Government Expenditure and Revenue Scotland (GERS) 2019-2020

Chapter 1: Public Sector Revenue

Introduction

This chapter provides detailed estimates of Scottish 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 revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. These are discussed in the methodology paper on the GERS website.^[10]

Following the implementation of the Scotland Act 2012 and Scotland Act 2016, an increasing amount of revenue is being devolved to the Scottish Parliament, and direct Scottish measures of these revenues are becoming available. To date, landfill tax, property transaction taxes, and non-savings non-dividend income tax have been devolved. Chapter 4 provides more information on current and future devolved taxes.

2019-20 is the third year of the operation of the new, more extensive Scottish Income Tax powers, where the Scottish Government has the power to set the rates and bands for income tax for Scottish residents.^[11] These figures are shown in Chapter 4, and show the amount of non-savings non-dividend (NSND) income tax paid on earnings in a given year. The income tax figures in this chapter cover all income tax, and are presented on a slightly different basis consistent with the UK Public Sector Finances, but are consistent with the HMRC figures.

For taxes where there is no direct measure of Scottish revenue, GERS uses a set of data sources and methodologies developed over a number of years following consultation with, and feedback from, users. In some cases, a variety of methodologies could be applied, each leading to different estimates of public sector revenue in Scotland. Table A.5 in Annex A provides analysis of the confidence intervals around revenue estimates based on survey data.

GERS reports tax and non-tax revenue separately. Non-tax revenues are primarily non-cash items such as capital consumption, included for accounting purposes in gross operating surplus, and the operating surplus of public corporations such as Scottish Water. These are discussed in more detail below.

Estimated Revenue 2019-20

Table 1.1 reports estimated public sector revenue in Scotland and the preliminary outturn data for the UK in 2019-20. The contribution of each element of revenue to the Scottish total, and the proportion of UK revenue raised in Scotland, are also included in the table. Income tax, national insurance contributions, and value added tax account for around two thirds of total non-North Sea revenue. In order to report revenue on a National Accounts basis, an international reporting standard used by governments, a number of accounting adjustments are included in the total revenue estimate. These are primarily symmetric adjustments that also form part of expenditure, and therefore have little impact on the net fiscal balance.

Table 1.1: Revenue: Scotland and 2019-20

	Scotland		UK	Scotland as % of UK
	£ million	% of total non-North Sea taxes	£ million
Income tax	13,018	23.2%	195,330	6.7%
National insurance contributions	11,460	20.4%	144,245	7.9%
Value added tax	11,015	19.6%	133,819	8.2%
Corporation tax (excluding North Sea)	3,180	5.7%	50,992	6.2%
Fuel duties	2,392	4.3%	27,572	8.7%
Non-domestic rates	2,761	4.9%	32,142	8.6%
Council tax	2,487	4.4%	36,575	6.8%
VAT refunds	1,727	3.1%	18,820	9.2%
Capital gains tax	433	0.8%	9,978	4.3%
Inheritance tax	238	0.4%	5,153	4.6%
Reserved stamp duties	284	0.5%	16,871	1.7%
Scottish land & buildings transaction tax	598	1.1%	598	100.0%
Scottish landfill tax	119	0.2%	119	100.0%
Air passenger duty	273	0.5%	3,385	8.1%
Tobacco duties	1,240	2.2%	9,692	12.8%
Alcohol duties	1,149	2.0%	11,716	9.8%
Insurance premium tax	419	0.7%	6,393	6.6%
Vehicle excise duties	572	1.0%	7,000	8.2%
Environmental levies	748	1.3%	6,430	11.6%
Other taxes1	2,073	3.7%	24,225	8.6%
Total Non-North Sea taxes	56,185	100%	741,055	7.6%
North Sea taxes2
Population share	53		650	8.2%
Geographical share	724		650	111.4%
Other revenue
Interest and dividends	2,155		26,109	8.3%
Gross operating surplus	6,294		53,835	11.7%
Other receipts	520		4,397	11.8%
Total revenue
Excluding North Sea	65,155		825,396	7.9%
Including population share of the North Sea	65,208		826,046	7.9%
Including illustrative geographical share of the North Sea	65,878		826,046	8.0%
of which: revenue accounting adjustments	6,545		66,835	9.8%

