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Government Expenditure and Revenue in Scotland 2001-2002
Appendices
Appendix A: Expenditure: Methodology for Producing Scottish Estimates
Introduction
PESA 2003 provides information on total expenditure on services. For the purposes of the exercise, this is broken down into two components:
Identifiable expenditure by country of the UK; and
Non-identifiable expenditure for the UK as a whole.
Expenditure on services covers most expenditure by the public sector. Adding 'other' expenditure, the timing reconciliations and EU adjustment gives aggregate expenditure for Scotland.
Identifiable Expenditure
The Treasury provides an analysis of expenditure on a "who benefits" basis. This identifies, where possible, the country within the UK to which the expenditure is attributed. In May 2003 the Treasury published a summary by programme and country ( PESA 2003). The full range of programmes is shown in Section 3.
Non-Identifiable Expenditure
This mainly comprises items such as expenditure on defence and overseas services where the entire population of the UK benefits, regardless of where funds are spent.
Scottish non-identifiable expenditure for 2001-02 on "Roads and transport" and "Trade, industry, energy and employment" was allocated using Scotland's share of UK (or GB) total GVA, excluding the Extra-regio territory. 14 Non-identifiable expenditure on "Agriculture, fisheries, food and forestry" was allocated according to the Scottish share of UK (or GB) GVA in agriculture, hunting, forestry and fishing. 15
"Miscellaneous Expenditure" was allocated using a mix of GVA (for EU and tax administration spending) and population shares (for all other programmes in that category).
Non-identifiable expenditure on "Defence", "Overseas services", "Culture, Media and Sport", "Education", "Health and personal social services", "Other environmental services", "Law, order and protective services", and "Social Protection" is allocated according to UK (or GB) population shares.
Except for "Defence" and "Overseas services" these spending categories used to be allocated according to the Scottish GVA share in previous editions of GERS. This change in methodology should lead to a more accurate estimate of public spending in Scotland. Arguably, expenditure on the categories listed above is linked more closely to population numbers than economic output.
Since the Scottish population share is higher than its GVA share, the new method produces higher expenditure numbers. However, since the main non-identifiable expenditure category, namely "Defence", was already allocated according to population share, and the difference between population and GVA share is only one half of a percentage point, the overall change in expenditure estimates is not overly large (relative to total expenditure and net borrowing). The change in methodology increases the estimated Scottish share of UK non-identifiable expenditure by 76 million in 2001-02.
Other Expenditure
Local Authority Debt Interest
Local Authority gross debt interest for Scotland covers interest payments by Scottish Local Authorities, excluding interest payments to the Public Works Loan Board. The estimates are produced by the Scottish Executive, based on information from Institute for Public Finance surveys.
Central Government and Public Corporation Debt Interest
The Scottish share has been allocated on the basis of the share of UK GVA (less Extra-regio).
Other Items, Including National Accounts Adjustments
Many of these are adjustments necessary to bring expenditure into line with the concepts of the National Accounts. The National Accounts adjustment figures used are based on PESA 2003.
Net Public Service Pensions
The estimates of net public service pensions are based on UK figures supplied by Treasury. The Scottish estimates include pensions relating to Scotland, and a pro-rata share (based on population) of pensions at the UK level.
General Government Non-Trading Capital Consumption (NTCC)
This is an adjustment item to offset the General Government Gross Operating Surplus (for estimation and more details see Appendix B).
Other adjustments
These cover a range of items such as certain income tax credits, the UK contributions to the EU (VAT, customs duties, and agricultural and sugar levies), as well as the timing reconciliation items. For this exercise, the Scottish share had been allocated on the basis of statistical indicators such as Scotland's share of UK GVA (less Extra-regio).
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