« Previous | Contents | Next »
Listen
Government Expenditure and Revenue in Scotland 2001-2002
Section 8: Scotland's Fiscal Position: Net Borrowing
Definition
In this report, Net Borrowing (NB) is the difference between expenditure and receipts, defined to exclude North Sea oil revenues. It is based on the aggregate expenditure and aggregate receipts estimates in Sections 6 and 7.
The NB figure is an estimate for Scotland, based on expenditure and receipts calculations that by necessity include some estimation. Therefore the Net Borrowing estimate should be used with some caution.
NB for Scotland
Table 8.1 sets out the estimate of Scotland's fiscal position in 2001-02 and compares this with the equivalent UK figure.
With aggregate expenditure for Scotland in 2001-02 estimated at 39.4 billion and aggregate receipts (excluding North Sea oil revenues) estimated at 31.4 billion, Scotland's estimated NB excluding oil revenues is 8.1 billion. On the same basis, the UK's NB is 5.9 billion in 2001-02.
To give a sense of orders of magnitude, it is conventional to express the fiscal position as a percentage of the respective GDP. In the case of Scotland, the NB in 2001-02 was 10.3 per cent of GDP; the corresponding figure for the UK was 0.6 per cent.
The Effect of North Sea Revenues
As noted in Section 7, the UK Continental Shelf is treated in the Regional Accounts within a separate region and, as a result, the foregoing estimates of receipts and in turn the NB estimates, do not include North Sea revenues. However, following the convention of previous reports, this sub-section considers the effects on the estimated Scottish fiscal position of different assumptions on the allocation of North Sea revenues. As shown in Section 7, total North Sea revenues amounted to around 5.2 billion in 2001-02.
Some commentators on public finances have referred to the detailed research by Kemp and Stephen. 10 This research estimated, amongst other things, hypothetical shares of North Sea revenues for Scotland. It highlighted that these shares are variable over the period examined, depending on a number of factors, such as oil and gas prices. The research suggests that approximately 70 per cent of tax revenues 11 would be attributable to Scotland.
Table 8.2 shows the effects of allocating various proportions (from 0 to 100 per cent) of North Sea oil revenue to Scotland. The table shows the estimated Scottish NB under each scenario. If, for example,
all oil revenues were attributed to Scotland, the fiscal position would fall from the central estimate of 8.1 billion to around 2.9 billion.
When estimating Net Borrowing as a proportion of GDP, it is important to include the relevant shares of oil revenue and production in both components. For example, if the assumption were made that 100 per cent of oil revenues and output are allocated to Scotland, the NB would be 2.8 per cent of a "Scottish" GDP figure, including oil output.
The Principal Conclusions
The calculations to derive a fiscal position for Scotland are subject to inevitable imprecision due to the need to estimate a number of elements of both expenditure and revenue. The calculation of expenditure for Scotland (specifically the non-identifiable and other expenditure components) cannot be carried out with the same accuracy as that for the UK as a whole. Moreover, there are practical and theoretical difficulties in determining an appropriate share of UK revenues to allocate to Scotland.
Variation in the choice of alternative assumptions would inevitably change the detailed arithmetic of the fiscal position. As a result, the NB estimate presented here should be regarded as indicative rather than precise.
Nonetheless, it remains the case that the analysis of public sector expenditure and revenue undertaken in this report does provide a good assessment of the broad orders of magnitude in Scotland, thus enabling some important conclusions to be drawn.
Based on the assumptions outlined in the earlier sections of the report, the estimate of Scotland's NB in 2001-02 is 8.1 billion, or 10.3 per cent of GDP (excluding oil revenues). The comparable UK figures are respectively 5.9 billion and 0.6 per cent. If, in the extreme case, all North Sea revenues are included and the definition of "Scottish" GDP incorporates oil and gas production, the Scottish NB would be 2.9 billion, or 2.8 per cent of output.
Over time, an important determinant of the estimated fiscal position for Scotland is that of the UK as a whole.
In 2001-02 there was a modest weakening in the UK fiscal position and this is - to some extent - reflected in estimates of Scotland's 2001-02 fiscal position.
The five-year trend in Scotland's NB (excluding oil revenues) between 1997-98 and 2001-02 is shown in Section 9. Over that five-year period, Scotland's NB fell between 1997-98 and 1999-00, before rising in 2000-01 and 2001-02.
« Previous | Contents | Next »