1 A description of the other taxes line is provided in the detailed methodology paper on the GERS website.

2 As the receipts for UK Petroleum Revenue Tax are negative, the Scottish share of North Sea revenue appears unusually high in 2019-20. This is discussed in more detail in Chapter 2.

Unlike the expenditure accounting adjustments, which are shown in a separate expenditure line, the revenue accounting adjustments are included within different revenue lines, as is set out in Table A.9 in Annex A. In order to aid transparency, a revenue accounting adjustments line is shown at the bottom of Table 1.1 and 1.4. This is a sub-total of revenue, and is not additional to the revenue totals reported in these tables.

Total public sector non-North Sea revenue in Scotland was estimated to be £65.2 billion in 2019-20, an increase of 1.7%. This is equivalent to 7.9% of UK total non-North Sea current revenue which is 0.3 percentage points lower than Scotland’s share of the UK population.^[12] In general, Scotland’s share of most large revenues is close to either its population or GDP share. However, there are some exceptions to this, discussed below.

Revenues where Scotland’s share of UK revenue is relatively low are those associated with property or assets, such as capital gains tax (4.3%), and inheritance tax (4.6%). This reflects the fact that properties and assets in Scotland tend to have lower values than the UK average.^[13] Scotland’s share of income tax (6.7%) is also relatively low. In part, this reflects the shifting of income tax onto higher earners, through the introduction of the additional rate of income tax and increases in the personal allowance. Scotland has relatively fewer additional rate tax payers, with only around 4% of the UK total. Scotland also has a relatively low share of interest and dividend revenue. This reflects the fact that the Scottish Government receives proportionally less income from student loans, as the use of such loans is lower in Scotland.

Revenues where Scotland has a relatively large share include non-domestic rates (8.6%), and gross operating surplus (GOS), which includes the surpluses of public corporations. Scotland is estimated to generate approximately 11.7% of UK public sector GOS, higher than Scotland’s population share. Scotland’s GOS includes Scottish Water, which is a large contributor to UK public corporations’ GOS. The equivalent water companies in England and Wales are outside the public sector and hence do not contribute to UK GOS.

Scotland tends to also have relatively high shares of duties associated with tobacco and alcohol. This reflects the greater incidence of smoking in Scotland,^[14] and also the fact that Scotland has higher consumption of spirits than the rest of the UK.^[15] Scotland also has a relatively high share of ‘other receipts’, as for the UK this line nets out refunds of non‑domestic rates paid by local authorities. Due to the different structure of reporting non‑domestic rates in Scotland, these refunds are not separated out for Scotland.

Table 1.2 below provides a time series of Scotland’s share of the largest UK revenues. In general, Scotland’s share of UK revenue has been broadly stable since 2015-16, at around 7.9%.

Table 1.2: Non-North Sea Revenue: Scotland as share of UK

	per cent of UK revenue
	2015-16	2016-17	2017-18	2018-19	2019-20
Income Tax	6.9%	6.7%	6.6%	6.7%	6.7%
Corporation tax (excl North Sea)	6.3%	6.6%	6.2%	6.2%	6.2%
National insurance contributions	7.9%	8.0%	8.0%	8.0%	7.9%
Value added tax	8.2%	7.9%	8.4%	8.4%	8.2%
Council tax and non-domestic rates	8.0%	8.0%	8.0%	7.9%	7.6%
All other revenue	8.9%	8.9%	9.0%	9.1%	9.1%
Total current non-North Sea revenue	7.9%	7.8%	7.9%	7.9%	7.9%

