Government Expenditure and Revenue Scotland 2006-2007

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6 PUBLIC SECTOR EXPENDITURE

Introduction

This chapter provides detailed estimates of public sector expenditure for Scotland.

The primary data source used to estimate Scottish public sector expenditure is the Country and Regional Analysis ( CRA) contained in the National Statistics publication Public Expenditure Statistical Analyses ( PESA) published by HM Treasury 17.

In GERS, public sector expenditure is divided into three categories: identifiable expenditure, non-identifiable expenditure and an accounting adjustment. Identifiable expenditure is expenditure that can be clearly allocated to Scotland in terms of having been spent for the benefit of Scottish residents and enterprises. Examples of identifiable expenditure include unemployment benefits and most education and health expenditure.

Non-identifiable expenditure is expenditure that cannot be allocated to a particular country of the UK or English region but is instead incurred on behalf of the UK as a whole. The largest element of non-identifiable expenditure is defence expenditure.

Finally, an accounting adjustment ensures that public sector expenditure reported in PESA is consistent with Total Managed Expenditure ( TME), the UK Government's principal measure of public sector expenditure used in the UK Public Finance Accounts.

For total expenditure and each expenditure component, a detailed breakdown according to current and capital is provided.

Each element of expenditure is discussed in greater detail below. Appendix B discusses the revisions from previous reports and the relevant apportionment methodologies applied.

Total Public Sector Expenditure

Estimated total public sector expenditure for Scotland by spending category for 2006-07 is shown in Table 6.1. On the basis of the assumptions and methodologies described in this report, in 2006-07, total public sector expenditure for Scotland was £49.9 billion. This was equivalent to 9.5 per cent of total UK public sector expenditure. Social protection was the largest Scottish expenditure programme and together with health expenditure, accounted for approximately 50 per cent of total public sector expenditure for Scotland in 2006-07.

Table 6.1: Total Expenditure: Scotland 2006-07

Scotland

£ million

% of total expenditure

General public services

Public and common services

1,417

2.8%

International services

518

1.0%

Public sector debt interest

2,415

4.8%

Defence

2,729

5.5%

Public order and safety

2,292

4.6%

Economic affairs

Enterprise and economic development

1,002

2.0%

Science and technology

285

0.6%

Employment policies

299

0.6%

Agriculture, forestry and fisheries

678

1.4%

Transport

2,563

5.1%

Environment protection

904

1.8%

Housing and community amenities

1,395

2.8%

Health

9,108

18.3%

Recreation, culture and religion

1,349

2.7%

Education & training

Education

6,932

13.9%

Training

175

0.3%

Social protection

16,183

32.4%

EU transactions 1

-350

-0.7%

Total

49,895

100.0%

1 In the TME presentation, expenditure on grants abroad is shown net of grants payable to the UK. This is why the EU transaction shows negative net expenditure.

Current expenditure is the sum of the current expenditure of general government ( i.e. the Scottish Government, the UK Government in Scotland and Scottish local authorities) and certain distributive transactions (interest and dividends) payable by public corporations to the private sector and abroad. It does not include expenditure incurred by public corporations in producing goods and services for sale. Instead, the surplus of sale receipts over operating costs for public corporations is scored as a public sector receipt and does not affect the expenditure measure. Public sector current expenditure is defined to be net of certain revenue items, such as some sales of goods and services by general government. As it is defined at the public sector level, any transactions between parts of the public sector are also excluded.

Public sector capital expenditure refers to new capital formation, the net acquisition of land, and expenditure on capital grants. Capital expenditure leads to the holding of assets that can be used repeatedly to produce goods and services and generally have an economic life of more than one year.

Table 6.2 provides a summary of total current and capital expenditure over the years 2002-03 to 2006-07.

Table 6.2: Total Current and Capital Expenditure: Scotland and UK 2002-03 to 2006-07

(£ million)

Scotland

UK

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

Current

36,036

39,062

40,587

43,046

45,317

377,955

411,309

438,114

462,702

482,539

Capital

2,877

2,870

3,486

3,910

4,579

25,596

27,596

32,439

36,799

41,185

Total

38,912

41,932

44,073

46,956

49,895

403,551

438,905

470,553

499,501

523,723

Table 6.3 highlights the share of total expenditure according to current and capital expenditure. Between 2002-03 and 2006-07, capital expenditure for Scotland increased as a share of total expenditure, rising from 7.4% to 9.2%.

Table 6.3: Current and Capital Expenditure (% of Total Expenditure): Scotland 2002-03 to 2006-07

(per cent)

2002-03

2003-04

2004-05

2005-06

2006-07

Current

92.6%

93.2%

92.1%

91.7%

90.8%

Capital

7.4%

6.8%

7.9%

8.3%

9.2%

Box 6.1: Railways Expenditure

In 2006-07 there was a change to the administrative arrangements concerning transport expenditure for Scotland. The Railways Act 2005 transferred the responsibility for specifying and funding rail infrastructure in Scotland to Scottish Ministers from 1 April 2006. This was accompanied by a budget transfer from the Department for Transport (DfT) in respect of funding Network Rail. The increased outturn expenditure for 2006-07 captures the costs of such functions transferred from DfT, primarily the operation, maintenance and renewal of the rail infrastructure network in Scotland.

In PESA 2008, this is recorded as a Scottish Government capital expenditure, but in earlier years Scotland received an allocation of the UK expenditure, estimated by DfT, based on ticket sales. From a review of PESA, this methodology is considered to be inappropriate as this results in a discontinuity in the observed series. Given the substantial use of rail in the South of England, this methodology led to Scotland being allocated a smaller share of such expenditure than should have been the case.

One option considered, was to correct this anomaly by using the ratio of Scottish to UK expenditure on rail in 2006-07 to apportion UK expenditure in previous years. However, there was significant investment in rail in 2006-07 and the Scotland/ UK ratio for this year may not be reflective of the long term relationship between rail expenditure for Scotland and the UK.

While the figures for 2006-07 are accurate, officials in the Scottish Government are working with colleagues in HM Treasury and in the DfT to develop a more robust methodology to backdate expenditure on railways for Scotland for earlier years.

Tables 6.4 and 6.5 provide a more detailed breakdown of total public sector expenditure by current and capital split for Scotland and the UK.

Between 2002-03 and 2006-07, estimated total public sector expenditure for Scotland increased from £38.9 billion to £49.9 billion, an increase of 28.2 per cent in nominal terms. Over the same period, UK public sector expenditure increased from £403.6 billion to £523.7 billion, an increase of 29.8 per cent in nominal terms.

Estimated public sector current expenditure for Scotland was £45.3 billion in 2006-07; 90.8 per cent of total Scottish public sector expenditure. Current expenditure for Scotland was estimated to have grown by 25.8 per cent in nominal terms between 2002-03 and 2006-07. In comparison UK public sector current expenditure was £482.5 billion in 2006-07; 92.1 per cent of total UK public sector expenditure. UK public sector current expenditure was estimated to have grown by 27.7 per cent in nominal terms between 2002-03 and 2006-07.

