Government Expenditure and Revenue Scotland 2009-2010

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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 27.

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, local economic development expenditure 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 Sector 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 detail below. Appendix B discusses the revisions from previous reports and the relevant apportionment methodologies applied.

As discussed in Chapter 3, the estimates in GERS include a share of the permanent effects of the UK Government's financial sector interventions. This is consistent with the methodology used by HM Treasury and the OBR. The UK Government's net financial sector interventions are classified as non-identifiable and are recorded in the Enterprise and Economic Development ( EED) expenditure programme lines in both PESA and GERS. The outlays by the UK Government are recorded as a capital expenditure, whilst the fees received are recorded as a negative current expenditure ( i.e. revenue received), as summarised in Box 3.1. The scale of the financial sector interventions, relative to other spending on EED, means that there is a significant increase in expenditure within this category between 2007-08 and 2008-09.

Total Public Sector Expenditure

Estimated total public sector expenditure for Scotland by spending category for 2009-10 is shown in Table 6.1. On the basis of the assumptions and methodologies described in this report, in 2009-10, total public sector expenditure for Scotland was £59.2 billion, this was equivalent to 9.3 per cent of comparable total UK public sector expenditure in 2009-10. Social protection was the largest Scottish expenditure programme. Together with health expenditure, it accounts for approximately 52 per cent of total public sector expenditure for Scotland in 2009-10.

Table 6.1: Total Expenditure: Scotland 2009-10

Scotland

£ million

% of total expenditure

General public services

Public and common services

1,567

2.6%

International services

672

1.1%

Public sector debt interest

2,635

4.5%

Defence

3,160

5.3%

Public order and safety

2,635

4.5%

Economic affairs

Enterprise and economic development

1,089

1.8%

Science and technology

446

0.8%

Employment policies

280

0.5%

Agriculture, forestry and fisheries

858

1.5%

Transport

2,853

4.8%

Environment protection

1,185

2.0%

Housing and community amenities

1,920

3.2%

Health

10,712

18.1%

Recreation, culture and religion

1,466

2.5%

Education and training

7,739

13.1%

Social protection

20,189

34.1%

EU transactions

-236

-0.4%

Total

59,170

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 revenue 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 2005-06 to 2009-10.

Total public sector expenditure for Scotland is estimated to have increased from £47.7 billion in 2005-06 to £59.2 billion in 2009-10, an increase of approximately 24 per cent in nominal terms. Over the same period, equivalent UK public sector expenditure increased from £501.2 billion to £639.2 billion, an increase of 28 per cent in nominal terms.

Chapters four and five illustrated that Scottish tax revenue fell sharply in 2008-09 and 2009-10 as a result of the recession. Aggregate, public expenditure has not been as volatile and has grown, on average, by approximately 5.5 per cent in nominal terms in each of the last five years. Aggregate current expenditure has also remained fairly stable over this period. However, when capital expenditure is considered in isolation, it is shown to be considerably more volatile, increasing by 24 per cent between 2007-08 and 2008-09. This reflects the UK Government's financial sector interventions, which accounted for nearly two thirds of the growth in capital expenditure for Scotland between 2007-08 and 2008-09. Capital expenditure fell slightly in 2009-10, but remained significantly higher than in the three years prior to 2008-09. This is because whilst the expenditure associated with the UK Government's financial sector interventions fell in 2009-10, there was a significant increase in infrastructure investment, as both the Scottish and UK Governments brought forward capital expenditure planned for 2010-11 into 2009-10 to support the economy.

Table 6.2: Total Current and Capital Expenditure Scotland and UK 2005-06 to 2009-10

(£ million)

Scotland

UK

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

Current

43,471

45,231

48,078

49,866

52,770

463,696

482,029

510,068

537,792

574,511

Capital

4,261

5,043

5,221

6,476

6,400

37,512

40,824

45,552

64,310

64,726

Total

47,732

50,274

53,299

56,342

59,170

501,208

522,853

555,619

602,102

639,238

Table 6.3 highlights the share of total expenditure according to current and capital expenditure. Between 2005-06 and 2007-08, capital expenditure for Scotland varied between 8.9 per cent and 10.0 per cent of total expenditure. In 2008-09, capital expenditure for Scotland subsequently increased to 11.5 per cent of total expenditure, reflecting the impact of the UK Government's financial sector interventions. Capital expenditure subsequently fell to 10.8 per cent of total expenditure in 2009-10, although this remains a larger share of total expenditure than in the years prior to 2008-09.

Table 6.3: Current and Capital Expenditure (% of Total Expenditure): Scotland 2005-06 to 2009-10

(per cent)

2005-06

2006-07

2007-08

2008-09

2009-10

Current

91.1%

90.0%

90.2%

88.5%

89.2%

Capital

8.9%

10.0%

9.8%

11.5%

10.8%

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.

