Chapter 3: Public Sector Expenditure
This chapter provides detailed estimates of public sector expenditure for Scotland. Expenditure is shown by type of spend, using a presentation based on the UN's Classification of the Functions of Government ( COFOG). Further information is provided in the Glossary in Annex D. Current and capital expenditure are shown separately.
The primary data sources used to estimate Scottish public sector expenditure in GERS are HM Treasury's Public Expenditure Statistical Analyses  and the supporting Country and Regional Analysis ( CRA). 
This edition of GERS sees a change in methodology to allow earlier estimates of expenditure to be produced. Whilst expenditure for years prior to 2014-15 continues to be based on the CRA, the 2015-16 estimate is primarily based on data from the Scottish Government accounts system combined with data from HM Treasury's Public Expenditure Statistical Analyses.  Further information on the methodological change is set out in the detailed expenditure methodology paper available at the link below.
The presentation of EU Transactions has also changed in this edition of GERS, to align the publication with the presentation used by HM Treasury in Public Expenditure Statistical Analyses. Previously EU Transactions in GERS were included as part of the accounting adjustments line. They are now shown separately.
The EU Transactions line in the tables below shows contributions to the EU, less funding received from the EU by the public sector. Funding received primarily consists of common agricultural policy payments and European regional development funding. The one contribution to the EU which is not included in the EU Transactions line is the traditional own resource contribution. This covers EU customs duties collected by the UK and transferred to the EU. As these are EU duties, neither the revenue nor expenditure is included in the UK Public Sector Finances. However, it is normally included in estimates of the UK's total contribution to the EU budget. This is discussed in Box 3.2.
In order to present expenditure figures on a National Accounts basis, the international reporting standards used by governments, a number of accounting adjustments are included in total expenditure. These are primarily symmetric adjustments that also form part of revenue, and therefore have little impact on the net fiscal balance. Further information is set out in Annex A.
Recent Statistical Classification Decisions
On 30 October 2015, the ONS announced that private providers of registered social housing in England, which includes many housing associations, have been reclassified from the private sector to the public sector. This increases UK capital expenditure (currently included as an accounting adjustment) and UK public sector debt interest in current expenditure. None of this expenditure is apportioned to Scotland in GERS. As a result, Scotland's share of total UK public sector debt interest is lower than a population share in this edition of GERS, as Scotland is apportioned only a population share of UK public sector debt interest excluding English Housing Associations.
The ONS decision only affects bodies in England, and the UK Government has stated its intention to change legislation in this area to return them to the private sector  . The ONS is currently reviewing the classification of similar bodies in the devolved administrations, with a decision expected later this year. The tables in Chapter 1 show the broad impact on UK revenues as a result of this decision.
As discussed in GERS 2014-15 the ONS reclassified the Special Purpose Vehicle set up to deliver the Aberdeen Western Periphery Route into the public sector. This expenditure has not yet been incorporated into the ONS Public Sector Finances, and as such is not included in either the Scottish or UK expenditure totals in GERS. The treatment of this expenditure is discussed in the Expenditure Accounting Adjustments section in Annex A.
In December 2013, the ONS announced that Network Rail had been reclassified into the public sector. In previous editions of GERS, Network Rail expenditure had been included in the accounting adjustments line. In this edition of GERS, it is included in the accounting adjustments for years 2014-15 and earlier, but included in transport spending in 2015-16. This causes an increase in Other UK Government transport spending in 2015-16, as shown in Table 3.8, with a corresponding reduction in Other UK Government accounting adjustments.
Public Sector Expenditure
Total public sector expenditure for Scotland in 2015-16 is estimated to be £68.6 billion. This is shown by spending category in Table 3.1. This was equivalent to 9.1% of total UK public sector expenditure, shown in Table 3.2.
|Table 3.1: Total Expenditure: Scotland 2015-16|
|£ million||% of total expenditure|
|General public services|
|Public and common services||1,395||2.0%|
|Public sector debt interest||2,802||4.1%|
|Public order and safety||2,834||4.1%|
|Enterprise and economic development||1,042||1.5%|
|Science and technology||499||0.7%|
|Agriculture, forestry and fisheries||839||1.2%|
|Housing and community amenities||1,363||2.0%|
|Recreation, culture and religion||1,430||2.1%|
|Education and training||7,990||11.7%|
Total public sector expenditure for Scotland is estimated to have increased to £68.6 billion in 2015-16, an increase of 1.0% compared to 2014-15. UK public expenditure grew at a similar rate, 0.9%.