Estimated Revenue: Scotland and the UK, 2015-16 to 2019-20

Table 1.4 shows estimated current revenue in Scotland and the UK between 2015-16 and 2019-20. Non-North Sea revenue in Scotland is estimated to have grown by 15.3% between 2015-16 and 2019-20 in nominal terms, less than for the UK as a whole (15.9%). The majority of this difference is due to relatively slower growth in income tax in Scotland, which occurred in 2015-16 and 2016-17. However, based on HMRC’s indicative PAYE income tax liabilities, income tax in Scotland is estimated to have grown more quickly than the UK as a whole in 2018-19. More generally, slower growth in revenue in Scotland reflects the fact that Scotland’s population, and therefore its tax base, has grown more slowly than in the UK as a whole.

The structure of revenue in Scotland is changing with the devolution of additional tax powers. Table 1.4 shows separately land and buildings transaction tax and Scottish landfill tax, which were introduced in 2015‑16. The ‘UK stamp duties’ line for Scotland shows estimated receipts from stamp duty on shares and the annual tax on enveloped dwellings.

Table 1.3 shows estimates of revenue per person for Scotland and the UK between 2015-16 and 2019-20. Excluding North Sea revenue, revenue per person in Scotland is lower than in the UK by £431 in 2019-20. Including an illustrative geographical share of North Sea revenue the difference is £308.

Table 1.3: Revenue Per Person: Scotland and UK 2015-16 to 2019-20

	£ per person
	2015-16	2016-17	2017-18	2018-19	2019-20
Scotland
Excluding North Sea revenue	10,506	10,975	11,317	11,769	11,926
Including North Sea revenue (population share)	10,504	10,976	11,337	11,787	11,936
Including North Sea revenue (geographical share)	10,447	11,004	11,527	12,020	12,058
UK
Excluding North Sea revenue	10,919	11,508	11,752	12,174	12,357
Including North Sea revenue	10,918	11,508	11,772	12,192	12,367
Difference (Scotland minus UK)
Excluding North Sea revenue	-413	-533	-435	-404	-431
Including North Sea revenue (population share)	-413	-533	-435	-404	-431
Including North Sea revenue (geographical share)	-471	-504	-244	-171	-308

Box 1.1: Comparison between GERS and ONS estimates

Any analysis of public sector receipts in Scotland relies on estimation, and as such alternative estimates are possible. As discussed in the Preface, GERS estimates revenue using a set of apportionment methodologies, refined over a number of years following consultation with, and feedback from, users.

The Office for National Statistics (ONS) now publishes public sector finances for the countries and regions of the UK. The latest estimates covering the period to 2018-19 were published on 20 December 2019.^[16]

The table below compares the estimates in GERS with those published by ONS. There are some differences between the ONS and GERS numbers. For non-North Sea taxes, these primarily relate to VAT. The estimates of VAT in GERS are consistent with those published by HMRC for Scottish Assigned VAT, whilst the ONS use a methodology which produces results for all UK country and regions, which has a lower estimate for Scotland. The ONS, HMRC and the devolved administrations are working together to reconcile, and where possible align, methodologies for estimating tax receipts for the UK countries and regions

The differences in other non‑North Sea receipts are primarily due to using different data sources for interest and dividends, where GERS uses specific data for interest income from Scottish student loans.