Estimated public sector capital expenditure for Scotland was £4.6 billion in 2006-07, 9.2 per cent of total estimated Scottish public sector expenditure. The majority of capital expenditure occurred on 'transport' and 'housing and community amenities' programmes. Over the period 2002-03 to 2006-07, capital expenditure increased by 59.2 per cent in nominal terms, much faster than the growth observed in current expenditure. The greatest increases occurred in 2005-06 and 2006-07 following significant investment in environmental protection, and housing and community amenities.

Table 6.4: Total Expenditure: Scotland 2002-03 to 2006-07

(£ million)

Current

Capital

Total

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

1,000

1,060

1,154

1,397

1,287

181

219

212

139

130

1,181

1,279

1,366

1,536

1,417

International services

363

419

453

495

497

15

16

16

19

21

378

435

469

514

518

Public sector debt interest

1,852

1,956

2,114

2,261

2,415

0

0

0

0

0

1,852

1,956

2,114

2,261

2,415

Defence

2,215

2,327

2,407

2,528

2,643

94

115

137

60

86

2,309

2,442

2,544

2,589

2,729

Public order and safety

1,655

1,811

1,909

2,050

2,121

120

151

173

151

171

1,775

1,962

2,082

2,201

2,292

Economic affairs

Enterprise and econ development

702

819

821

842

801

65

100

128

155

201

767

919

948

997

1,002

Science and technology

193

210

214

245

243

34

38

52

68

42

227

247

267

313

285

Employment policies

245

258

281

271

284

8

36

13

37

15

253

295

294

308

299

Agriculture, forestry and fisheries

544

609

612

597

609

36

40

45

44

69

580

649

657

641

678

Transport

920

971

862

939

1,430

504

633

698

844

1,133

1,424

1,603

1,560

1,782

2,563

Environment protection

524

635

599

629

685

78

76

97

151

219

602

711

696

779

904

Housing and community amenities

348

684

281

154

236

855

636

984

1,269

1,159

1,204

1,320

1,265

1,422

1,395

Health

6,237

7,067

7,319

8,338

8,708

475

316

425

256

401

6,712

7,383

7,743

8,594

9,108

Recreation, culture and religion

898

978

1,027

1,072

1,128

132

154

165

169

221

1,030

1,131

1,192

1,241

1,349

Education & training

Education

5,002

5,270

5,657

5,922

6,337

209

241

262

415

594

5,211

5,512

5,919

6,337

6,932

Training

151

113

139

132

145

7

56

31

46

29

158

169

170

178

175

Social protection

13,545

14,316

15,069

15,535

16,096

63

45

50

89

87

13,608

14,361

15,119

15,624

16,183

EU transactions

-360

-443

-332

-362

-350

0

0

0

0

0

-360

-443

-332

-362

-350

Total

36,036

39,062

40,587

43,046

45,317

2,877

2,870

3,486

3,910

4,579

38,912

41,932

44,073

46,956

49,895

Table 6.5: Total Expenditure: UK 2002-03 to 2006-07

(£ million)

Current

Capital

Total

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

9,080

9,883

10,433

11,265

11,713

953

1,063

1,744

1,643

1,540

10,033

10,945

12,178

12,908

13,252

International services

4,273

4,938

5,343

5,861

5,883

182

200

195

228

262

4,455

5,138

5,538

6,089

6,144

Public sector debt interest

21,739

23,041

24,916

26,735

28,592

0

0

0

0

0

21,739

23,041

24,916

26,735

28,592

Defence

25,968

27,418

28,351

29,892

31,294

1,103

1,431

1,637

721

1,024

27,071

28,849

29,988

30,612

32,318

Public order and safety

22,922

24,914

26,650

27,596

28,449

1,295

1,394

1,691

1,499

1,774

24,217

26,308

28,340

29,095

30,223

Economic affairs

Enterprise and econ development

4,506

4,789

5,113

5,258

5,021

1,062

981

1,239

1,676

1,902

5,568

5,770

6,352

6,934

6,923

Science and technology

1,973

2,063

2,162

2,500

2,513

404

372

413

484

489

2,377

2,435

2,575

2,984

3,002

Employment policies

2,856

2,899

3,045

3,005

3,297

66

271

102

278

124

2,923

3,170

3,146

3,283

3,421

Agriculture, forestry and fisheries

4,674

4,979

5,185

5,337

4,789

198

263

238

281

292

4,872

5,242

5,423

5,618

5,082

Transport

6,941

8,693

8,036

8,249

9,313

7,868

7,496

7,913

8,681

10,572

14,810

16,189

15,949

16,930

19,885

Environment protection

5,389

5,465

5,996

6,127

6,913

984

1,005

1,146

1,898

2,207

6,373

6,469

7,141

8,026

9,120

Housing and community amenities

2,907

3,754

3,271

3,539

3,660

2,664

2,946

4,910

7,049

7,687

5,571

6,700

8,181

10,588

11,347

Health

63,401

71,423

78,856

85,460

90,393

2,806

3,291

3,690

3,153

3,928

66,206

74,714

82,545

88,613

94,321

Recreation, culture and religion

7,882

8,178

8,541

9,039

9,505

1,455

1,420

1,487

1,550

1,926

9,337

9,597

10,028

10,588

11,431

Education & training

Education

49,154

54,338

57,789

61,563

64,928

3,715

4,873

5,445

6,586

6,596

52,869

59,212

63,234

68,149

71,524

Training

1,706

1,867

1,919

2,035

2,085

156

122

123

132

127

1,862

1,989

2,043

2,167

2,211

Social protection

144,468

154,747

163,401

169,840

175,952

684

468

466

940

735

145,152

155,215

163,867

170,781

176,688

EU transactions

-1,885

-2,079

-892

-599

-1,762

0

0

0

0

0

-1,885

-2,079

-892

-599

-1,762

Total

377,955

411,309

438,114

462,702

482,539

25,596

27,596

32,439

36,799

41,185

403,551

438,905

470,553

499,501

523,723

Box 6.2 - Reallocating Expenditure by Scottish Enterprise and Highlands and Islands Enterprise

Scottish Enterprise ( SE) and Highlands and Islands Enterprise ( HIE) are the two economic, enterprise, innovation and investment agencies in Scotland with responsibility for supporting new and existing businesses, increasing skills and attracting investment to Scotland.

In previous editions of GERS, all expenditure by SE was allocated to the employment policies category while all expenditure from HIE was allocated to enterprise and economic development. This was a direct consequence of the data entry in the underlying PESA database. This classification did not accurately capture the activities of these two organisations. For instance, the data for SE underestimated expenditure in areas such as enterprise and economic development and overestimated expenditure on employment policies. The results was a misleading figure for expenditure in particular elements of the public sector.