|Table 3.2: Total Current and Capital Expenditure: Scotland and UK|
|Of which English HAs||0||0||0||0||0||9,412||8,705||9,654||10,245||10,800|
Table 3.3 shows the split of total expenditure between current and capital for Scotland. The capital spending share is quite variable between 2011-12 and 2015-16. This reflects a number of factors, such as the transfer of the Royal Mail Pension Plan into the public sector in 2011-12.
|Table 3.3: Current and Capital Expenditure (% of Total Expenditure): Scotland|
Table 3.4 below shows estimates of Scottish and UK public sector expenditure as a share of GDP. This provides an illustration of the relative size of public spending between countries and over time. It is not an estimate of the contribution of public spending to the economy as much of this spending consists of transfers from government to individuals and businesses. Excluding North Sea GDP, public spending in Scotland has been declining, as a share of GDP, since 2011-12. This follows the same trend for the UK as a whole. Including a geographical share of North Sea GDP, public spending as a share of GDP has increased over the five years since 2011-12, reflecting the fall in North Sea GDP over this period.
|Table 3.4: Total Managed Expenditure as a Share of GDP|
|per cent of GDP|
|Scottish TME as a Share of GDP:|
|Excluding North Sea GDP||50.6%||50.5%||47.9%||46.9%||46.6%|
|Including population share of North Sea GDP||49.7%||49.8%||47.2%||46.4%||46.3%|
|Including geographical share of North Sea GDP||42.9%||44.3%||42.3%||43.1%||43.7%|
|UK TME as a share of GDP:|
|100% of North Sea GDP||43.8%||43.2%||41.8%||40.7%||40.1%|
Table 3.5 shows estimated total public sector expenditure for Scotland and the UK per person. Since 2011-12, spending per head in Scotland has been between 9.7% and 10.8% higher than the UK average. Around one percentage point of this difference is due to water and sewerage services being provided by the public sector in Scotland, and therefore included in Scottish expenditure, whilst in England and Wales they are operated by the private sector and therefore excluded from UK expenditure. Tables 3.6 and 3.7 show current, capital, and total expenditure for Scotland and the UK respectively.
|Table 3.5: Total Expenditure Per Person|
||£ per person|
|Difference (Scotland minus UK)||1,100||1,200||1,100||1,100||1,200|
|Relative Expenditure for Scotland ( UK = 100)||109.9||110.8||109.7||109.9||110.5|
Note: Figures rounded to the nearest £100
Box 3.1 Social protection spending in Scotland
Social protection spending is the largest single spending line in GERS, and covers a range of different spend types.
The largest spending element within social protection is expenditure on the state pension by the Department for Work and Pensions ( DWP). This is followed by DWP's spending on other social security such as disability and incapacity related benefits, income support, jobseekers allowance, and housing benefit. Tax credits and child benefit are part of HMRC spending, which also includes universal credit. Scottish Government social security spend includes the Scottish Welfare Fund, Council Tax Reduction Scheme, and Scottish Government expenditure on Discretionary Housing Payments, all of which are administered by Local Authorities.
Some UK social security expenditure, mostly associated with the state pension, is paid to non- UK residents. Scotland is allocated a population share of this expenditure in GERS.
|Social protection spending for Scotland (£ million)|
|Social security spending in Scotland|
|Other DWP social security||5,749||5,795||5,621||5,659||5,734|
|HMRC child benefit and tax credits||3,173||3,134||3,019||2,957||2,917|
|Scottish Government social security||418||408||409||412||401|
|Social security spending in Scotland||17,396||17,917||17,461||17,716||17,975|
|Share of benefit spending outside UK and corporate spend||479||518||458||545||665|
|Other social protection|
|Public sector pensions||732||866||881||961||961|
|Social care for the elderly||2,096||2,249||2,263||2,230||2,304|
|Total social protection||21,657||22,465||22,328||22,903||23,591|
Other social protection spending consists primarily of Local Authority expenditure on social care to families and children.
A more detailed breakdown of social security spending is published by DWP, available at the link below.