Table 6.4: Total Expenditure: Scotland 2005-06 to 2009-10

(£ million)

Current

Capital

Total

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

1,395

1,247

1,311

1,291

1,485

180

140

61

297

82

1,574

1,387

1,372

1,588

1,567

International services

495

497

531

572

620

28

32

36

40

53

524

529

567

611

672

Public sector debt interest

2,261

2,428

2,645

2,656

2,635

0

0

0

0

0

2,261

2,428

2,645

2,656

2,635

Defence

2,523

2,639

2,619

2,796

2,822

90

75

214

292

338

2,613

2,715

2,832

3,088

3,160

Public order and safety

2,116

2,105

2,204

2,289

2,389

168

183

165

226

245

2,284

2,288

2,369

2,515

2,635

Economic affairs

Enterprise and economic development

721

698

782

529

432

147

205

235

1,040

657

867

902

1,016

1,569

1,089

Science and technology

307

267

337

319

367

68

59

120

106

79

375

326

457

425

446

Employment policies

241

246

253

260

273

33

13

1

1

7

274

259

254

261

280

Agriculture, forestry and fisheries

605

592

677

700

765

45

73

71

100

94

650

666

748

800

858

Transport

929

1,446

1,543

1,527

1,514

913

1,278

1,243

1,124

1,340

1,842

2,724

2,785

2,651

2,853

Environment protection

730

836

831

866

981

206

162

190

196

204

937

998

1,021

1,062

1,185

Housing and community amenities

162

182

333

281

260

1,363

1,497

1,413

1,521

1,660

1,526

1,679

1,746

1,802

1,920

Health

8,355

8,804

9,363

9,751

10,133

251

297

447

512

579

8,606

9,102

9,810

10,264

10,712

Recreation, culture and religion

1,057

1,095

1,112

1,119

1,182

190

201

239

276

284

1,247

1,296

1,351

1,395

1,466

Education and training

6,088

6,411

6,662

6,909

7,076

480

724

696

649

664

6,568

7,134

7,358

7,558

7,739

Social protection

15,847

16,090

17,114

18,492

20,074

101

103

91

96

115

15,948

16,193

17,205

18,589

20,189

EU transactions

-362

-352

-237

-493

-236

0

0

0

0

0

-362

-352

-237

-493

-236

Total

43,471

45,231

48,078

49,866

52,770

4,261

5,043

5,221

6,476

6,400

47,732

50,274

53,299

56,342

59,170

Table 6.5: Total Expenditure: UK 2005-06 to 2009-10

(£ million)