Estimates of Total Scottish Revenues 2015-16 to 2019-20

	£ million
	2015-16	2016-17	2017-18	2018-19	2019-20
Non-North Sea taxes
GERS	48,374	50,889	52,856	55,464	56,185
ONS	48,897	51,331	52,464	55,132	n/a
Difference	-523	-442	392	332	n/a
Other non-North Sea receipts
GERS	8,156	8,484	8,576	8,612	8,970
ONS	8,133	8,486	8,580	8,853	n/a
Difference	23	-2	-4	-241	n/a
Geographical share of North Sea revenues
GERS	-318	157	1,141	1,366	724
ONS	-231	109	1,141	1,354	n/a
Difference	-87	48	0	12	n/a

Table 1.4: Revenue: Scotland and UK 2015-16 to 2019-20

	£ million
	Scotland					UK
	2015-16	2016-17	2017-18	2018-19	2019-20	2015-16	2016-17	2017-18	2018-19	2019-20
Income tax	11,725	11,836	11,964	12,830	13,018	168,874	177,247	180,593	192,528	195,330
National insurance contributions	9,066	10,042	10,460	10,913	11,460	114,061	126,241	131,547	137,257	144,245
Value added tax	9,616	9,645	10,536	11,134	11,015	116,703	121,855	125,494	133,201	133,819
Corporation tax (excluding North Sea)	2,765	3,485	3,315	3,485	3,180	44,100	52,659	53,140	55,911	50,992
Fuel duties	2,318	2,373	2,426	2,428	2,392	27,621	27,937	27,878	27,993	27,572
Non-domestic rates	2,579	2,732	2,762	2,847	2,761	28,607	29,464	30,277	31,296	32,142
Council tax	2,045	2,074	2,253	2,359	2,487	28,986	30,361	32,131	34,831	36,575
VAT refunds	1,595	1,582	1,571	1,676	1,727	17,724	17,448	17,272	18,211	18,820
Capital gains tax	373	363	338	399	433	7,060	8,380	7,793	9,197	9,978
Inheritance tax	277	288	281	252	238	4,712	4,897	5,277	5,450	5,153
UK stamp duties	280	336	297	293	284	14,181	15,657	17,212	16,699	16,871
Scottish land & buildings transaction tax	425	484	557	554	598	425	484	557	554	598
Scottish landfill tax	147	149	148	149	119	147	149	148	149	119
Air passenger duty	246	256	274	290	273	3,040	3,236	3,360	3,636	3,385
Tobacco duties	1,011	1,075	1,123	1,170	1,240	9,106	8,681	8,766	9,152	9,692
Alcohol duties	1,030	1,076	1,122	1,175	1,149	10,697	11,117	11,585	12,097	11,716
Insurance premium tax	251	313	388	413	419	3,717	4,872	5,898	6,309	6,393
Vehicle excise duties	466	475	503	544	572	5,922	5,997	6,378	6,716	7,000
Environmental levies	507	590	674	753	748	4,526	5,172	5,850	6,494	6,430
Other taxes	1,651	1,716	1,864	1,803	2,073	20,503	20,959	23,005	21,667	24,225
Total Non-North Sea taxes	48,374	50,889	52,856	55,464	56,185	630,712	672,813	694,161	729,348	741,055
North Sea taxes
Population share of North Sea revenue	-7	3	106	98	53	-85	36	1,297	1,195	650
Illustrative geographical share of North Sea revenue	-318	157	1,141	1,366	724	-85	36	1,297	1,195	650
Other receipts
Interest and dividends	1,790	1,849	1,914	2,017	2,155	21,055	21,607	22,933	24,162	26,109
Gross operating surplus	5,892	6,169	6,217	6,153	6,294	56,724	58,355	56,598	52,782	53,835
Other receipts	474	466	445	443	520	3,922	3,812	3,575	3,567	4,397
Total revenue (excl North Sea revenue)	56,530	59,372	61,432	64,076	65,155	712,413	756,587	777,267	809,859	825,396
Total revenue (incl pop share North Sea revenue)	56,523	59,375	61,538	64,174	65,208	712,328	756,623	778,564	811,054	826,046
Total revenue (incl geog share North Sea revenue)	56,213	59,529	62,573	65,442	65,878	712,328	756,623	778,564	811,054	826,046
Of which, revenue accounting adjustment	5,802	6,091	6,227	6,421	6,545	60,070	61,877	63,435	65,553	66,835