SE and HIE Expenditure as Reported in PESA 2006: 2002-03 to 2004-05

(£ million)

2002-03

2003-04

2004-05

Employment policies

409

461

436

Enterprise and economic development

77

95

98

Total SE and HIE Expenditure

486

557

534

Following discussions with Scottish Government officials and HM Treasury, the entries for SE and HIE in PESA have been amended to capture the activities of these two agencies more accurately. Reapportioning SE and HIE's expenditure has not changed the level of total public sector expenditure for Scotland but it has altered the level of expenditure on individual programmes.

The effect of reallocating SE and HIE expenditure to different programme categories is outlined in the table below.

SE and HIE Expenditure as Reported in PESA 2008: 2002-03 to 2004-05

(£ million)

2002-03

2003-04

2004-05

Enterprise and economic development

316

377

347

General public service

9

7

10

Science and technology

20

24

29

Education and training

142

149

147

Total SE and HIE Expenditure

486

557

534

Table 6.6 shows estimated total public sector expenditure for Scotland and the UK on a per capita basis. The table also highlights the per capita difference between Scotland and the UK and shows Scottish expenditure relative to the UK level. Total expenditure per capita for Scotland is estimated to have been £9,751 in 2006-07; £1,107 (or 12.8 per cent) higher than the UK average.

It should be noted that UK Government departments may have classified certain expenditures to particular categories using a different approach to that taken by Scottish Government officials. Therefore, allocations of certain expenditure for Scotland may differ from those for the UK, not as a result of different levels of actual expenditure, but as a result of different classification of similar expenditures. Caution should therefore be exercised when comparing expenditure per capita for Scotland with UK figures for individual expenditure categories.

With the exception of defence, international services, training, public sector debt interest payments and public order and safety, public expenditure per capita for Scotland was estimated to be higher than the UK average across all programme types. The biggest absolute differences were in education, transport, social protection and health where per capita expenditure for Scotland was between £170 and £250 higher than the UK average. In relative terms, the greatest differences in expenditure per capita occurred in enterprise and economic development and agriculture, forestry and fisheries expenditure.

Table 6.6: Total Expenditure per capita: Scotland and UK 2006-07

Scotland (£)

UK (£)

Per Capita Difference(Scotland less UK) (£)

Relative expenditure for Scotland ( UK = 100)

General public services

Public and common services

277

219

58

127

International services

101

101

0

100

Public sector debt interest

472

472

0

100

Defence

533

533

0

100

Public order and safety

448

499

-51

90

Economic affairs

Enterprise and econ development

196

114

82

171

Science and technology

56

50

6

112

Employment policies

58

56

2

103

Agriculture, forestry and fisheries

133

84

49

158

Transport

501

328

173

153

Environment protection

177

151

26

117

Housing and community amenities

273

187

85

146

Health

1,780

1,557

223

114

Recreation, culture and religion

264

189

75

140

Education & training

Education

1,355

1,181

174

115

Training

34

36

-2

93

Social protection

3,163

2,916

246

108

EU transactions

-68

-29

-39

235

Total

9,751

8,644

1,107

113

Within the UK, the levels of public expenditure vary from one constituent part to another, reflecting the needs rather than the wealth or tax capacity of an area.

There a number of reasons why public expenditure for Scotland often lies above the UK average. In some cases, higher expenditure per capita reflects the greater relative importance of particular activities for Scotland. Agriculture, fisheries and forestry is one such example. Scotland also has a lower population density than the UK which increases the cost of providing the same level of public service activity, particularly in areas such as education, health and transport.

The scope and remit of the public sector also differs in Scotland compared to the UK. For example, water and sewage services are a public sector responsibility in Scotland, and are therefore included in Scottish public expenditure, whilst in England they are operated by the private sector.

In other areas, the higher observed Scottish expenditure reflects greater demand for Scottish-based providers. For example, the strength of Scottish universities has created a net inflow of students from other parts of the UK. Additionally, Scottish university courses are typically longer - the honours degree course takes four years, compared with a typical three year course in England and Wales. Therefore, expenditure on education and training for Scotland will be relatively higher than the rest of the UK. However, this benefits the UK as a whole. Scottish universities have also been able to attract above average levels of research funding which has contributed to the high level of public expenditure for science and technology in Scotland (Box 6.4).

Higher public expenditure may also reflect Scotland's greater need for some public services such as in health and housing.

Box 6.3 - London Olympics

In 2006-07, expenditure on the 2012 London Olympic Games amounted to £321 million. In PESACRA 2008, expenditure on the London Olympics was entered as UK non-identifiable expenditure as the UK Government believe that the hosting of the games is for the benefit of the whole of the UK. As Scotland has not received Barnett consequentials, GERS apportioned a per capita share of this Olympics expenditure to Scotland. Such expenditure will increase significantly in the years leading up to the Games. HM Treasury forecast that this will rise to approximately £1.5 billion a year for each of 2008-09 to 2010-11. Consequently, the methodology adopted here will be of increasing importance.

The current 2006-07 allocation of expenditure on the London Olympics for Scotland is £27.2 million. If this expenditure were to be classified as identifiable to London, total public sector expenditure in 2006-07 for Scotland would be revised down by £27.2 million.

Box 6.4 - Expenditure by UK Research Councils

Scottish universities have a strong tradition in attracting financial support from UK research councils. In PESA and previous GERS reports, expenditure by UK research councils is generally scored as identifiable expenditure for the region where a university is located. There are some exceptions to this approach including expenditure by the Medical Research Council which has been classified in PESA as non-identifiable.

Research Council Expenditure: Scotland 2002-03 to 2006-07

(£ million)

2002-03

2003-04

2004-05

2005-06

2006-07

Economic affairs

Science and technology

134

151

160

199

204

Environment protection

7

16

14

19

19

Health

18

17

17

19

22

Total: Scotland

159

183

192

236

245

Total: UK

1,634

1,816

1,955

2,438

2,498

Scotland/ UK Share (%)

9.7

10.1

9.8

9.7

9.8

As the table above highlights, between 2002-03 and 2006-07 Scotland had a relatively high share of total expenditure by UK research councils reflecting Scottish universities' success in securing research funding.

It could be argued that as the expenditure by research councils is ultimately for the development of a 'public good' ( i.e. academic knowledge), the benefit of such expenditure is for the UK as a whole. While the expenditure takes place in Scotland and covers the cost of employing Scottish based academics, much of the research output has international significance, benefiting the academic and wider community beyond Scotland.

Therefore, an alternative to the above classification, as currently used in GERS, is to re-apportion all such expenditure on a non-identifiable basis. The table below, based on a per capita allocation, shows that this would lead to a downward revision in the headline figure of public sector expenditure for Scotland by approximately £34 million in 2006-07.

Research Council Expenditure (Re-apportioned as non-identifiable): Scotland 2002-03 to 2006-07

(£ million)

2002-03

2003-04

2004-05

2005-06

2006-07

Economic affairs

Science and technology

115

127

137

173

175

Environment protection

7

12

13

14

14

Health

17

16

16

19

22

Total: Scotland

139

154

166

206

211

Total: UK

1,634

1,816

1,955

2,438

2,498

Scotland/ UK Share (%)

8.5

8.5

8.5

8.5

8.4

Identifiable and Non-identifiable Expenditure

GERS classifies public sector expenditure for Scotland according to three categories: identifiable expenditure, non-identifiable expenditure and accounting adjustments.