Current

Capital

Total

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

11,076

11,389

11,286

11,810

11,903

1,603

1,193

1,329

2,013

1,726

12,678

12,582

12,615

13,823

13,629

International services

5,865

5,884

6,303

6,798

7,380

341

388

443

473

627

6,206

6,272

6,745

7,271

8,007

Public sector debt interest

26,746

28,749

31,363

31,555

31,363

0

0

0

0

0

26,746

28,749

31,363

31,555

31,363

Defence

29,846

31,250

31,056

33,243

33,561

1,072

899

2,539

3,468

4,024

30,918

32,149

33,595

36,710

37,585

Public order and safety

27,673

28,621

29,637

30,907

31,796

1,608

1,817

2,022

2,746

2,694

29,281

30,438

31,659

33,653

34,490

Economic affairs

Enterprise and economic development

5,244

5,003

5,508

4,146

3,112

1,322

1,534

1,414

11,409

6,412

6,566

6,537

6,922

15,555

9,524

Science and technology

2,242

2,146

2,426

2,541

2,896

757

675

785

625

733

2,999

2,821

3,211

3,165

3,629

Employment policies

2,987

3,155

3,210

3,017

3,377

355

195

72

85

111

3,342

3,349

3,282

3,102

3,489

Agriculture, forestry and fisheries

5,319

4,783

4,701

5,037

5,574

282

321

289

377

270

5,601

5,105

4,990

5,415

5,844

Transport

8,459

9,417

9,872

9,019

9,822

8,580

10,460

10,630

11,801

12,863

17,039

19,878

20,501

20,820

22,686

Environment protection

6,324

7,142

7,243

7,105

8,217

2,213

2,250

2,284

2,608

2,835

8,537

9,392

9,526

9,713

11,052

Housing and community amenities

3,559

3,601

3,879

3,760

4,032

7,138

7,948

9,037

11,207

11,907

10,697

11,549

12,916

14,967

15,939

Health

86,467

90,623

97,432

104,626

112,577

3,115

3,889

4,719

5,346

6,203

89,582

94,512

102,151

109,972

118,780

Recreation, culture and religion

9,110

9,462

9,760

9,932

10,246

1,699

1,786

2,278

3,082

3,288

10,809

11,248

12,038

13,014

13,533

Education and training

63,254

66,266

71,162

74,387

77,853

6,450

6,665

6,936

8,315

9,945

69,704

72,931

78,098

82,702

87,797

Social protection

170,124

176,340

186,762

202,840

220,729

976

804

775

755

1,089

171,100

177,144

187,537

203,596

221,818

EU transactions

-598

-1,802

-1,531

-2,931

73

0

0

0

0

0

-598

-1,802

-1,531

-2,931

73

Total

463,696

482,029

510,068

537,792

574,511

37,512

40,824

45,552

64,310

64,726

501,208

522,853

555,619

602,102

639,238

Box 6.1 - Social Protection Expenditure

In the public accounts, social protection expenditure comprises spending on personal social services and social security. Personal social services covers both social work and social care services provided by local authorities. Examples include residential care homes for the elderly and home care services. Social security comprises cash benefits that are given to eligible individuals defined by states of need, such as unemployment, disability, sickness, old age etc.

Total social protection expenditure for Scotland is estimated to have increased from £15.9 billion in 2005-06 to £20.2 billion in 2009-10, an increase of approximately 27 per cent in nominal terms. Expenditure on social protection grew particularly rapidly in 2008-09 and 2009-10, accounting for half the growth observed in total public expenditure for Scotland in these years.

The rapid growth in expenditure on social protection in 2008-09 and 2009-10 partly reflects the impact of the recession which has increased the number of people eligible for social security benefits. For example, the table below shows that expenditure on unemployment related benefits in Scotland increased from £406 million in 2007-08 to £605 million in 2009-10, a rise of 49.0 per cent. Across the UK as a whole, expenditure unemployment related benefits increased by 66.4 per cent over the same time period.

Social Protection Expenditure Scotland and UK 2005-06 to 2009-10

(£ million)

Scotland

UK

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

Central Government:

Sickness and Disability

2,553

2,610

2,706

3,000

3,216

26,108

26,961

28,191

31,046

33,147

Pensions

5,495

5,732

6,140

6,831

7,261

61,905

64,405

69,776

76,783

80,603

Widow's Benefits

191

187

192

193

193

1,846

1,811

1,808

1,814

1,816

Family Benefits 1

1,887

1,872

1,945

1,831

1,875

21,458

21,462

22,481

21,490

22,121

Unemployment related benefits and services

394

451

406

472

605

4,011

4,580

4,273

5,264

7,110

Social exclusion

1,313

1,424

1,522

1,643

1,983

14,449

15,649

16,998

20,103

23,905

Other social protection

303

222

180

200

303

3,385

2,490

2,047

2,168

3,365

Local Government

3,813

3,694

4,114

4,418

4,753

37,938

39,786

41,963

44,927

49,750

Total Social Protection

15,948

16,193

17,205

18,589

20,189

171,100

177,144

187,537

203,596

221,818

1 Income support; Tax Credits and Personal Social Services

Table 6.6 shows estimated total public sector expenditure for Scotland and the UK on a per capita basis. The table also highlights the absolute per capita difference between Scotland and the UK and Scottish expenditure relative to the UK level. Total expenditure per capita for Scotland is estimated to have been £11,370 in 2009-10, £1,050 (or 10.2 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 statisticians. 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 classifications of similar expenditures. Caution should therefore be exercised when comparing expenditure per capita for Scotland with UK figures for individual expenditure categories.

Table 6.6: Total Expenditure per capita: Scotland and UK 2009-10

Scotland (£)

UK (£)

Per Capita Difference (Scotland less UK) (£)

Relative expenditure for Scotland ( UK = 100)

General public services

Public and common services

301

220

81

137

International services

129

129

0

100

Public sector debt interest

506

506

0

100

Defence

607

607

0

100

Public order and safety

506

557

-51

91

Economic affairs

Enterprise and economic development

209

154

55

136

Science and technology

86

59

27

146

Employment policies

54

56

-2

96

Agriculture, forestry and fisheries

165

94

71

175

Transport

548

366

182

150

Environment protection

228

178

49

128

Housing and community amenities

369

257

112

143

Health

2,058

1,918

141

107

Recreation, culture and religion

282

218

63

129

Education and training

1,487

1,417

70

105

Social protection

3,880

3,581

298

108

EU transactions 1

-45

1

-47

N/A

Total

11,370

10,320

1,050

110

1 EU transactions are recorded as a negative net expenditure for Scotland, but a positive net expenditure for the UK as whole. This is due to changes at the component level with differing shares of each being attributed to Scotland. The UK figure has become positive in 2009-10 largely to an increase in EU contributions (£8.6 billion to £10.6 billion) and a reduction in some receipts from the EU. For each of these changes, Scotland is apportioned between 8.1 and 8.7 per cent depending on the component. However, Scotland receives a comparatively large share of EUDEL receipts (approximately 13 per cent) which have remained stable and act to maintain Scotland's position as a net recipient from the EU.

