460

0

Local authority pensions

1,611

1,826

1,881

1,966

1,862

Network Rail

4,240

4,537

4,378

4,679

4,574

Tax credits

5,600

5,540

4,714

2,982

2,744

Current expenditure residual

1,380

3,304

1,335

5,015

4,288

of which capital expenditure:

Capital VAT refunds

1,820

2,064

2,223

2,143

2,098

Network Rail

-1,039

-1,114

-647

-406

1,627

Capital expenditure residual

9,238

10,172

10,960

9,927

3,348

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.

4 The residual for the UK in 2013-14 includes a timing adjustment. The TES figure used in GERS is consistent with the latest CRA analysis, which is from November 2014. The TME figure in GERS is consistent with the public sector finances statistical bulletin published in January 2015. In addition, the residual includes changes to TES not reflected in TME and to TME not reflected in TES in the years prior to 2013-14.

Scottish Accounting Adjustment

The accounting adjustment required to reconcile TES and TME for Scotland is set out in Table B.3.

The estimate of an accounting adjustment for Scotland is calculated using a variety of apportionment methodologies. Firstly, estimates of capital consumption from the ONS Regional Accounts have been used to estimate capital consumption for Scotland. This is identical to the estimates of general government gross operating surplus on the revenue side. These two elements cancel out when calculating Scotland's net fiscal aggregates. The same is true for VAT refunds, Renewable Obligation Certificates, and the Housing Revenue Account. The figures for Scottish student loan subsidies are provided by HM Treasury. The current and capital residuals are allocated to Scotland on a spending share basis.

Table B.3: Public Sector Finances Accounting Adjustment: Scotland 2009-10 to 2013-14

(£ million)

2008-09

2009-10

2010-11

2011-12

2012-13

Scottish total managed expenditure (TME)

63,533

65,112

65,768

67,848

66,388

Scottish total expenditure on services (TES)

58,922

59,800

60,335

61,963

61,894

Scottish accounting adjustment

4,611

5,312

5,432

5,884

4,495

Percentage of UK accounting adjustment

9.5%

10.4%

10.2%

9.6%

10.1%

Of which current expenditure:1

Central government capital consumption

1,281

1,336

1,398

1,393

1,433

Local government capital consumption

716

770

828

877

925

Current VAT refunds

831

964

1,010

1,001

1,012

VAT receipts paid to the EU

96

190

190

199

180

Student loans subsidy2

-45

76

85

-124

-8

Imputed subsidy from Local Authorities to the Housing Revenue Account3

-99

-112

-65

-21

-21

Imputed flows for Renewable Obligation Certificates4

131

152

175

257

300

Bank of England Asset Purchase Facility flows

-472

-647

-732

-1,005

-1,044

Royal Mail Pension Plan

0

0

0

789

0

Local authority pensions

148

168

172

174

168

Network Rail

445

496

420

367

346

Tax credits

434

423

351

219

201

Current expenditure residual

125

295

126

363

382

Of which capital expenditure:

Capital VAT refunds

161

179

192

186

183

Network Rail

-58

-42

-114

-51

84

Capital expenditure residual

913

1,064

1,396

1,259

354

1 See notes to Table B.2

The elements of the accounting adjustment are also assigned to Scottish or other UK Government institutions. Local government capital consumption, the student loans subsidy, the housing revenue account subsidy, and local authority pensions adjustment are assigned to Scottish institutions. VAT receipts paid to the EU, Renewable Obligation Certificates, Bank of England Asset Purchase Facility flows, the Royal Mail Pension Plan, and tax credits are assigned to other UK Government institutions.

As the majority of VAT refunds are due to Local Government and as the majority of central government expenditure in Scotland (other than benefit expenditure by the Department for Work and Pensions, which will not attract VAT), is undertaken by the Scottish Government, all VAT refunds have been assigned to Scottish institutions. Similarly, the majority of capital expenditure in Scotland is undertaken by the Scottish Government, so all central government capital consumption has been assigned to Scottish institutions. Similar reasoning has been applied to the current and capital expenditure residuals. As some VAT refunds, current expenditure, and capital spending in Scotland is attributable to other UK Government institutions, this will likely overstate the accounting adjustment assigned to Scottish institutions.

For Network Rail, all expenditure has been assigned to other UK Government institutions. As Network Rail expenditure in Scotland is in part financed by grants from the Scottish Government, this may underestimate the accounting adjustment assigned to Scotland.

Further work will be undertaken in future editions of GERS to refine the assignment of the accounting adjustment to Scottish and other UK Government institutions.