In the vast majority of cases, GERS uses the data on identifiable expenditure contained in PESACRA directly. It is a fundamental principle of PESA that the apportionment of UK expenditure adheres to the 'who benefits' principle whereby spending is allocated to a given region if the benefit of the service derived from the expenditure is thought to accrue to residents and enterprises of that region. As highlighted in the PESA publication, there are limitations in the ability to capture precisely 'who benefits' from a given item of expenditure:

  • there are practical difficulties. For example, schools are not used solely by the residents of a region in which the facility is located and roads serve the needs of more than the geographical area through which they pass. Definitional and border problems become increasingly significant the smaller the geographical unit considered;
  • there are also significant definitional problems associated with assessing 'who benefits'. For example, agricultural support is treated as benefiting the farmers who receive subsidies rather than the final consumers of food; and
  • there are also issues around collecting accurate country and regional data in a cost efficient way. UK government departments are encouraged but not required to allocate all expenditure on the basis of 'who benefits'. If spending is not significant (less than £20 million on capital or current) and/or relevant data for allocating this to regions are not available, departments may use some statistical proxy instead, for example: using straight per capita shares, or using the regional allocation proportions used for related spending. Further, it is not practical or cost effective to collect local government spending data on the basis of 'who benefits'. Instead, local government spending is assumed to benefit the area where the expenditure occurs.

Following a detailed review of all 1,400 expenditure programme object groups in PESA 2008, a number of important modifications to the PESA data have been made before being used for the GERS report. These changes were undertaken in consultation with HM Treasury and reflect the fact that in certain circumstances, a more accurate assessment of 'who benefits' is thought possible than is currently presented in PESA. The principal change relates to the treatment of expenditure on nuclear decommissioning by the UK Atomic Energy Authority ( UKAEA) and British Nuclear Fuels. Box 6.5 outlines the rationale for the changes made to this expenditure and the impact they have on the estimates of total public expenditure for Scotland.

Appendix B contains a detailed list of all amendments to PESA implemented in this report. The development of PESA continues to be work in progress and further improvements in the regional apportionment of public sector expenditure will be reflected in future GERS reports.

Box 6.5 - The Regional Allocation of Decommissioning Expenditure by UK Atomic Energy Authority and British Nuclear Fuels

PESA currently apportions decommissioning expenditure by the UK Atomic Energy Authority ( UKAEA) and British Nuclear Fuels ( BNF) to UK countries or English regions according to where the nuclear facility is located. In recent years, there has been a significant increase in expenditure by the UKAEA and BNF to cover the costs of decommissioning the UK's nuclear facilities.

This interpretation of the PESA classification according to the 'who benefits' principle is that only Scottish residents benefit from decommissioning of nuclear facilities in Scotland, such as Dounreay. Similarly, residents in the North West of England are viewed as the sole beneficiaries of decommissioning expenditure at Sellafield.

An alternative approach would be to interpret nuclear decommissioning expenditure as benefiting the UK, irrespective of where the nuclear facilities are located. The argument is that, while the region where such a facility is located may be considered the principal beneficiary of safe decommissioning of a site, during the plants' operational life, the value added from nuclear facilities benefited all UK residents. These facilities could have been built in any location in the UK. Arguably, therefore, a more appropriate application of the 'who benefits' principle should be to classify such expenditure as non-identifiable and being for the benefit of the UK as a whole. GERS has departed from the PESACRA analysis in this instance and re-classified all UKAEA and BNF decommissioning expenditure as non-identifiable. A proportion of total decommissioning expenditure, including that for plants in England, is then apportioned to Scotland on a per capita basis.

The table below illustrates the impact of these revisions and highlights the extent to which the data presented in GERS differ from PESACRA analysis in this respect. Under the methodology used in GERS, expenditure on UKAEA and BNF decommissioning for Scotland was estimated to be £126 million in 2006-07, £95 million lower than the estimate contained in PESA.

Expenditure on Nuclear Decommissioning: 2002-03 to 2006-07

(£ million)

2002-03

2003-04

2004-05

2005-06

2006-07

Total UKAEA Decommissioning Expenditure

770

626

627

829

1,489

Expenditure 'identified' to Scotland in PESA

150

149

149

474

220

Revised apportionment to Scotland in GERS

66

53

53

71

126

Revision

-84

-96

-96

-403

-95


UK identifiable expenditure covered approximately 84 per cent of UKTES in 2006-07. The remaining spending cannot be attributed to individual locations, for example, because it is spent for the benefit of the UK as a whole. A proportion of such UK non-identifiable expenditure is allocated to the public sector for Scotland either on the basis of Scotland's share of the UK population, Gross Value Added or a more specific apportionment variable. Information on the methodologies used to apportion each element of expenditure is provided in Appendix B.

Table 6.7 illustrates the estimated level of identifiable and non-identifiable expenditure assigned to Scotland for each year between 2002-03 and 2006-07. Identifiable expenditure was estimated to be £43.1 billion in 2006-07. In comparison, non-identifiable expenditure was £6.8 billion in 2006-07, approximately 13.6 per cent of estimated total public sector expenditure for Scotland.

Across most programme categories, the level of non-identifiable expenditure is relatively modest. This, in part, reflects development work that has been undertaken in compiling the PESACRA database in recent years to better identify particular elements of expenditure on a regional basis. Debt interest payments, defence and international services are typically the largest elements of non-identifiable expenditure. These three elements of expenditure combined accounted for 83.4 per cent of total non-identifiable expenditure for Scotland in 2006-07.

Table 6.7: Total Expenditure, Identifiable and Non-identifiable: Scotland 2002-03 to 2006-07

(£ million)