Spending by different parts of the Public Sector
Table 3.8 below provides a breakdown of Scottish expenditure by the Scottish Government, Local Authorities and Public Corporations and Other UK GoveArnment departments.
|Table 3.6: Total Expenditure: Scotland 2011-12 to 2015-16|
|General public services|
|Public and common services||1,288||1,149||1,268||1,275||1,204||181||145||201||199||191||1,470||1,294||1,469||1,474||1,395|
|Public sector debt interest||3,520||3,146||3,071||2,760||2,802||0||0||0||0||0||3,520||3,146||3,071||2,760||2,802|
|Public order and safety||2,666||2,652||2,413||2,679||2,740||216||204||139||123||93||2,883||2,857||2,552||2,802||2,834|
|Enterprise and economic development||592||696||803||736||790||250||244||196||182||253||842||941||999||919||1,042|
|Science and technology||31||20||24||45||113||342||308||370||389||386||373||329||394||434||499|
|Agriculture, forestry and fisheries||826||770||795||740||694||146||152||168||196||145||972||922||962||936||839|
|Housing and community amenities||218||75||123||125||211||1,506||1,541||1,527||1,575||1,151||1,724||1,616||1,649||1,700||1,363|
|Recreation, culture and religion||1,177||1,290||1,203||1,430||1,166||339||332||243||194||264||1,516||1,622||1,446||1,624||1,430|
|Education and training||6,854||6,867||6,920||6,981||7,246||688||655||636||634||744||7,542||7,522||7,555||7,615||7,990|
|Table 3.7: Total Expenditure: UK 2011-12 to 2015-16|
|General public services|
|Public and common services||10,091||9,722||9,502||9,891||10,336||1,415||1,586||1,825||1,775||1,510||11,506||11,308||11,327||11,666||11,846|
|Public sector debt interest||44,476||40,354||39,703||36,473||36,724||0||0||0||0||0||44,476||40,354||39,703||36,473||36,724|
|Public order and safety||30,486||29,861||28,296||28,370||28,818||1,585||1,410||1,258||1,251||1,367||32,071||31,271||29,554||29,621||30,185|
|Enterprise and economic development||3,395||4,079||4,517||4,215||4,606||1,376||942||1,178||862||723||4,771||5,021||5,695||5,077||5,329|
|Science and technology||370||272||363||496||836||3,253||3,061||3,838||3,983||3,951||3,623||3,333||4,201||4,479||4,787|
|Agriculture, forestry and fisheries||5,507||4,970||4,962||4,690||4,121||270||307||409||516||421||5,777||5,277||5,371||5,206||4,542|
|Housing and community amenities||2,725||3,088||2,987||2,855||2,992||7,428||6,869||6,820||7,340||7,019||10,153||9,957||9,807||10,195||10,011|
|Recreation, culture and religion||9,634||10,666||9,573||10,425||9,379||2,854||2,044||1,837||2,022||2,048||12,488||12,710||11,410||12,447||11,427|
|Education and training||77,120||76,007||76,508||76,299||75,908||9,359||8,219||8,838||9,450||8,117||86,479||84,226||85,346||85,749||84,025|
|Table 3.8: Total Expenditure: Scottish Government, Local Authorities, Public Corporations, and Other UK Government: Scotland 2011-12 to 2015-16|
|Scottish Government, LAs and Public Corporations||Other UK Government||Total|
|General public services|
|Public and common services||989||855||1,016||1,009||964||481||439||453||465||431||1,470||1,294||1,469||1,474||1,395|
|Public sector debt interest||0||0||0||0||0||3,520||3,146||3,071||2,760||2,802||3,520||3,146||3,071||2,760||2,802|
|Public order and safety||2,601||2,597||2,307||2,567||2,605||282||260||245||235||229||2,883||2,857||2,552||2,802||2,834|
|Enterprise and econ development||773||743||782||743||773||69||197||217||175||270||842||941||999||919||1,042|
|Science and technology||5||5||5||5||5||368||324||390||430||494||373||329||394||434||499|
|Agriculture, forestry and fisheries||961||912||948||918||824||11||11||15||18||15||972||922||962||936||839|
|Housing and community amenities||1,724||1,616||1,649||1,700||1,363||0||0||0||0||0||1,724||1,616||1,649||1,700||1,363|
|Recreation, culture and religion||1,088||1,119||1,066||1,142||1,004||428||504||380||482||426||1,516||1,622||1,446||1,624||1,430|
|Education and training||7,519||7,503||7,541||7,587||7,971||23||19||14||28||19||7,542||7,522||7,555||7,615||7,990|
Box 3.2: Scotland's Notional Contributions to the European Union Budget
As a member of the European Union ( EU) the UK contributes to the EU budget and receives funding from the EU via a number of programmes.
As discussed at the beginning of this Chapter, the EU Transactions lines in the tables above are produced on a National Accounts basis, and exclude traditional own resource contributions to the EU. These are normally included when reporting on the UK's net contribution to EU budgets. The tables in this box show net payments to the EU including these contributions.
