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Appendix B: Methodology for Producing Estimates of Scottish Receipts
Receipts in 2004-05
Table B.1 provides estimates of the receipts side of the Net Borrowing for Scotland in 2004-05. The main sources of receipts were income tax, social security contributions, VAT, corporation tax, and local authority revenues. As explained in Section 4, 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.
Table B.1 Receipts for UK and estimates for Scotland, 2004-05
| UK | Scotland |
|---|
Revenue,
£ million | Revenue
£ million | as a share of total revenue | as a share of UK revenue |
|---|
Income tax (after tax credits) | 122,920 | 8,914 | 24.5% | 7.3% |
|---|
Corporation tax (excl North Sea) | 29,730 | 2,422 | 6.6% | 8.1% |
|---|
VAT | 73,026 | 5,949 | 16.3% | 8.1% |
|---|
Social security contributions | 78,098 | 6,461 | 17.7% | 8.3% |
|---|
Non-domestic rates | 18,975 | 1,813 | 5.0% | 9.6% |
|---|
Council Tax | 19,966 | 1,615 | 4.4% | 8.1% |
|---|
Capital gains tax | 2,278 | 186 | 0.5% | 8.2% |
|---|
Inheritance tax | 2,924 | 171 | 0.5% | 5.9% |
|---|
Stamp duties | 8,966 | 720 | 2.0% | 8.0% |
|---|
Fuel duties | 23,313 | 1,313 | 3.6% | 5.6% |
|---|
Tobacco duties | 8,100 | 984 | 2.7% | 12.1% |
|---|
Alcohol duties | 7,876 | 703 | 1.9% | 8.9% |
|---|
Betting and gaming duties | 1,421 | 122 | 0.3% | 8.6% |
|---|
Customs duties and agricultural levies | 2,195 | 179 | 0.5% | 8.2% |
|---|
Air passenger duty | 864 | 73 | 0.2% | 8.5% |
|---|
Insurance premium tax | 2,359 | 200 | 0.5% | 8.5% |
|---|
Climate change levy | 764 | 75 | 0.2% | 9.8% |
|---|
Aggregates levy | 334 | 45 | 0.1% | 13.6% |
|---|
Landfill tax | 672 | 57 | 0.2% | 8.5% |
|---|
Vehicle excise duties | 4,737 | 348 | 1.0% | 7.3% |
|---|
Other taxes and royalties | 11,741 | 978 | 2.7% | 8.3% |
|---|
Interest and dividends | 5,639 | 460 | 1.3% | 8.2% |
|---|
Gross trading surplus, rents & misc transfers | 22,668 | 2,826 | 7.8% | 12.5% |
|---|
Other revenue 1 | -2,135 | -177 | -0.5% | 8.2% |
|---|
Total | 447,431 | 36,439 | 100.0% | 8.1% |
|---|
Notes: Figures exclude North Sea oil revenues (North Sea corporation tax, petroleum revenue tax, supplementary charge and oil royalties). Individual tax items are on a cash basis. - 1 Includes accruals adjustments, tax credits scored as public expenditure, as well as VAT and 'own resources' contributions to EU budget.
Income Tax
The Scottish share of UK income tax liability was derived from the HMRC's Survey of Personal Incomes ( SPI). The Scottish share was calculated taking the Scottish liabilities as a proportion of the total for the UK, based on the sample. It was then applied to the net UK income tax for 2003-04 figure from ONS that is compatible with the National Accounts.
The SPI data are not yet available for 2004-05, so the Scottish/ UK share for 2003-04 was used again for 2004-05. Net UK income tax was calculated by subtracting tax credits that count as negative tax from total income tax receipts. The main negative taxes are the negative tax element of Working Tax Credit and Child Tax Credit as identified by ONS. The figure for gross income tax receipts excludes tax credits scored as Public Expenditure, which are added on in 'other receipts'.
The sample for the SPI is drawn at random from records held by HMRC of persons who could be liable to pay UK tax, irrespective of where they live. The population of records is not grouped (stratified) by geographical region before the sample is selected. The geography indicators are attached only to the selected sample based on address and postcode. (In general, taxpayers are allocated to regions according to residence, though some self-employed taxpayers are allocated according to their or their agent's business address.) It follows that Scottish estimates based on the SPI are not controlled to a known and fixed taxpayer population and therefore year-on-year changes could vary due to sampling error.
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 Corporation Tax on public corporations 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).