Identifiable

Non-identifiable

Total

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

795

868

911

1,077

943

386

412

455

459

473

1,181

1,279

1,366

1,536

1,417

International services

16

17

20

22

19

363

418

449

492

499

378

435

469

514

518

Public sector debt interest

0

0

0

0

0

1,852

1,956

2,114

2,261

2,415

1,852

1,956

2,114

2,261

2,415

Defence

6

3

6

6

7

2,303

2,439

2,538

2,583

2,722

2,309

2,442

2,544

2,589

2,729

Public order and safety

1,639

1,820

1,924

2,060

2,145

136

143

158

141

147

1,775

1,962

2,082

2,201

2,292

Economic affairs

Enterprise and econ development

739

901

925

970

959

28

18

23

27

44

767

919

948

997

1,002

Science and technology

169

179

198

238

197

58

69

68

76

88

227

247

267

313

285

Employment policies

252

294

293

307

298

1

1

1

1

1

253

295

294

308

299

Agriculture, forestry and fisheries

580

649

657

641

678

0

0

0

0

0

580

649

657

641

678

Transport

1,412

1,592

1,546

1,769

2,551

12

11

14

13

13

1,424

1,603

1,560

1,782

2,563

Environment protection

536

654

639

705

775

66

57

57

75

129

602

711

696

779

904

Housing and community amenities

1,204

1,320

1,265

1,422

1,395

0

0

0

0

0

1,204

1,320

1,265

1,422

1,395

Health

6,691

7,360

7,705

8,564

9,064

22

23

38

29

45

6,712

7,383

7,743

8,594

9,108

Recreation, culture and religion

761

870

915

966

1,021

269

261

277

275

328

1,030

1,131

1,192

1,241

1,349

Education & training

Education

5,209

5,509

5,916

6,334

6,929

2

2

2

2

3

5,211

5,512

5,919

6,337

6,932

Training

158

169

170

177

175

0

0

0

1

0

158

169

170

178

175

Social protection

13,444

14,179

14,932

15,427

15,979

164

182

187

196

204

13,608

14,361

15,119

15,624

16,183

EU transactions

0

0

0

0

0

-360

-443

-332

-362

-350

-360

-443

-332

-362

-350

Total

33,610

36,383

38,024

40,686

43,134

5,302

5,549

6,050

6,270

6,761

38,912

41,932

44,073

46,956

49,895

Analysis of Identifiable Expenditure

This section provides a more detailed analysis of identifiable expenditure for Scotland.

Table 6.8 disaggregates identifiable expenditure for Scotland into expenditure by the Scottish Government and by other UK Government departments for the years 2002-03 to 2006-07. Tables 6.9 and 6.10 provide a similar disaggregation but with an additional split for current and capital expenditure. Finally, Table 6.11 provides an assessment of the contribution of each expenditure programme to overall identifiable expenditure for Scotland and the UK as a whole.

The Scottish Government accounted for over two thirds of total Scottish identifiable public expenditure in each year between 2002-03 and 2006-07 with the majority of such expenditure on health and education. It should be noted that the figures presented for Scottish Government expenditure in GERS will not reconcile directly with Scottish Government budget statements. The identifiable expenditure figures contained in GERS include expenditure by non-ministerial departments, such as General Register Office for Scotland ( GROS), and by public corporations. They exclude a small expenditure by the Scottish Government on services outside Scotland. Furthermore, the figures presented in GERS are consistent with the National Accounts framework for public sector expenditure and will therefore differ from the Scottish Government budget documents in their treatment of certain cash and non-cash items. There are also important differences in classification of expenditure.

UK Government departments accounted for a third of Scottish identifiable expenditure. Their spending is dominated by expenditure on social protection - i.e. welfare payments and unemployment benefits. Social protection is the only function where the majority of identifiable expenditure is not undertaken by the Scottish Government.

Decomposing the data into current and capital components shows that the Scottish Government accounted for two thirds of identifiable current expenditure and over 90 per cent of identifiable capital expenditure in 2006-07. The proportion of capital expenditure undertaken by the Scottish Government increased from 84.5 per cent in 2002-03 to 94.0 per cent in 2006-07, though a significant element of this was re-classification of railways expenditure (Box 6.1).

As Table 6.11 highlights, the pattern of identifiable expenditure for Scotland was broadly similar to that for the UK as a whole, with social protection and health being the dominant factors.

Table 6.8: Total, Identifiable Expenditure: Scotland 2002-03 to 2006-07

(£ million)

Scottish Government

Other UK Government

Total

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

764

832

879

1,023

885

31

36

32

54

58

795

868

911

1,077

943

International services

0

0

0

0

0

16

17

20

22

19

16

17

20

22

19

Public sector debt interest

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Defence

6

3

6

6

7

0

0

0

0

0

6

3

6

6

7

Public order and safety

1,636

1,807

1,911

2,043

2,135

3

13

14

17

10

1,639

1,820

1,924

2,060

2,145

Economic affairs

Enterprise and econ development

601

769

740

747

785

138

132

185

223

174

739

901

925

970

959

Science and technology

29

33

38

53

23

140

146

161

184

174

169

179

198

238

197

Employment policies

1

0

0

0

0

252

294

293

307

298

252

294

293

307

298

Agriculture, forestry and fisheries

562

631

640

624

658

18

17

18

17

20

580

649

657

641

678

Transport

1,091

1,350

1,291

1,526

2,475

321

242

255

243

76

1,412

1,592

1,546

1,769

2,551

Environment protection

509

611

615

679

673

27

43

24

25

102

536

654

639

705

775

Housing and community amenities

1,204

1,320

1,265

1,422

1,395

0

0

0

0

0

1,204

1,320

1,265

1,422

1,395

Health

6,656

7,317

7,664

8,517

9,027

34

43

42

48

37

6,691

7,360

7,705

8,564

9,064

Recreation, culture and religion

676

763

824

857

917

85

107

91

109

104

761

870

915

966

1,021

Education & training

Education

5,192

5,482

5,890

6,304

6,913

17

27

26

30

16

5,209

5,509

5,916

6,334

6,929

Training

147

157

155

158

155

10

12

15

18

20

158

169

170

177

175

Social protection

3,410

3,225

3,450

3,645

3,831

10,033

10,954

11,482

11,782

12,148

13,444

14,179

14,932

15,427

15,979

EU transactions

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Total

22,485

24,300

25,367

27,606

29,878

11,125

12,083

12,656

13,080

13,257

33,610

36,383

38,024

40,686

43,134

Table 6.9: Identifiable Expenditure - Scottish Government: Scotland 2002-03 to 2006-07

(£ million)

Current

Capital

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

614

642

716

926

794

151

190

163

97

91

International services

0

0

0

0

0

0

0

0

0

0

Public sector debt interest

0

0

0

0

0

0

0

0

0

0

Defence

6

3

6

6

7

0

0

0

0

0

Public order and safety

1,519

1,666

1,747

1,899

1,973

117

141

163

143

162

Economic affairs

Enterprise and econ development

561

658

636

617

620

40

111

105

131

165

Science and technology

29

23

21

24

23

0

9

17

30

0

Employment policies

1

0

0

0

0

0

0

0

0

0

Agriculture, forestry and fisheries

527

593

595

580

589

36

39

45

43

69

Transport

845

902

798

874

1,358

245

448

493

652

1,117

Environment protection

481

580

549

593

628

28

31

66

86

44

Housing and community amenities

348

684

281

153

236

855

636

984

1,269

1,159

Health

6,192

7,020

7,261

8,282

8,638

465

297

402

234

389

Recreation, culture and religion

595

661

704

739

770

82

102

120

118

147

Education & training

Education

4,993

5,259

5,651

5,910

6,329

199

223

240

394

584

Training

141

101

124

113

125

7

56

31

46

29

Social protection

3,389

3,195

3,421

3,608

3,782

22

30

30

37

49

EU transactions

0

0

0

0

0

0

0

0

0

0

Total

20,239

21,989

22,510

24,325

25,872

2,247

2,312

2,858

3,281

4,005

Table 6.10: Identifiable Expenditure - Other UK Government: Scotland 2002-03 to 2006-07