Although contributions to the EU are made by the public sector, funding from the EU is received by both public and non-public sector bodies. Both the EU Transactions line in the above tables and the figures in this box report only on transactions with the EU by the public sector, in common with the presentation used by HM Treasury. EU payments to Higher Education Institutions, which are not part of the public sector, are discussed further below.
Funding the EU Budget
There are three key sources of funding for the EU, which come from each member state:
- Traditional own resource ( TOR) - Agriculture duties and customs duties levied on agriculture and non-agriculture products from outside the EU.
- VAT based own resource - Calculated as a percentage of countries' VAT tax base.
- Gross National Income ( GNI) based own resource - Calculated as a percentage of countries' GNI. This is the EU's single largest source of revenue.
UK Correction (Rebate, or Abatement)
Since 1985, the UK has received a rebate. The UK rebate is broadly equal to 66% of the UK's net contribution (in the previous year). Further detail is available from HM Treasury's European Union Finances 2015 publication.
Scotland's contribution to the EU Budget
Scotland does not contribute directly to the EU budget. In this analysis, Scotland is therefore assigned a share of the UK's contribution based on various apportionment methodologies. Scotland's share of the UK's GNI based contribution is estimated using the ratio of Scottish to UK GDP, both including and excluding the North Sea (the non-North Sea share is used in headline GERS estimates). VAT based own resource is assigned to Scotland using Scotland's share of UK VAT receipts, and a population share is used to assign TOR.
Receipts from the EU
Receipts received from the EU are broken down into two categories: public sector receipts and external assistance. Scottish public sector receipts reflect expenditure specifically for Scotland as reported in the Scottish Government's Consolidated Accounts, and include as payments under the Common Agricultural Policy, European Structural Funds, and European Regional Development Funding.
The EU's external assistance budget provides aid to states outside the EU. A share of this expenditure is attributed to the UK based on its contribution to the EU budget. This is shown in the other attributed costs line in the tables below. A population share of this expenditure is assigned to Scotland.
UK's Net Contribution to the EU
Two measures are generally used to illustrate the UK's net contribution to the EU:
- The primary measure is the UK's net contribution to the EU budget - this is calculated as the difference between the UK's gross contribution to the EU budget (less the rebate) and public sector EU receipts.
- A secondary measure is the UK's net payment to EU institutions - this is equal to the UK's net contribution to the EU Budget less its share of the EU's external assistance aid budget.
The table below sets out the latest UK figures, as contained in Table C.1 of Public Expenditure Statistical Analyses, published July 2016.
|UK : Transactions with the institutions of the EU, 2011-12 to 2015-16|
|GNI based contribution||11,218||12,303||13,845||14,154||12,570|
|VAT-based contribution to the EU||2,276||2,398||2,163||2,316||2,751|
|Expenditure transfers to the EU||9,978||11,529||11,879||11,658||11,253|
|Receipts to cover collection costs of TOR||-735||-720||-733||-743||-771|
|Gross contribution to the EU budget||12,184||13,699||14,079||13,921||13,567|
|Public sector EU receipts||-4,771||-4,022||-3,856||-4,690||-2,811|
|Net contributions to the EU budget||7,413||9,678||10,223||9,231||10,756|
|less other attributed costs||163||82||79||0||0|
|Net payments to EU institutions||7,250||9,595||10,143||9,231||10,756|
Source: Public Expenditure Statistical Analyses (July 2016), Table C.1
Scotland's Net Contribution to the EU
Estimates are provided for Scotland in the table below, showing the GNI contribution assigned using Scotland's share excluding and including the North Sea. As discussed at the beginning of this Chapter, the difference between Scotland's net payments to EU institutions (based on GDP excluding the North Sea) in the table below and the EU Transactions line in Tables 3.6 and 3.8 is Scotland's share of UK TOR.
