Government Expenditure and Revenue Scotland 2022-23

Preface

This report is the thirtieth in the series of official published estimates of expenditure and revenue balances of the public sector in Scotland.

GERS is classified as National Statistics and produced in accordance with the principles of the Code of Practice for Statistics. More information about National Statistics, including the latest assessment report on GERS (number 274), is available on the UK Statistics Authority website.^[3]

Feedback from users of the publication is welcome. A correspondence address is available in the back leaf of the publication. Comments can be emailed to: economic.statistics@gov.scot

Recent Developments in the Public Sector Finances

The COVID-19 pandemic has had profound impacts on public health, the economy, and the public finances, particularly in 2020-21 and 2021-22. There was an unprecedented increase in public sector borrowing, reflecting both lower tax revenue as economic activity fell and higher spending both on public health response and support packages. Although revenue in 2022-23 has continued to recover, public sector borrowing in the UK remains higher than pre-pandemic levels. Last year’s publication provided a breakdown of coronavirus spending in Scotland across 2020‑21 and 2021-22. Chapter 3 Public Sector Expenditure - Government Expenditure & Revenue Scotland (GERS) 2021-22 - gov.scot (www.gov.scot)

In 2022-23, health spending has fallen by £1.6 billion as programmes such as vaccinations and Test and Trace have either been scaled back or ended. However, overall public spending still rose strongly, driven by rising debt interest payments and expenditure on schemes to support households and businesses with the rising cost of living. These included the:

• Energy Price Guarantee – which limited the amount a typical household would pay for energy to £2,500.
• Energy Bill Support Scheme – which provided a £400 discount to household energy bills over the winter, which they received across October 2022 to March 2023.
• Energy Bill Relief scheme – which ran between 1 October 2022 and 31 March 2023, and provided a limit on the price paid by businesses.
• Cost of Living Payments – payments of between £150 to £650 were made to people on low incomes, people in receipt of qualifying disability benefits, and pensioners entitled to Winter Fuel Payments.

Overall, these interventions amounted to £4.5 billion in 2022-23. Further detail on this spending in GERS is set out in Box 3.1.

Recent Statistical Decisions and Changes

A number of statistical changes have been made over the last year.

Crown Estate Revenues

The Crown Estates in both Scotland and the UK have recently undertaken auctions of option rights to develop offshore wind projects. In Scotland these are known as ScotWind and in the rest of the UK the Offshore Wind Leasing Round 4. These options last for up to 10 years. Due to the different timing of the auctions in Scotland and the rest of the UK, and to different contractual arrangements, the revenues will have a slightly different profile in Scotland and the UK. The UK Crown Estate recognised £209 million of revenue from option fees in its 2022-23 Annual Report, which is expected to increase to around £900 million next year. Crown Estate Scotland has not yet published its 2022-23 accounts, but in its 2021-22 accounts set out that expects to receive £70 million in 2022-23, and then the same amount for the following nine years.

These numbers are not yet reflected in the UK Public Sector Finances, with updates due to be taken on in September. As a result, they will be reflected in the next edition of GERS.

Bulb Energy Limited

On 24 November 2021, the energy provider Bulb Energy Limited was placed into a Special Administration Regime (SAR) by the government. This ensured continued provision of essential services to its customers.

In April 2022, the Office for National Statistics (ONS) reviewed the classification status and concluded that Bulb is a market body subject to public sector control. Therefore, Bulb was classified to the public non-financial corporations' subsector (S.11001) with effect from 24 November 2021, the date it entered special administration. For further information, see Recent and upcoming changes to public sector finance statistics - Office for National Statistics (ons.gov.uk)

The impact on the UK Public Sector Finances of the classification is relative small, reducing borrowing by £0.2 billion in 2022-23. This will be captured as part of the residual in the accounting adjustments, meaning Scotland implicitly receives a population share of this in GERS.

Electricity Generators Levy

In his Autumn Statement on 17 November 2022, the Chancellor announced the introduction of a new, temporary 45% levy on exceptional electricity generation receipts, which will apply from 1 January 2023. Exceptional receipts are receipts from the production of wholesale electricity sold at an average price of more than £75 per MWh. The levy only applies to generators who produce more than 50 GWh of electricity a year, and whose exceptional receipts are more than £10 million.

Since the legislation introducing the Electricity Generators Levy only received Royal Assent on 11 July 2023, it has not yet been collected by HMRC, and is not yet included in the UK Public Sector Finances or GERS. It will be included in future editions. Analysis by the Scottish Government suggests that around 20% of the levy will be raised from generation in Scotland.