(£ million)

Current

Capital

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

31

29

28

50

53

0

7

5

4

5

International services

16

17

20

22

18

0

0

0

0

2

Public sector debt interest

0

0

0

0

0

0

0

0

0

0

Defence

0

0

0

0

0

0

0

0

0

0

Public order and safety

3

13

13

16

10

0

0

0

1

0

Economic affairs

Enterprise and econ development

132

151

175

217

166

6

-19

9

7

8

Science and technology

113

129

135

160

147

28

17

26

25

27

Employment policies

244

258

280

270

283

8

36

13

37

15

Agriculture, forestry and fisheries

18

17

17

16

19

0

1

1

1

0

Transport

64

58

52

52

60

258

184

203

191

16

Environment protection

17

26

21

25

21

10

17

3

1

81

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

24

24

20

26

25

10

19

22

22

12

Recreation, culture and religion

44

56

54

60

63

41

51

37

48

41

Education & training

Education

7

9

4

9

5

10

19

22

21

11

Training

10

12

15

18

20

0

0

0

0

0

Social protection

9,992

10,939

11,462

11,731

12,110

41

15

20

51

38

EU transactions

0

0

0

0

0

0

0

0

0

0

Total

10,714

11,738

12,295

12,673

13,000

411

345

362

407

257

Table 6.11: Identifiable Expenditure: Scotland and UK 2006-07

Scotland

UK

Scottish Government

Other UK Government

Total

Total

Expenditure(£ million)

Share of identifiable expenditure

Expenditure(£ million)

Share of identifiable expenditure

Expenditure(£ million)

Share of identifiable expenditure

Expenditure( £ million)

Share of identifiable expenditure

General public services

Public and common services

885

2.1%

58

0.1%

943

2.2%

7,607

1.7%

International services

0

0.0%

19

0.0%

19

0.0%

236

0.1%

Public sector debt interest

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Defence

7

0.0%

0

0.0%

7

0.0%

91

0.0%

Public order and safety

2,135

4.9%

10

0.0%

2,145

5.0%

28,480

6.5%

Economic affairs

Enterprise and econ development

785

1.8%

174

0.4%

959

2.2%

6,399

1.5%

Science and technology

23

0.1%

174

0.4%

197

0.5%

1,832

0.4%

Employment policies

0

0.0%

298

0.7%

298

0.7%

3,410

0.8%

Agriculture, forestry and fisheries

658

1.5%

20

0.0%

678

1.6%

5,082

1.2%

Transport

2,475

5.7%

76

0.2%

2,551

5.9%

19,730

4.5%

Environment protection

673

1.6%

102

0.2%

775

1.8%

7,373

1.7%

Housing and community amenities

1,395

3.2%

0

0.0%

1,395

3.2%

11,347

2.6%

Health

9,027

20.9%

37

0.1%

9,064

21.0%

93,776

21.3%

Recreation, culture and religion

917

2.1%

104

0.2%

1,021

2.4%

7,503

1.7%

Education & training

Education

6,913

16.0%

16

0.0%

6,929

16.1%

71,488

16.2%

Training

155

0.4%

20

0.0%

175

0.4%

2,211

0.5%

Social protection

3,831

8.9%

12,148

28.2%

15,979

37.0%

174,270

39.5%

EU transactions

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Total

29,878

69.3%

13,257

30.7%

43,134

100.0%

440,835

100.0%

Table 6.12 shows identifiable expenditure per capita for Scotland in 2006-07 and compares this with the corresponding per capita figure for the UK. In 2006-07, identifiable expenditure per capita for Scotland was estimated to be £8,430 which is £1,154 (15.9 per cent) higher than the UK average.

In absolute terms, the largest differences arose in transport, social protection, education and health where per capita identifiable expenditure for Scotland was between £170 and £250 higher than the UK average. These differences are the key factors in explaining the difference in total identifiable expenditure between Scotland and the UK.

In relative terms, the greatest differences in spending per capita arose in enterprise and economic development, recreation culture and religion and agriculture, forestry and fisheries.

Table 6.12: Identifiable Expenditure per capita: Scotland and UK 2006-07

Scotland (£)

UK (£)

Difference
(Scotland less UK) (£)

Relative expenditure for Scotland ( UK = 100)

General public services

Public and common services

184

126

59

147

International services

4

4

0

96

Public sector debt interest

0

0

0

-

Defence

1

1

0

90

Public order and safety

419

470

-51

89

Economic affairs

Enterprise and econ development

187

106

82

177

Science and technology

39

30

8

128

Employment policies

58

56

2

103

Agriculture, forestry and fisheries

133

84

49

158

Transport

499

326

173

153

Environment protection

151

122

30

124

Housing and community amenities

273

187

85

146

Health

1,771

1,548

224

114

Recreation, culture and religion

200

124

76

161

Education & training

Education

1,354

1,180

174

115

Training

34

36

-2

93

Social protection

3,123

2,876

246

109

EU transactions

0

0

0

Total

8,430

7,276

1,154

116

Analysis of Non-Identifiable Expenditure

This section provides a more detailed analysis of non-identifiable expenditure. There are a number of possible ways in which to allocate a share of UK non-identifiable expenditure to Scotland including Scotland's share of UKGVA or population. The methodologies used to apportion each element of non-identifiable expenditure are discussed in Appendix B.

In addition to non-identifiable expenditure, PESA also includes a small amount of UK Government expenditure which is classified as identifiable but for programmes outside the UK. This includes expenditure on international development programmes. This category is included in GERS within non-identifiable expenditure for both Scotland and the UK. This treatment is consistent with the view that expenditure outside the UK is non-identifiable from the perspective of the UK's constituent countries, as the benefits are shared between them. To make the Scottish non-identifiable expenditure comparable with UK data, this category is therefore included in UK non-identifiable expenditure.

Box 6.6: Defence Expenditure

Defence expenditure represents the largest element of non-identifiable expenditure for Scotland, accounting for approximately 40 per cent of total non-identifiable expenditure in 2006-07.

In GERS, UK defence expenditure is apportioned to Scotland on a per capita basis. This apportionment is undertaken on the premise that, as the service provided by defence expenditure is a ' UK public service', residents across the UK benefit by an equal amount from such expenditure. This approach is determined by - and consistent with - the 'who benefits' principle, given that defence expenditure is incurred on behalf of the UK population as a whole.

The aim of GERS is to provide an estimated set of public sector accounts and not to provide a narrower assessment of the economic impact or multiplier effects from government expenditure. This would be a separate exercise. Therefore, the for principle is adopted throughout and has motivated the apportionment methodologies, not only on defence expenditure, but also in other areas such as UKAEA and BNF decommissioning expenditure at Dounreay and Sellafield.