|Scotland: Estimated transactions with the institutions of the EU 2011-12 to 2015-16|
|GNI based contribution ( GDP exc North Sea ( NS))||893||972||1,102||1,116||984|
|GNI based contribution ( GDP inc NS)||1,053||1,110||1,243||1,211||1,046|
|UK abatement (Population share)||-294||-264||-343||-398||-335|
|VAT-based payments to the EU||193||204||187||199||237|
|Expenditure transfers to the EU ( GDP exc NS)||792||912||946||917||885|
|Expenditure transfers to the EU ( GDP inc NS)||953||1,050||1,087||1,012||948|
|Receipts to cover collection costs of TOR||-61||-60||-61||-61||-64|
|Gross contribution to the EU budget ( GDP exc NS)||976||1,093||1,128||1,104||1,076|
|Gross contribution to the EU budget ( GDP inc NS)||1,137||1,230||1,270||1,200||1,138|
|Public sector EU receipts||-800||-687||-758||-606||-610|
|Net contributions to the EU budget ( GDP exc NS)||176||406||370||498||465|
|Net contributions to the EU budget ( GDP inc NS)||337||543||512||594||528|
|less other attributed costs||14||7||7||0||0|
|Net payments to EU institutions ( GDP exc NS)||163||399||364||498||465|
|Net payments to EU institutions ( GDP inc NS)||323||537||505||594||528|
EU Payments to Higher Education Institutions
This box has covered the transactions that the Scottish and UK public sector has with the EU. However, the EU also makes payments to bodies outside the public sector, such as Higher Education Institutions ( HEIs), which are considered private sector not-for-profit institutions. The Higher Education Statistics Agency ( HESA) produces statistics on these payments. These payments are not included in the tables shown above as they are not transactions with the public sector and are therefore out of the scope of public sector finances.
Payments to HEIs from the EU include:
- Payments from EU government bodies
- Payments from EU-based charities through an open competitive process
- Payments from EU industry, commerce and public corporations
- Payments from other EU bodies
To illustrate the size of these payments, the table below shows research grants and contracts income from the EU to HEIs for Scotland and the UK for academic years 2010-11 to 2014-15, which is the latest year for which figures are available. This spending is outside the public sector, and therefore has no impact on the figures reported in GERS.
|EU Payments to Higher Education Institutions, Academic Year 2010-11 to 2014-15|
Note: The academic year runs from 1 August to 31 July
These figures have been reproduced with the permission of the Higher Education Statistics Agency ( HESA). More details on these statistics can be found on the HESA website ( www.hesa.ac.uk ).
Box 3.3: Private Finance Initiative and Non-Profit Distributing Financing support for Public Private Partnerships ( PPPs)
This box gives an introduction to Public Private Partnerships ( PPPs) and the funding models that have been used in Scotland. It also breaks down unitary charge payments by scheme type, by type of procuring authority and by the sector of the project.
The recent GERS consultation highlighted user interest in data on PPPs, and the Private Finance Initiative ( PFI) funding model. Following this response, the information previously provided in Table A.11 in GERS 2014-15 has been expanded in this box to provide more detail on the unitary charge payments associated with PPPs. This analysis uses sources of publically available data, all brought together into an accompanying spreadsheet for users to examine further if they wish. The spreadsheet is available from the GERS website:
Introduction to PFI, PPPs, and NPD
Public Private Partnerships ( PPPs) 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.
The Private Finance Initiative ( PFI) used to be the UK's preferred form of PPP. In Scotland, the Non-Profit Distributing ( NPD) model has been the Scottish Government's preferred procurement option since 2007. For more information on these schemes, and the data sources used in this box, please see the Scottish Government website:
Unitary Charge Payments
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. It is worth emphasising that these payments are already fully reflected in the GERS spending figures. In addition, the table below includes Ministry of Defence projects in Scotland which are procured by and entirely funded by the Ministry of Defence. Scotland is assigned a population share of this expenditure in GERS. Unitary charge payments cover repayment of capital, interest payments and in some cases service charge payments. Figures are shown here for the years 2011-12 to 2015-16 to be consistent with other tables in this report. The underlying spreadsheets on the GERS website have data covering the period back to 1998-99 as well as estimated payments into the 2040s. Additional information about the individual procuring authority (e.g. individual local authority and health board information) and comparisons with the UK are also provided.
|Unitary charge payments, 2011-12 to 2015-16|
|By scheme type|
|Private Finance Initiative||889||924||944||969||1,004|
|Non-Profit Distributing models 1||39||52||55||59||75|
|Total Unitary Charge payments||928||977||999||1,028||1,079|
|By procuring authority||
|Other Scottish Government||105||105||109||118||136|
|Ministry of Defence||22||23||22||24||25|
|Total Unitary Charge payments||928||977||999||1,028||1,079|
|By sector of project||
|Ministry of Defence||22||23||22||24||25|
|Total Unitary Charge payments||928||977||999||1,028||1,079|
|UK Total Unitary Charge Payments||
|Scotland as % UK||
Note: Non-profit distributing models includes projects delivered by the hub model and projects commissioned prior to 2010. Further detail is available at: http://www.gov.scot/Topics/Government/Finance/18232/12308
Source: HM Treasury and Scottish Government figures. See the accompanying spreadsheet for full details of all sources
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