New data sources, in particular the Annual Survey of Hours and Earnings ( ASHE), have been included for the first time in the most recent Regional Gross Value Added analyses produced by the Office for National Statistics. This, together with revisions to the Blue Book, has resulted in a reduction in the Scottish share of UK profits less holding gains for public and private corporations for the latest and earlier years. As this ratio is used to apportion the UK Corporation Tax revenue to Scotland, downward revisions have been made to earlier years.
VAT
Scotland's share of UKVAT revenue was estimated 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). The results should be treated with caution since they are based only on household expenditure estimates and not the share relating to the amount of VAT received from businesses registered with Scottish VAT offices or received from businesses trading within Scotland.
Social Security Contributions
Total UK National Insurance receipts are split into employers' and employees' (including the self- and non-employed) contributions using the breakdown in table 11.1 of Blue Book 2006. The two types of contributions are then allocated to Scotland separately. Employers' contributions 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.
Council Tax and Non-domestic Rates
The Scottish Executive Local Government Finance Statisticians provided these data, based on information collected from Local Authorities.
Capital Gains Tax
The Scottish estimate was made on the basis of Scotland's share of UKGVA (less Extra-regio) from the Regional Accounts published by the Office for National Statistics ( ONS).
Inheritance Tax
The Scottish figure is the amount of inheritance tax collected in respect of Scottish deaths and other transfers, as supplied by HMRC.
Stamp Duties
This is calculated in two parts based on HMRC 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.
Fuel Duties
The UK totals of revenue collected on each type of fuel are available in the Environmental Accounts section of the 2006 Blue Book. Scotland's share of fuel duties was estimated using data on inland deliveries of each of the fuel types from the Digest of Energy Statistics (produced by DTI).
Cigarettes and Tobacco
The UK duty on cigarettes and tobacco is apportioned to Scotland on the basis of Scotland's share of expenditure on these as estimated from the EFS. These estimates are subject to some sampling variation.
Alcoholic Drink
The proportions of expenditure on each type of alcohol were estimated from the EFS based on average expenditure per household and number of households. Data are published separately for expenditure on alcoholic drinks purchased in bars and restaurants. It is 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
Estimates of the number of sales of lottery tickets in Scotland and the UK were derived from figures obtained from Camelot, and 12 per cent of this taken to give an estimate of duty raised from the National Lottery. To calculate Scotland's share of the remainder of UK betting and gaming duty, data from the Expenditure & Food Survey was used. These estimates are subject to sampling variation.
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 insurance premium tax share.
Climate Change Levy
The climate change levy was introduced in April 2001. It is charged on industrial and commercial supply of taxable commodities (electricity, natural gas, petroleum and hydrocarbon gas in a liquid state, coal, and coke). Proportions of the levy on electricity have been calculated using the Scottish proportion of final electricity consumption (this makes the assumption that exempt users 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 UK less extra regio GVA is used to allocate these parts.
Landfill Tax
The landfill tax has been allocated on a population share basis. Environmental data indicate 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.
Aggregates Levy
The aggregates levy was introduced in April 2002 and seeks to incorporate a range of environmental costs into the price of virgin aggregate and to encourage the use of alternative materials. The levy was set at a rate of £1.60 per tonne on virgin aggregate commercially exploited in the UK.
The Scottish aggregates levy is allocated according to the Scottish share of total UK aggregates production based on data published in the United Kingdom Minerals Yearbook.
Motor Vehicle Excise Duty
The Scottish share of UK motor vehicle excise duty in 2004-05 was estimated using Scotland's share of UK car licences in 2004. 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 includes 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.
Interest and Dividend Receipts
Public sector interest and dividend receipts were allocated according to the Scottish share of UKGVA (less extra-regio). They comprise dividend and interest receipts from the private sector.
Gross Trading Surplus, Rent and Miscellaneous 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 UKGVA (less extra-regio).
General Government Gross Operating Surplus is defined to be equal to General Government Non-Market Capital Consumption ( NMCC). 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 2004-05, 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 ( NMCC) 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, including 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; adjustment for public corporations' Corporation Tax payments; and accruals adjustments.
The tax credits in 2004-05 consist mainly of WTC and CTC (which are replacing WFTC, DPTC and Children's Tax Credit from April 2003) and have been allocated to Scotland based on HMRC data on average payments and numbers of recipients in Scotland and the UK. Other types of tax credits have been allocated on the basis of population. EU contributions ( VAT, agricultural and sugar levies, customs duties) 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.
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