With the exception of defence, international services, public sector debt interest payments, public order and safety and employment policies, 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 social protection, health and transport, where per capita expenditure for Scotland was estimated to be between £141 and £298 higher than the UK average. In relative terms, the greatest differences in expenditure per capita occurred in transport and agriculture, forestry and fisheries expenditure.

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 are 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. The inclusion of Scottish Water in the public sector is one reason why net investment in Scotland is relatively higher than for the UK as a whole.

In other areas, the higher Scottish expenditure often observed 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. Finally, higher public expenditure also reflects Scotland's greater need for some public services such as in health and housing.

Box 6.2 - Private Finance Initiative and Non-Profit Distributing Financing

The Private Finance Initiative ( PFI) is a method to provide financial support for Public Private Partnerships ( PPPs) between the public and private sectors. PFI projects are long-term contracts for services that include the provision of associated facilities or properties. Under the contract, the private sector is generally responsible for various roles including designing and constructing a building or facility and maintaining and servicing it throughout the contract term. The public sector retains accountability for the main public services. The private sector is responsible for financing the project up front and only receives payment from the public sector once construction has been completed and the services have commenced. There was also another model of revenue finance in operation over this period called Non-Profit Distributing ( NPD). The NPD model is 100% debt funded which ensures that the returns to the private sector are capped and that there is no dividend bearing equity. Payments for both PFI and NPD projects take the form of a unitary charge which is usually paid annually over the lifetime of the contract.

Public sector unitary charges paid on PFI and NPD projects in Scotland between 2005-06 and 2009-10 are presented in the table below.

Public Sector Unitary Charge Expenditure in Scotland 2005-06 to 2009-10-10

(£ million)

2005-06

2006-07

2007-08

2008-09

2009-10

Scottish Public Sector Unitary Charges 1

392

435

508

585

729

Other UK Government Departments PFI Unitary Charges

12

13

20

23

23

Total Unitary Charges in Scotland

403

448

527

608

752

Source: Scottish Government March 2011 and HM Treasury PFI Signed Project List - March 2011.

1. Includes both PFI and NDP figures.

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 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 programme object groups in PESA 2011, a number of important modifications have been made to a small number of programme expenditures before being used for the GERS report. These changes reflect the fact that in certain circumstances, officials in the Scottish Government believe a more accurate assessment of 'who benefits' is thought possible than is currently presented in PESA. The principal changes relates to the treatment of expenditure on nuclear decommissioning by the UK Atomic Energy Authority ( UKAEA), the expenditure on the London Olympics, as outlined in the Appendix B and Box 6.3 respectively.

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.

In 2009-10 UK identifiable expenditure covered approximately 84.4 per cent of UK total public. 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, GVA 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 2005-06 and 2009-10. Identifiable expenditure was estimated to be £51.2 billion in 2009-10. In comparison, non-identifiable expenditure was £8 billion in 2009-10, approximately 13.5 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 identify more specifically particular elements of expenditure on a regional basis. Debt interest payments, defence and international services are typically the largest elements of non-identifiable expenditure. Collectively, these three elements of expenditure accounted for 80.5 per cent of total non-identifiable expenditure for Scotland in 2009-10.

Box 6.3 - The London Olympics and Glasgow Commonwealth Games

In PESA 2011, HM Treasury classified expenditure on the London Olympics as non-identifiable expenditure. This implies the benefits from the Olympics are shared equally by all UK residents. There is some debate as to whether or not all the expenditures classified as being part of the 2012 Olympics are non-identifiable, and therefore of equal benefit to all UK regions. For example, a significant proportion of spending on the Olympics is for investment in infrastructure and re-development of areas in the east end of London which will have lasting benefits for the city. Previous regeneration schemes have generally been classified in PESA as identifiable to the region in which they occur.

Expenditure on the 2014 Commonwealth Games is also reported in PESA. PESA classifies all the expenditure associated with the Commonwealth Games as being identifiable to Scotland. This implies that all the resulting benefits also accrue to Scotland.

The classifications used in PESA imply that Scottish residents are the sole beneficiaries of the expenditure associated with the Commonwealth Games, whilst all UK residents benefit equally from the expenditure associated with the London Olympics. This creates an asymmetry in the treatment of the expenditures associated with the two events.

The Scottish Government published a discussion paper in May 2011 proposing a number of changes to the treatment of the expenditure on the London Olympics and Commonwealth Games in GERS to more accurately capture the benefits accruing to Scotland from this expenditure. As a result of this consultation the following changes have been made to the data in PESA 2011 before being used in GERS:

  • All capital expenditure associated with the Olympics has been assigned to London, on the basis that this will capture the lasting benefit to the city of the infrastructure and regeneration associated with the games.
  • Current expenditure on the Olympics has been assigned across the countries and regions of the UK using the projected regional distribution of the associated increase in tourism expenditure.
  • All current and capital expenditure associated with the Commonwealth Games continues to be assigned to Scotland.