Table 6.13 presents total non-identifiable expenditure for Scotland and the UK between 2002-03 and 2006-07. Tables 6.14 and 6.15 decompose Scottish and UK non-identifiable expenditure into their current and capital components.

Total non-identifiable expenditure apportioned to Scotland was estimated to be £6.8 billion in 2006-07, 8.2 per cent of the equivalent UK figure. Defence and debt interest payments comprise the largest components, together accounting for 76.0 per cent of Scotland's non-identifiable expenditure.

As Tables 6.14 and 6.15 highlight, current expenditure was the major component of non-identifiable expenditure for both Scotland and the UK accounting for approximately 95 per cent of total non-identifiable expenditure.

Table 6.13: Non-Identifiable Expenditure: Scotland and UK 2002-03 to 2006-07

(£ million)

Scotland

UK

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

386

412

455

459

473

4,538

4,856

5,364

5,427

5,645

International services

363

418

449

492

499

4,259

4,918

5,289

5,819

5,908

Public sector debt interest

1,852

1,956

2,114

2,261

2,415

21,739

23,041

24,916

26,735

28,592

Defence

2,303

2,439

2,538

2,583

2,722

27,027

28,723

29,913

30,536

32,227

Public order and safety

136

143

158

141

147

1,591

1,680

1,862

1,663

1,743

Economic affairs

Enterprise and econ development

28

18

23

27

44

333

215

279

323

524

Science and technology

58

69

68

76

88

712

849

842

973

1,170

Employment policies

1

1

1

1

1

10

8

10

10

12

Agriculture, forestry and fisheries

0

0

0

0

0

0

0

0

0

0

Transport

12

11

14

13

13

149

138

175

163

155

Environment protection

66

57

57

75

129

772

674

676

881

1,747

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

22

23

38

29

45

268

282

459

362

545

Recreation, culture and religion

269

261

277

275

328

3,189

3,112

3,299

3,287

3,928

Education & training

Education

2

2

2

2

3

25

28

29

29

36

Training

0

0

0

1

0

0

0

0

15

0

Social protection

164

182

187

196

204

1,930

2,147

2,203

2,322

2,418

EU transactions

-360

-443

-332

-362

-350

-1,885

-2,079

-892

-599

-1,762

Total

5,302

5,549

6,050

6,270

6,761

64,657

68,594

74,422

77,947

82,888

Box 6.7 - Debt Interest Payments

The debt interest payment expenditure in the above tables refers to payments to cover interest on outstanding UK Government debt. In GERS, such expenditure is classified as non-identifiable. For each year, a per capita share of UK Government debt interest expenditure is allocated for Scotland. The allocation on a per capita basis is based on the assumption that residents across the UK bear an equal burden of UK government liabilities.

As there is no separate identification of Scotland's share of UK public sector net debt in UK public financial accounts, a separate Scottish debt interest expenditure does not exist. An assessment of an implied 'debt position' for Scotland is inherently problematic, not least because general government borrowing is controlled by the UK Government.

Debt interest payments can also be viewed as payments related to past UK public sector net borrowing and government expenditure. Current expenditure excluding debt interest payments represents expenditure on public services consumed within the current financial year. The difference between this estimate and estimated current revenue represents the current budget fiscal position for public services provided at a given point in time. In GERS, an estimate of debt interest payments is then deducted from this balance to obtain the current budget balance which is presented in Chapter 3.

For 2006-07, estimates for Scotland are highlighted in the table below, illustrating the current balance on public services consumed within that financial year.

Current Balance on Public Services Consumed: Scotland 2006-07

(£ million) 2006-07

Current revenue

Excluding North Sea revenue

42,353

Including North Sea revenue (per capita share)

43,119

Including North Sea revenue (geographical share)

49,915

Total current expenditure

(including capital consumption and accounting adjustments)

49,079

Less debt interest payments (as used in headline GERS estimates)

-2,415

Total current expenditure on services consumed within current financial year

46,664

Current balance on public services consumed within current financial year

Excluding North Sea revenues

-4,311

Including North Sea revenues (per capita share)

-3,545

Including North Sea revenues (geographical share)

3,251

Table 6.14: Non-Identifiable Expenditure: Scotland 2002-03 to 2006-07

(£ million)

Current

Capital

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

355

389

411

421

441

31

23

44

37

33

International services

348

402

433

473

479

15

16

16

19

20

Public sector debt interest

1,852

1,956

2,114

2,261

2,415

0

0

0

0

0

Defence

2,209

2,324

2,401

2,522

2,636

94

115

137

60

86

Public order and safety

133

132

149

135

139

2

10

9

6

9

Economic affairs

Enterprise and econ development

10

10

10

9

16

18

8

14

18

28

Science and technology

52

57

59

62

73

6

11

10

14

15

Employment policies

1

1

1

1

1

0

0

0

0

0

Agriculture, forestry and fisheries

0

0

0

0

0

0

0

0

0

0

Transport

11

10

12

12

12

1

1

2

1

1

Environment protection

25

29

30

11

36

41

28

28

64

93

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

21

23

38

29

45

0

0

0

0

0

Recreation, culture and religion

260

260

269

272

295

9

1

8

3

33

Education & training

Education

2

2

2

2

3

0

0

0

0

0

Training

0

0

0

1

0

0

0

0

0

0

Social protection

164

182

187

196

204

0

0

0

0

0

EU transactions

-360

-443

-332

-362

-350

0

0

0

0

0

Total

5,084

5,335

5,783

6,048

6,445

218

214

267

222

316

Table 6.15: Non-Identifiable Expenditure: UK 2002-03 to 2006-07

(£ million)

Current

Capital

2002-03

2003-04

2004-05

2005-06

2006-07

2002-03

2003-04

2004-05

2005-06

2006-07

General public services

Public and common services

4,176

4,587

4,843

4,984

5,258

362

269

521

443

387

International services

4,083

4,729

5,103

5,597

5,674

176

189

186

222

234

Public sector debt interest

21,739

23,041

24,916

26,735

28,592

0

0

0

0

0

Defence

25,924

27,370

28,301

29,822

31,212

1,103

1,354

1,612

714

1,015

Public order and safety

1,562

1,556

1,755

1,592

1,642

29

124

107

71

101

Economic affairs

Enterprise and econ development

116

120

118

114

194

216

95

161

209

330

Science and technology

632

708

723

801

988

80

141

119

172

183

Employment policies

10

8

10

10

12

0

0

0

0

0

Agriculture, forestry and fisheries

0

0

0

0

0

0

0

0

0

0

Transport

132

127

150

153

147

17

11

25

10

8

Environment protection

296

345

351

128

650

476

328

325

753

1,098

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

267

282

457

361

545

1

1

1

1

0

Recreation, culture and religion

3,081

3,100

3,200

3,245

3,527

108

12

99

42

402

Education & training

Education

24

26

29

29

36

1

2

0

0

0

Training

0

0

0

15

0

0

0

0

0

0

Social protection

1,930

2,147

2,203

2,322

2,415

0

0

0

0

2

EU transactions

-1,885

-2,079

-892

-599

-1,762

0

0

0

0

0

Total

62,088

66,068

71,267

75,310

79,128

2,570

2,526

3,155

2,637

3,760

Table 6.16 compares the composition of non-identifiable expenditure for Scotland and the UK for 2006-07. For both Scotland and the UK, the structure of non-identifiable expenditure is broadly similar with debt interest and defence expenditure contributing the largest amounts.