Amendments to CRA Data

A number of significant improvements have been made to the CRA database in recent years to apportion expenditure more accurately to countries and regions. While many anomalies in previous editions of the CRA have been addressed and are now reflected in both CRA 2014 and this GERS report, a small number of supplementary amendments to the CRA 2014 dataset were made in producing GERS. The aim of these refinements was to ensure that the public sector expenditure figure for Scotland captures as accurately as possible expenditure for the benefit of Scotland.

The total amendment made to the CRA in producing this edition of GERS is shown in Table B.4 below. Table B.5 sets out in detail the sources of these revisions.

Table B.4: Summary of Amendments to Estimates of Total Public Sector Expenditure on Services from CRA 2014: Scotland 2009-10 to 2013-14

(£ million)

2009-10

2010-11

2011-12

2012-13

2013-14

Total Expenditure in Scotland (GERS)

63,533

65,112

65,768

67,848

66,388

PSF accounting adjustment

4,611

5,312

5,432

5,884

4,495

Total expenditure on services for Scotland (GERS)

58,922

59,800

60,336

61,964

61,893

Total expenditure for Scotland (CRA)1

59,206

60,115

60,711

62,381

62,327

Total revision to expenditure in Scotland

-284

-315

-375

-418

-435

1 In this analysis, an estimate of total expenditure from the CRA has been calculated as the sum of all Scottish expenditure plus a proportion of non-identifiable expenditure and outside UK expenditures using the default apportionments set out in the detailed expenditure methodology paper on the GERS website.[34] This figure therefore excludes all amendments documented in this annex.

Table B.5: Amendments to Estimates of Total Public Sector Expenditure on Services from CRA 2014: 2009-10 to 2013-14

(£ million)

2009-10

2010-11

2011-12

2012-13

2013-14

Nuclear-related expenditure

-112

-126

-131

-160

-164

Railways expenditure

0

-1

-2

-12

-13

London Olympics

-55

-38

-61

-61

-48

Pensions revisions

-4

-10

-14

-20

-32

Public sector debt interest

-10

2

3

1

-14

Other minor revisions

-103

-141

-171

-165

-164

Total

-284

-315

-375

-418

-435

Nuclear Decommissioning and Related Expenditures

In CRA 2014, expenditure on nuclear decommissioning is classified as identifiable to the region where nuclear facilities are located. However, as discussed in previous editions of GERS,[35] it is believed that this expenditure is best captured as a non-identifiable expenditure, so nuclear decommissioning and associated expenditure is apportioned on a population basis.

Railways Expenditures

As discussed in previous editions of GERS,[36] railways expenditure is apportioned to Scotland on an in basis. This requires a number of modifications to the underlying CRA data which affected the expenditure by London and Continental Railways, and the Channel Tunnel Rail link. Previous adjustments made to Network Rail grants are no longer required following the incorporation of Network Rail into central government expenditure, as discussed in Boxes 3.2 and 5.1.

In this edition of GERS, a new adjustment has been introduced for expenditure relating to High Speed 2. Within the CRA this expenditure, which accounts for over £340 million in 2013-14, is classified as non-identifiable, meaning its benefits cannot be attributed to a particular region. Within GERS, the expenditure has been apportioned to Scotland in line with the regional breakdown of the benefits of High Speed 2 reported within The Economic Case for HS2, published by the Department for Transport.[37] This assigns Scotland 2% of the total expenditure.

2012 Olympics

Although some Olympics expenditures were assigned to London in the latest CRA not all were identified in that way. Consequently, as discussed in previous editions of GERS,[38] all capital expenditure associated with the Olympics has been assigned to the rest of the UK, primarily London and surrounding area, on the basis that Scotland will not receive a lasting benefit from 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 estimated regional distribution of the associated increase in tourism expenditure.

Public Sector Pensions

In CRA 2014, improvements were made to ensure that expenditure for the Scottish Office Pension Agency, NHS and Teacher pensions was allocated across the UK in line with recipients residency. This removes the need for the majority of previous adjustments to pensions within GERS. However, in keeping with the methodology from previous GERS, all expenditure by the Scottish Office Pension Agency outside the UK is apportioned to Scotland, rather than a population share as is standard for other outside UK expenditures.

Public Sector Debt Interest

The public sector debt interest payments in the CRA have been updated to be consistent with the Public Sector Finances published in January 2015.

Other Amendments

A number of other minor amendments have been made to the CRA to correct asymmetries in the regional attribution of expenditures related to consumer protection, civil aviation, tourism and libraries amongst others. These are discussed further in previous editions of GERS.


Contact

Email: Mairi Spowage