These adjustments reduce the estimates of Scottish public sector expenditure by £92 million in 2008-09 and £91 million in 2009-10, as summarised in the table below. Further information on the changes is available on the GERS website: ( http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/GERS/GERSolympicstreatment)

Expenditure on the 2012 Olympic Games: 2005-06 to 2009-10

(£ million)

2005-06

2006-07

2007-08

2008-09

2009-10

Total UK Olympic Expenditure

0.0

99

386

1,096

1,088

Population Share - Previous apportionment method used to assigned expenditure to Scotland

0.0

8.4

32.5

92.2

91.4

Revised apportionment to Scotland in GERS 2009-10

0.0

0.0

0.1

0

0.1

Table 6.7: Total Expenditure, Identifiable and Non-identifiable: Scotland 2005-06 to 2009-10

(£ million)

Identifiable

Non-identifiable

Total

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

1,134

959

941

1,137

1,134

440

427

431

450

433

1,574

1,387

1,372

1,588

1,567

International services

18

16

16

21

20

506

513

550

590

653

524

529

567

611

672

Public sector debt interest

0

0

0

0

0

2,261

2,428

2,645

2,656

2,635

2,261

2,428

2,645

2,656

2,635

Defence

6

7

7

5

9

2,607

2,707

2,825

3,083

3,151

2,613

2,715

2,832

3,088

3,160

Public order and safety

2,120

2,117

2,194

2,341

2,451

164

170

174

174

184

2,284

2,288

2,369

2,515

2,635

Economic affairs

Enterprise and economic development

842

849

965

815

866

25

53

51

755

223

867

902

1,016

1,569

1,089

Science and technology

324

266

407

368

388

51

60

51

58

58

375

326

457

425

446

Employment policies

273

258

253

260

278

1

1

1

1

2

274

259

254

261

280

Agriculture, forestry and fisheries

650

666

748

800

858

0

0

0

0

0

650

666

748

800

858

Transport

1,823

2,706

2,766

2,628

2,831

19

19

20

23

22

1,842

2,724

2,785

2,651

2,853

Environment protection

826

859

900

964

1,022

111

140

121

98

162

937

998

1,021

1,062

1,185

Housing and community amenities

1,526

1,679

1,746

1,802

1,920

0

0

0

0

0

1,526

1,679

1,746

1,802

1,920

Health

8,562

9,035

9,727

10,179

10,616

44

67

82

85

96

8,606

9,102

9,810

10,264

10,712

Recreation, culture and religion

952

991

1,030

1,082

1,140

295

305

321

313

326

1,247

1,296

1,351

1,395

1,466

Education and training

6,566

7,131

7,354

7,555

7,736

2

3

4

3

3

6,568

7,134

7,358

7,558

7,739

Social protection

15,728

15,967

16,964

18,321

19,905

220

227

241

268

284

15,948

16,193

17,205

18,589

20,189

EU transactions

0

0

0

0

0

-362

-352

-237

-493

-236

-362

-352

-237

-493

-236

Total

41,349

43,505

46,018

48,276

51,173

6,384

6,769

7,281

8,066

7,998

47,732

50,274

53,299

56,342

59,170

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 2005-06 to 2009-10 28. 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 2005-06 and 2009-10 with the majority of such expenditure on health and education. It should be noted that the figures presented for Scottish Government expenditure in GERS do not reconcile directly with Scottish Government budget statements. The identifiable expenditure figures contained in GERS include expenditure by non-ministerial departments, such as the 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's share of identifiable current expenditure increased from 66 per cent in 2005-06 to 67 per cent in 2007-08. This subsequently fell to 65 per cent by 2009-10. Over the same period the proportion of identifiable capital expenditure undertaken by the Scottish Government increased from 89 per cent in 2005-06 to 97 per cent in 2008-09, then falling marginally to 96 per cent in 2009-10. A significant element of this increase reflects the transfer of responsibility for elements of railways expenditure from the Department for Transport to the Scottish Government. This issue is set out more in detail in Box 6.1 in GERS 2007-08.

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 expenditure components.

