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Government Expenditure and Revenue in Scotland 2001-2002
Section 7: Revenue
Introduction
This section describes the estimates of the receipts of the public sector. As noted in Section 1, for a variety of practical and theoretical reasons, estimating revenues for the individual countries of the UK is generally more difficult than estimating expenditures.
UK national taxes cannot usually be allocated directly to a region, although Inland Revenue can provide estimates of income tax liabilities and of inheritance tax relating to Scottish deaths. Some other taxes can be reasonably readily estimated for Scotland. For example, most taxes on products can be estimated based on Scottish shares of UK consumers' expenditure on certain goods and services. Other revenues are more difficult to apportion, either because of a lack of detailed information to form the basis of estimation, or because of conceptual difficulties. Included here are corporation tax, capital gains tax, and central government interest and dividend receipts.
The analysis below concentrates on five major taxes: income tax, social security contributions, VAT, local authority revenues and corporation tax. An account of the estimation techniques for the revenue series, together with estimates for 2001-2002, can be found in Appendix B.
The section also discusses the recent trends in North Sea revenues.
Aggregate Revenues for Scotland
Table 7.1 shows revenues in the UK in 2001-02, together with Scottish estimates. A longer run of the figures for Scotland, from 1997-98 to 2001-02, is presented in Section 9.
The calculations for 2001-02 suggest that revenues for Scotland were 31.4 billion (excluding North Sea revenues).
This is equivalent to 8.2 per cent of total UK non-oil revenues, which is above the estimated Scottish GVA share of 8.1 per cent in 2001.
It is estimated that, in 2001-02, non-oil revenues as a percentage of non-oil GDP were around 40 per cent for Scotland, slightly above the percentage in the UK as a whole.
Main Components of Scottish Revenues
Taken together, income tax, social security receipts, local authority revenues, VAT and corporation tax raised an estimated 23.3 billion in Scotland in 2001-02, over two-thirds of total Scottish revenues. These five components are described below.
Income Tax
The estimated Scottish share of UK income tax is derived from the Inland Revenue's Survey of Personal Incomes (SPI). This survey is carried out annually, sampling from the Inland Revenue's PAYE, Self-Assessment and Claims databases, and covers the income assessable for tax in each tax year. Taxpayers are allocated to regions according to residence, though some self-employed taxpayers are allocated according to their or their agent's business address.
Due to delays in Inland Revenue publishing SPI data for 2001-02, total Scottish income tax liabilities in 2001-02 have been set at 7.0 per cent of the total for the UK - the same share as in 2000-01.
Social Security Contributions
In 2001-02, total National Insurance contributions in the UK were 63.2 billion. A new method has been adopted to estimate a Scottish share of this in GERS 2001-02. This involves splitting the total UK receipts into employers' and employees' contributions based on the breakdown published in table 11.1 of the 2003 Blue Book, and allocating shares of these totals to Scotland separately. More information on how this has been done is given in Appendix B. This methodology gave an estimate of 5.2 billion of National Insurance Contributions from Scottish residents in 2001-02, which was 8.3% of the UK total.
Value Added Tax (VAT) Revenues
A share of the UK VAT total is allocated to Scotland on the basis of consumers' expenditure on the final goods and services affected by the tax. The Scottish share of VAT receipts is based on analyses of Scottish and UK household expenditure data from the Expenditure & Food Survey. Customs & Excise carry out the calculation on behalf of the Scottish Executive. The calculations suggest that Scotland's share of UK VAT revenues was 8.5 per cent in 2001-02, amounting to 5.2 billion.
Local Authority Revenues
The total for Scotland of 3.1 billion in 2001-02 is the sum of council tax and non-domestic rates. This total is 9.2 per cent of the UK total of equivalent taxes, which is higher than Scotland's 8.6 per cent share of the UK population. These estimates have been obtained directly from the Scottish Executive Finance and Central Services Department, which collects the data from Local Authorities. The council tax estimate for Scotland was 1.4 billion, 9.1 per cent of the UK total. An estimated 1.7 billion was collected in non-domestic rates in Scotland, representing 9.2 per cent of the equivalent UK amount.
Corporation Tax
This is exceptionally difficult to estimate for Scotland, due to both conceptual difficulties and a lack of data. Therefore, the estimate of Scottish corporation tax should be treated with extra caution. This is estimated at around 2.4 billion for 2001-02, and was obtained by attributing a share of the UK total to Scotland based on information from the UK Regional Accounts from ONS. Specifically, the data used in this calculation are the Regional Accounts estimates of profits, a component of Gross Operating Surplus, within Gross Value Added. These are based on the ONS Annual Business Inquiry.
Other Taxes
These taxes, which are listed in Appendix B, are estimated to have amounted collectively to 8.0 billion in 2001-02, or 8.8 per cent of the UK total.
The "Other Taxes" category includes a number of expenditure taxes where Scotland's share is notably higher than the UK average. This is due to Scotland's relatively high share of UK consumers' expenditure on items such as alcohol and tobacco. In addition, the category includes General Government Operating Surplus which is offset by depreciation on the public sector capital stock (as discussed in Section 5). The category also comprises a number of national accounts adjustments, such as the ESA95 treatment of the contributions made to the EU from VAT, customs duties, and agricultural and sugar levies mentioned earlier.
North Sea Revenue
Table 7.2 shows the North Sea revenues accruing to the UK Exchequer. These have been highly volatile in the last two decades. From a peak of 12 billion in 1984-85, revenues declined sharply to a trough of 1 billion in 1991-92. Revenues stood at 5.2 billion in 2001-02.
In the Regional Accounts, the UK Continental Shelf is included in a separate region of the UK (the Extra-regio territory) and is not allocated to specific geographic regions. Following this convention, North Sea revenues are excluded from the allocation of revenues to Scotland. However, previous GERS reports have shown the effect of incorporating different assumptions about the allocation of North Sea revenues on the Scottish fiscal position and this analysis is repeated in Section 8.
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