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Government Expenditure and Revenue in Scotland 2001-2002
Appendix B: Receipts: Methodology for Producing Scottish Estimates
Receipts in 2001-02
Table B.1 provides estimates of the receipts side of the NB for Scotland in 2001-02.
The main sources of receipts were income tax, social security receipts, VAT, corporation tax, and local authority revenues. As explained in Section 7, estimating receipts for Scotland is generally more difficult than estimating expenditure. In general, for most types of revenue, a Scottish share is estimated and applied to UK totals published by ONS. The following describes the way the Scottish share has been estimated for each source.
Income Tax
The Scottish share of UK income tax liability was derived from the Inland Revenue's Survey of Personal Incomes. More information on this survey was given in Section 7. At the time of publication, 2001-02 data were not available from Inland Revenue. The 2000-01 estimate of the Scottish share of the UK (7%) was therefore used. This proportion was calculated taking the Scottish liabilities as a proportion of the total that were allocated to a UK region. It was then applied to the net UK income tax for 2001-02 figure from ONS that is compatible with the National Accounts. Next year's GERS will contain a revised Scottish Income Tax estimate based on the IR data that are expected to be published early in 2004. This will be based on a survey with an increased sample size of around 300,000.
Last year's GERS referred to some potential work by Inland Revenue to produce a 100% scan of administrative tax data for UK taxpayers. This has been driven by the Neighbourhood Statistics Initiative and the need for earned income estimates at low geographic levels. A decision on this was to follow an assessment of the accuracy of the addresses held on PAYE tax records. This project is nearing completion but results are not yet available. Any such development would be costly and fairly long-term; if it were to go ahead, results would not be expected before two or three years from the start of the project.
Corporation Tax
The estimates used here exclude North Sea Corporation Tax. The tax is assessed on company profits, and significant conceptual and practical difficulties exist in allocating these and therefore the tax to Scotland. For example, as many companies have production facilities located in different parts of the UK, it is not sensible to allocate the tax on the basis of where it is collected.
The Scottish share of UK Corporation tax was allocated on the basis of Scotland's share of UK (less Extra-Regio) gross trading profits, less holding gains, based on data from the UK Regional Accounts. Since public corporation Corporation Tax is treated in the National Accounts as an intra-sectoral transfer, it is entered as a tax receipt, but is then removed as an accounting adjustment (see below).
Capital Gains Tax
The Scottish estimate was made on the basis of Scotland's share of UK GVA (less Extra-regio).
Windfall Tax
Scottish estimates of this were provided by ONS in 1997-98 and 1998-99. No windfall tax has been collected since then.
Inheritance Tax
The Scottish figure is the amount of inheritance tax collected in respect of Scottish deaths and other transfers, as supplied by Inland Revenue.
Stamp Duties
This is calculated in two parts based on Inland Revenue data - land and property sales, and share transactions. The estimate of stamp duty on house and land sales was based on Scotland's share of the total value of UK house sales, estimated on the basis of annual average dwelling prices and number of new loans, as published by the Council of Mortgage Lenders. Scotland's share of stamp duty on share transactions was based on the estimated numbers of adults in Scotland and the UK owning stocks, shares and unit trusts, calculated from the Family Resources Survey.
VAT
Scotland's share of UK VAT revenue was estimated by Customs and Excise on the basis of Scotland's share of household expenditure on those goods and services subject to VAT, as estimated from the Expenditure & Food Survey (EFS).
Petrol, Derv, etc.
The UK totals of revenue collected on each type of fuel are available in the Environmental Accounts section of the 2003 Blue Book. Scotland's share of fuel duties was estimated using data on inland deliveries of each of the fuel types from the UK Digest of Energy Statistics (DTI).
Cigarettes and Tobacco
The UK tax on cigarettes and tobacco is apportioned to Scotland on the basis of Scotland's share of expenditure as estimated from the EFS.
Alcoholic Drink
The proportions of expenditure on each type of alcohol were estimated from the ONS EFS based on average expenditure per household and number of households. In 2001-02, data were published separately for expenditure on alcoholic drinks in bars and restaurants. It was assumed that the breakdown by type was the same as those purchased for home consumption, but these were given a weight of 0.5 to account for the extra margins included in the expenditure.
Betting and Gaming
Scottish takings in the National Lottery were obtained from Camelot, and 12% of this taken to give an estimate of duty from the National Lottery in Scotland. To calculate Scotland's share of the remainder of UK betting and gaming duty, data from the Expenditure & Food Survey was used.