Table 6.8: Total Identifiable Expenditure: Scotland 2005-06 to 2009-10

(£ million)

Scottish Government and Local Authorities

Other UK Government

Total

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

1,062

898

873

1,079

1,084

72

61

68

59

50

1,134

959

941

1,137

1,134

International services

0

0

0

0

0

18

16

16

21

20

18

16

16

21

20

Public sector debt interest

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Defence

6

7

7

5

9

0

0

0

0

0

6

7

7

5

9

Public order and safety

2,104

2,091

2,165

2,306

2,368

16

27

29

35

83

2,120

2,117

2,194

2,341

2,451

Economic affairs

Enterprise and econ development

664

689

818

664

734

178

160

147

151

132

842

849

965

815

866

Science and technology

135

88

195

137

110

189

178

211

231

278

324

266

407

368

388

Employment policies

0

0

1

4

3

273

258

252

256

275

273

258

253

260

278

Agriculture, forestry and fisheries

637

652

734

787

845

13

14

14

13

13

650

666

748

800

858

Transport

1,586

2,554

2,692

2,604

2,768

237

151

74

23

63

1,823

2,706

2,766

2,628

2,831

Environment protection

776

815

862

927

981

50

44

38

37

41

826

859

900

964

1,022

Housing and community amenities

1,526

1,679

1,746

1,802

1,920

0

0

0

0

0

1,526

1,679

1,746

1,802

1,920

Health

8,517

8,992

9,689

10,130

10,567

45

43

39

48

48

8,562

9,035

9,727

10,179

10,616

Recreation, culture and religion

835

892

945

999

1,058

118

99

85

83

81

952

991

1,030

1,082

1,140

Education and training

6,528

7,098

7,330

7,522

7,713

37

33

24

33

22

6,566

7,131

7,354

7,555

7,736

Social protection

3,819

3,768

4,263

4,479

4,866

11,908

12,199

12,701

13,842

15,039

15,728

15,967

16,964

18,321

19,905

EU transactions

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Total

28,194

30,223

32,321

33,444

35,026

13,154

13,283

13,697

14,832

16,146

41,349

43,505

46,018

48,276

51,173

Table 6.9: Identifiable Expenditure - Scottish Government and Local Authorities: Scotland 2005-06 to 2009-10

(£ million)

Current

Capital

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

923

769

837

827

1,034

139

129

36

252

50

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

7

7

5

9

0

0

0

0

0

Public order and safety

1,945

1,918

2,013

2,100

2,149

159

173

152

206

218

Economic affairs

Enterprise and econ development

532

532

627

470

492

132

157

192

194

242

Science and technology

105

69

110

68

80

30

18

85

69

30

Employment policies

0

0

1

4

3

0

0

0

0

0

Agriculture, forestry and fisheries

593

579

663

687

752

44

73

70

100

93

Transport

889

1,395

1,476

1,505

1,459

696

1,159

1,215

1,099

1,310

Environment protection

681

766

772

841

887

95

49

90

85

94

Housing and community amenities

162

182

333

281

260

1,363

1,497

1,413

1,521

1,660

Health

8,282

8,715

9,250

9,626

9,993

234

277

439

504

575

Recreation, culture and religion

707

735

742

755

812

128

157

203

244

247

Education and training

6,068

6,390

6,637

6,874

7,050

460

709

694

648

663

Social protection

3,773

3,710

4,198

4,413

4,805

46

58

65

65

61

EU transactions

0

0

0

0

0

0

0

0

0

0

Total

24,667

25,768

27,666

28,456

29,785

3,527

4,455

4,655

4,988

5,241

Table 6.10: Identifiable Expenditure - Other UK Government: Scotland 2005-06 to 2009-10

(£ million)

Current

Capital

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

67

56

63

54

44

5

5

4

5

6

International services

17

15

16

21

19

1

0

1

0

0

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

14

26

29

33

81

2

1

1

1

2

Economic affairs

Enterprise and econ development

166

142

128

120

104

12

18

19

31

28

Science and technology

166

152

188

205

239

24

27

23

25

40

Employment policies

240

245

251

255

268

33

13

1

1

7

Agriculture, forestry and fisheries

12

13

13

12

13

1

1

1

1

1

Transport

28

40

54

8

42

209

112

20

15

22

Environment protection

26

22

31

31

30

24

22

7

6

11

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

25

27

35

46

47

20

16

3

2

2

Recreation, culture and religion

67

66

58

61

56

50

33

27

22

25

Education and training

18

18

21

32

22

19

15

3

1

1

Social protection

11,855

12,154

12,675

13,811

14,985

53

44

25

31

53

EU transactions

0

0

0

0

0

0

0

0

0

0

Total

12,702

12,975

13,564

14,690

15,949

453

307

134

141

197

Table 6.11: Identifiable Expenditure: Scotland and UK 2009-10

Scotland

UK

Scottish Government and Local Authorities

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

1,084

2.1%

50

0.1%

1,134

2.2%

8,408

1.6%

International services

0

0.0%

20

0.0%

20

0.0%

236

0.0%

Public sector debt interest

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Defence

9

0.0%

0

0.0%

9

0.0%

82

0.0%

Public order and safety

2,368

4.6%

83

0.2%

2,451

4.8%

32,304

6.0%

Economic affairs

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Enterprise and econ development