Table 6.16: Non-Identifiable Expenditure: Scotland and UK 2006-07

Scotland

UK

Expenditure(£ million)

Share of non-identifiable expenditure

Expenditure(£ million)

Share of non-identifiable expenditure

General public services

Public and common services

473

7.0%

5,645

6.8%

International services

499

7.4%

5,908

7.1%

Public sector debt interest

2,415

35.7%

28,592

34.5%

Defence

2,722

40.3%

32,227

38.9%

Public order and safety

147

2.2%

1,743

2.1%

Economic affairs

Enterprise and econ development

44

0.6%

524

0.6%

Science and technology

88

1.3%

1,170

1.4%

Employment policies

1

0.0%

12

0.0%

Agriculture, forestry and fisheries

0

0.0%

0

0.0%

Transport

13

0.2%

155

0.2%

Environment protection

129

1.9%

1,747

2.1%

Housing and community amenities

0

0.0%

0

0.0%

Health

45

0.7%

545

0.7%

Recreation, culture and religion

328

4.9%

3,928

4.7%

Education & training

Education

3

0.0%

36

0.0%

Training

0

0.0%

0

0.0%

Social protection

204

3.0%

2,418

2.9%

EU transactions

-350

-5.2%

-1,762

-2.1%

Total

6,761

100.0%

82,888

100.0%

Table 6.17 outlines Scottish non-identifiable expenditure on services per capita in 2006-07 and compares this with the corresponding figure for the UK. For Scotland, non-identifiable expenditure was estimated to be £1,321 per capita, marginally lower than the equivalent UK per capita figure of £1,368. This reflects the fact that for some apportionments, GVA was used and Scotland's GVA (excluding extra-regio) was marginally smaller than the corresponding UK figure in 2006-07.

Table 6.17: Non-Identifiable Expenditure per capita: Scotland and UK 2006-07

Scotland (£)

UK (£)

Difference (Scotland less UK) (£)

Relative expenditure for Scotland ( UK = 100)

General public services

Public and common services

93

93

-1

99

International services

98

98

0

100

Public sector debt interest

472

472

0

100

Defence

532

532

0

100

Public order and safety

29

29

0

100

Economic affairs

Enterprise and econ development

9

9

0

99

Science and technology

17

19

-2

89

Employment policies

0

0

0

100

Agriculture, forestry and fisheries

0

0

0

-

Transport

2

3

0

96

Environment protection

25

29

-4

88

Housing and community amenities

0

0

0

-

Health

9

9

0

97

Recreation, culture and religion

64

65

-1

99

Education & training

Education

1

1

0

100

Training

0

0

0

-

Social protection

40

40

0

100

EU transactions

-68

-29

-39

235

Total

1,321

1,368

-47

97

Accounting Adjustments

The analysis of public sector expenditure in GERS focuses on Total Expenditure on Services ( TES). This is consistent with the departmental budget framework. In UK public finance documents, the principal measure of public sector expenditure is Total Managed Expenditure ( TME). TME is constructed from categories in the National Accounts framework. The main difference between TES and TME is that TES does not include general government capital consumption and does not reverse the deduction of certain VAT refunds in the budget-based expenditure data. It also contains a number of items that are in budgets but not in TME, for example the grant-equivalent element of student loans. In most years, TES amounts to approximately 95 per cent of TME.

To reconcile TES and TME, an accounting adjustment is introduced to align it, such that TES plus the accounting adjustment equals TME.

The largest component of the UK accounting adjustment is general government capital consumption. It is a measure of the amount of fixed capital resources used up in the process of the provision of public services. In 2006-07, the UK capital consumption of £12.4 billion represented 47.6 per cent of the total UK accounting adjustment. Table 6.18 shows the component disaggregation of the UK accounting adjustment.

The total UK accounting adjustments was estimated at £26.0 billion in 2006-07.

Table 6.18: Accounting Adjustment: UK 2002-03 to 2006-07

(£ million)

2002-03

2003-04

2004-05

2005-06

2006-07

UK total managed expenditure ( TME)

421,000

455,500

492,600

524,300

549,700

UK total expenditure on services ( TES)

403,551

438,905

470,553

499,501

523,723

UK accounting adjustment

17,449

16,595

22,047

24,799

25,977

of which:

Central government capital consumption

5,194

5,514

5,513

5,734

5,881

Local government capital consumption

4,698

5,006

5,437

5,952

6,478

Current VAT refunds

6,412

7,423

8,065

8,527

9,406

Capital VAT refunds

1,196

1,315

1,508

1,639

1,716

Nigerian debt cancellation

0

0

0

1,246

1,178

Student loans subsidy

-422

-296

-514

-631

-746

Residual

371

-2,367

2,038

2,332

2,064



The corresponding Scottish figures, as highlighted in Table 6.19, are calculated using a variety of apportionment methodologies. Firstly, estimates of general government capital consumption from the ONS Regional Accounts, together with information from local government returns, have been used to apportion capital consumption to UK countries and English regions. In 2006-07, general government capital consumption for Scotland was estimated at £1.4 billion (11.3 per cent of the UK total). This is relatively high for Scotland, reflecting a higher stock of public sector assets ( e.g. roads, hospitals, schools) than elsewhere in the UK.

VAT refunds have been allocated to Scotland on the basis of Scotland's share of TES. The student loans subsidy and the Nigerian debt cancellation have been allocated on a per capita basis. The residual has been allocated by TES and disaggregated to current and capital components based on Scotland's TES ratios.

In sum, the total Scottish public sector accounting adjustment was estimated at £2.7 billion in 2006-07, or 10.3 per cent of the total UK accounting adjustment. The high proportion reflects the high share of general government capital consumption for Scotland.

Table 6.19: Accounting Adjustment: Scotland 2002-03 to 2006-07

(£ million)

2002-03

2003-04

2004-05

2005-06

2006-07

Capital consumption: 1

Central government capital consumption

485

508

503

513

530

Local government capital consumption

632

666

699

784

865

Current expenditure:

Current VAT refunds

611

705

747

793

883

Student loans subsidy

-84

-65

-58

-62

-62

Current expenditure residual

17

-221

172

193

151

Capital expenditure:

Capital VAT refunds

134

137

162

174

191

Nigerian debt cancellation

0

0

0

105

99

Capital expenditure residual

1

-16

15

18

15

Total accounting adjustment

1,797

1,713

2,240

2,519

2,673

Percentage of UK accounting adjustment

10.3%

10.3%

10.2%

10.2%

10.3%

1 Public Corporations' capital consumption is included in gross operating surplus.