Air Passenger Duty
The Scottish population share has been used to calculate the Scottish share of this tax because Scottish air passengers tend to use airports throughout the UK.
Insurance Premium Tax
Scotland's population share was used to estimate Scotland's tax share.
Landfill Tax
The landfill tax has been allocated on a population share basis. Environmental data indicates that Scotland has more landfill per head than the rest of the UK, although no geographical breakdown of the tax data is available. This method may give a slight underestimate of the total attributable to Scotland.
Climate change Levy
The climate change levy was introduced on 1 st April 2001. It is charged on industrial and commercial supply of taxable commodities. Proportions of the levy on electricity have been calculated using the Scottish proportion of final electricity consumption (this makes the assumption that exempt categories such as households are in the same proportion in Scotland as in the UK overall). As no such data are available for gas and other fuels, Scottish proportion of GVA is used to allocate these parts. The UK total was 550m in 2001/02, with the Scottish estimate at just over 50m.
Motor Vehicle Excise Duty
The Scottish share of UK motor vehicle excise duty in 2001-02 was estimated using Scotland's share of UK car licences in 2001. The numbers of these are taken from British Transport Statistics, Northern Ireland Transport Statistics and Scottish Transport Statistics.
Other Taxes and Royalties
The UK total of 9,905 million in 2001-02 included VAT refunds, payments to the National Lottery Distribution fund and fossil fuel and gas levies. The breakdown was obtained from ONS and appropriate Scottish shares taken of each component. For example, payments to the NLDF were based on share of UK lottery sales. The resulting Scottish share was 8.4%.
Social Security Contributions
A new method has been adopted to estimate a Scottish share of Social Security contributions in GERS 2001-02. Previous editions of GERS used the Scottish share of total social contributions from the ONS regional household accounts. However, these accounts have not been produced recently, and the figures include all compulsory and non-compulsory contributions. The revised method involves splitting total UK National Insurance receipts into employers' and employees' (including the self- and non-employed) contributions using the breakdown in table 11.1 of Blue Book 2003. The two types of contributions are then allocated to Scotland separately. Employers' contributions (56% of the total) are apportioned to Scotland based on the share of UK Compensation of Employees as published in the Regional Accounts as a component of GVA. Employee contributions are allocated based on the share of household expenditure on national insurance contributions as estimated from EFS data. This methodology gave an estimate of 5.2 billion of NICs from Scottish residents.
Council tax and Non-domestic Rates
The Scottish Executive Local Government Finance Statisticians provided these data, based on information collected from Local Authorities.
Interest and Dividend Receipts
Public sector interest and dividend receipts were allocated according to the Scottish share of UK GVA (less Extra-regio). They comprise dividend and interest receipts from the private sector.
Gross Trading Surplus, Rent and Misc Transfers
This comprises the gross trading surpluses (or losses) of Central Government, Local Authority, and public corporation trading activity, the Gross Operating surplus as well as the rent income of Central and Local Government. The largest component was local authority rent, data on which were provided directly by the Office for National Statistics. The remainder was allocated in proportion to the Scottish share of UK GVA (less Extra-regio).
General Government Gross Operating Surplus is defined to be equal to General Government Non-Trading Capital Consumption (NTCC). The Scottish proportion was estimated from the Office for National Statistics' Regional Accounts estimates, and this was applied to the UK total Gross Operating Surplus estimate for 2001-02, provided by ONS. Since this is a public sector receipt, which does not raise actual funds, it has to be balanced by an offsetting item in order to be able to calculate the correct net borrowing figure. By definition, the adjustment item (NTCC) is added to public expenditure (see Appendix A), rather than subtracted on the revenue side.
Other Revenue (including Accounting Adjustments)
These comprise a number of accounting adjustments to put the receipts total onto a national accounts basis. These include income tax credits defined by ONS as public expenditure, the UK contribution made to the EU in respect of VAT, customs duties and agricultural and sugar levies (which also appears on the expenditure side), adjustment for public corporation Corporation Tax payments; and accruals adjustments.
The tax credits in 2001-02 consist mainly of WFTC and DPTC, which have been allocated to Scotland based on Inland Revenue data on average payments and numbers of recipients in Scotland and the UK. Other types of tax credits here are minimal and have been allocated on the basis of population (Vocational Training Relief), proportion of overall MIRAS allocated to Scotland and proportion of income tax for all others.
EU contributions are allocated to Scotland based on its share of GVA (less Extra-Regio). Accruals adjustments were provided for separate tax types by HMT and these were allocated based on Scotland's estimated shares of each of these. Public corporation CT has been allocated in the same way as Corporation Tax, as described above.
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