734

1.4%

132

0.3%

866

1.7%

6,808

1.3%

Science and technology

110

0.2%

278

0.5%

388

0.8%

2,917

0.5%

Employment policies

3

0.0%

275

0.5%

278

0.5%

3,464

0.6%

Agriculture, forestry and fisheries

845

1.7%

13

0.0%

858

1.7%

5,844

1.1%

Transport

2,768

5.4%

63

0.1%

2,831

5.5%

22,345

4.1%

Environment protection

981

1.9%

41

0.1%

1,022

2.0%

9,104

1.7%

Housing and community amenities

1,920

3.8%

0

0.0%

1,920

3.8%

15,939

3.0%

Health

10,567

20.6%

48

0.1%

10,616

20.7%

117,627

21.8%

Recreation, culture and religion

1,058

2.1%

81

0.2%

1,140

2.2%

8,532

1.6%

Education and training

7,713

15.1%

22

0.0%

7,736

15.1%

87,757

16.3%

Social protection

4,866

9.5%

15,039

29.4%

19,905

38.9%

218,295

40.5%

EU transactions

0

0.0%

0

0.0%

0

0.0%

0

0.0%

Total

35,026

68.4%

16,146

31.6%

51,173

100.0%

539,661

100.0%

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.

Table 6.12 presents total non-identifiable expenditure for Scotland and the UK between 2005--06 and 2009-10. Tables 6.13 and 6.14 decompose Scottish and UK non-identifiable expenditure into their current and capital components.

Total non-identifiable expenditure for Scotland was estimated to be £8.0 billion in 2009-10, 8 per cent of the equivalent UK figure.

Defence and debt interest payments comprise the largest components. As Tables 6.13 and 6.14 highlight, current expenditure was the major component of non-identifiable expenditure for both Scotland and the UK in 2009-10.

As outlined in the introduction to Chapter 6, the UK Government's financial sector interventions are classified as non-identifiable expenditure and are recorded in the Enterprise and Economic Development ( EED) expenditure programme lines. The scale of the financial sector interventions, relative to other spending on this category, means that total non-identifiable expenditure on EED for Scotland is estimated to increase from £51 million in 2007-08 to £755 million in 2008-09, before falling back to £223 million in 2009-10.

The fees received from the various schemes are recorded as a negative current expenditure ( i.e. revenue received). These fees exceeded the current expenditure on other elements of EED in both 2008-09 and 2009-10. As such, total current expenditure on non-identifiable EED is negative in both of these years.

Table 6.12: Non-Identifiable Expenditure: Scotland and UK 2005-06 to 2009-10

(£ million)

Scotland

UK

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

440

427

431

450

433

5,241

5,114

5,161

5,396

5,221

International services

506

513

550

590

653

5,984

6,077

6,526

7,015

7,771

Public sector debt interest

2,261

2,428

2,645

2,656

2,635

26,746

28,749

31,363

31,555

31,363

Defence

2,607

2,707

2,825

3,083

3,151

30,841

32,058

33,504

36,628

37,503

Public order and safety

164

170

174

174

184

1,939

2,018

2,070

2,070

2,186

Economic affairs

Enterprise and economic development

25

53

51

755

223

358

692

669

9,027

2,715

Science and technology

51

60

51

58

58

621

733

618

699

712

Employment policies

1

1

1

1

2

15

18

13

17

25

Agriculture, forestry and fisheries

0

0

0

0

0

1

0

1

1

0

Transport

19

19

20

23

22

420

394

395

350

340

Environment protection

111

140

121

98

162

1,322

1,667

1,441

1,178

1,949

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

44

67

82

85

96

538

804

991

1,023

1,153

Recreation, culture and religion

295

305

321

313

326

3,517

3,756

4,240

4,871

5,002

Education and training

2

3

4

3

3

29

36

42

41

40

Social protection

220

227

241

268

284

2,718

2,813

3,008

3,341

3,524

EU transactions

-362

-352

-237

-493

-236

-598

-1,802

-1,531

-2,931

73

Total

6,384

6,769

7,281

8,066

7,998

79,692

83,127

88,510

100,284

99,577

Table 6.13: Non-Identifiable Expenditure: Scotland 2005-06 to 2009-10

(£ million)

Current

Capital

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

405

421

410

410

407

35

6

20

40

26

International services

478

482

515

551

601

28

32

35

39

52

Public sector debt interest

2,261

2,428

2,645

2,656

2,635

0

0

0

0

0

Defence

2,517

2,632

2,612

2,791

2,813

90

75

214

292

338

Public order and safety

157

161

162

156

159

7

9

12

18

25

Economic affairs

Enterprise and economic development

23

24

27

-61

-164

3

30

24

815

387

Science and technology

36

46

39

46

48

15

14

12

11

10

Employment policies

1

1

1

1

2

0

0

0

0

0

Agriculture, forestry and fisheries

0

0

0

0

0

0

0

0

0

0

Transport

12

11

13

14

14

7

7

7

9

8

Environment protection

23

48

28

-6

64

88

92

93

104

99

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

47

62

78

79

93

-3

4

5

6

3

Recreation, culture and religion

283

294

311

303

314

12

11

10

11

12

Education and training

2

3

4

3

3

0

0

0

0

0

Social protection

220

226

241

267

283

1

1

1

0

1

EU transactions

-362

-352

-237

-493

-236

0

0

0

0

0

Total

6,103

6,488

6,848

6,720

7,036

281

281

432

1,346

962

Table 6.14: Non-Identifiable Expenditure: UK 2005-06 to 2009-10

(£ million)