Methodological changes in this edition of GERS

The main methodological change in this edition of GERS relates to non-domestic rates revenue. This follows a review of their treatment in the UK public sector finances. The figures for Scottish non-domestic rates are unchanged from previous years, but there has been an update to the treatment of non-domestic rates paid by public sector bodies, which are netted off against total revenues within the ‘Other receipts’ line. Further details are provided in the revenue methodology document.

What Questions Does GERS Address?

GERS addresses three questions about Scotland’s public sector accounts for a given year:

1. What revenues were raised in Scotland?

2. How much did the country pay for the public services that were consumed?

3. To what extent did the revenues raised cover the costs of these public services?

Revenue

Public sector revenue is estimated where a financial burden is imposed on residents and enterprises in Scotland.

In general, the way in which revenue is collected means that separate figures for each country and region of the UK are not available for most revenues, although following increased devolution in recent years, more Scottish data have become available. As a result, Scottish public sector revenue is estimated by considering each revenue stream separately. Where Scottish data are unavailable, GERS estimates revenue using a set of apportionment methodologies, refined over a number of years following consultation with and feedback from users. The methodology note on the GERS website provides a detailed discussion of the methodologies and datasets used.^[4]

Expenditure

Public sector expenditure is estimated on the basis of spending incurred to provide services for residents of Scotland. That is, a particular public sector expenditure is apportioned to a region if the outcome of the expenditure is thought to provide a public service which benefits residents of that region.

This is a different measure from total public expenditure in Scotland. For most expenditure, spending for or in Scotland will be similar. For example, the vast majority of health expenditure by NHS Scotland occurs in Scotland and is for patients resident in Scotland. Therefore, the in and for approaches should yield virtually identical assessments of expenditure. However, for expenditure where the service provided is more collective in nature, such as defence, an assessment of ‘who the service is for’ depends upon the nature of the specific type of expenditure being assessed. Where there are differences between the for and in approaches, GERS estimates Scottish expenditure using a set of apportionment methodologies, refined over a number of years following consultation with and feedback from users.

The for approach considers the location of the recipients of services or transfers that public sector expenditure finances, irrespective of where the expenditure takes place. For example, with respect to defence expenditure, as the service provided is a national ‘public good’, the for methodology operates on the premise that the entire UK population benefits from the provision of a national defence service. Accordingly, under the for methodology, national defence expenditure is apportioned across the UK on a population basis.

Estimates of spending in Scotland are used in some Scottish Government publications, such as the Quarterly National Accounts. However, these do not provide a complete measure of spending, as some types of spending, such as welfare spending, are not reported. The Scottish Government is currently reviewing the potential to provide users with estimates of spending in Scotland, and information on how this would differ from spending for Scotland.

The Data Sources

The source of the revenue data in GERS is ONS’s Public Sector Finances, which provides disaggregated figures relating to UK public sector revenue.^[5]

The primary data sources used to estimate Scottish public sector expenditure in GERS are Scottish Government accounting data, and HM Treasury’s Public Expenditure Statistical Analyses^[6] and the supporting Country and Regional Analysis (CRA).^[7]

GERS also makes use of the estimates of Scottish Gross Domestic Product (GDP) in current market prices published in the Quarterly National Accounts Scotland (QNAS).^[8]

Additional Information on the GERS Website

The GERS website contains a number of additional analyses of Scotland’s public sector finances. In addition to containing copies of the GERS report from 1990-91 onwards, the website also contains the tables underpinning this edition of GERS in Excel format and statistics providing a consistent time series of Scotland’s public sector finances from 1998-99 to 2021-22.

The GERS website can be accessed via: Economy statistics - gov.scot (www.gov.scot)

Comparisons to other countries and regions of the UK

GERS does not provide comparisons of Scottish revenue and expenditure with other parts of the UK, as data are not yet available for 2022-23 for each country and region of the UK. Users who are interested in these comparisons are advised to use the Country and Regional Public Sector Finances publication published by the ONS, available at the link below. A comparison between the ONS and GERS revenue figures for Scotland is provided in Table 1.5. Country and regional public sector finances, UK - Office for National Statistics (ons.gov.uk)

International comparisons

The Scotland figures in the main tables in GERS are produced to be comparable to the UK figures presented in the ONS Public Sector Finances and the OBR Economic and Fiscal Outlook. These report for the public sector as a whole on a financial year basis. In contrast, organizations such as the European Commission and the International Monetary Fund report countries’ finances on a calendar year basis and for the government sector only. Figures for Scotland on this basis are available in Table A.4.