Current

Capital

2005-06

2006-07

2007-08

2008-09

2009-10

2005-06

2006-07

2007-08

2008-09

2009-10

General public services

Public and common services

4,835

5,035

4,919

4,918

4,907

406

79

242

478

314

International services

5,655

5,702

6,111

6,550

7,148

329

375

415

465

623

Public sector debt interest

26,746

28,749

31,363

31,555

31,363

0

0

0

0

0

Defence

29,776

31,168

30,968

33,162

33,481

1,066

891

2,536

3,466

4,022

Public order and safety

1,860

1,909

1,930

1,856

1,889

79

109

140

214

297

Economic affairs

Enterprise and economic development

327

339

383

-662

-1,888

31

353

286

9,689

4,603

Science and technology

441

559

472

559

591

180

174

145

139

121

Employment policies

14

17

13

17

25

1

0

0

0

0

Agriculture, forestry and fisheries

1

0

1

1

0

0

0

0

0

0

Transport

206

207

241

254

241

215

188

153

96

99

Environment protection

283

581

335

-64

764

1,039

1,086

1,106

1,243

1,184

Housing and community amenities

0

0

0

0

0

0

0

0

0

0

Health

574

753

937

956

1,117

-36

50

54

67

37

Recreation, culture and religion

3,375

3,517

3,731

3,611

3,762

142

238

508

1,260

1,239

Education and training

29

36

42

41

40

0

0

0

0

0

Social protection

2,711

2,804

3,001

3,336

3,511

7

9

6

5

12

EU transactions

-598

-1,802

-1,531

-2,931

73

0

0

0

0

0

Total

76,232

79,575

82,917

83,160

87,025

3,459

3,552

5,593

17,123

12,551

Table 6.15 compares the composition of non-identifiable expenditure for Scotland and the UK for 2009-10. 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 6.15: Non-Identifiable Expenditure: Scotland and UK 2009-10

Scotland

UK

Expenditure (£ million)

Share of non-identifiable expenditure

Expenditure (£ million)

Share of non-identifiable expenditure

General public services

Public and common services

433

5.4%

5,221

5.2%

International services

653

8.2%

7,771

7.8%

Public sector debt interest

2,635

32.9%

31,363

31.5%

Defence

3,151

39.4%

37,503

37.7%

Public order and safety

184

2.3%

2,186

2.2%

Economic affairs

Enterprise and economic development

223

2.8%

2,715

2.7%

Science and technology

58

0.7%

712

0.7%

Employment policies

2

0.0%

25

0.0%

Agriculture, forestry and fisheries

0

0.0%

0

0.0%

Transport

22

0.3%

340

0.3%

Environment protection

162

2.0%

1,949

2.0%

Housing and community amenities

0

0.0%

0

0.0%

Health

96

1.2%

1,153

1.2%

Recreation, culture and religion

326

4.1%

5,002

5.0%

Education and training

3

0.0%

40

0.0%

Social protection

284

3.6%

3,524

3.5%

EU transactions

-236

-3.0%

73

0.1%

Total

7,998

100%

99,577

100%

Box 6.4 - 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 (the primary current balance). 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.

Estimates for Scotland over the period 2005-06 to 2009-10, are highlighted in the table below, illustrating the current balance on public services consumed within each financial year.

Current Balance on Public Services Consumed: Scotland 2009-10

(£ million)

2005-06

2006-07

2007-08

2008-09

2009-10

Current revenue

Excluding North Sea revenue

39,839

42,272

45,031

43,131

42,201

Including North Sea revenue (per capita share)

40,632

43,026

45,661

44,219

42,747

Including North Sea revenue (geographical share)

47,856

49,775

52,147

54,871

48,132

Total current expenditure

(including capital consumption and accounting adjustments)

47,116

49,071

52,143

54,083

57,098

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

-2,261

-2,428

-2,645

-2,656

-2,635

Total current expenditure on services consumed within current financial year

44,856

46,643

49,498

51,427

54,463

Current balance on public services consumed within current financial year

Excluding North Sea revenues

-5,016

-4,371

-4,467

-8,296

-12,262

Including North Sea revenues (per capita share)

-4,223

-3,618

-3,838

-7,208

-11,717

Including North Sea revenues (geographical share)

3,001

3,132

2,648

3,443

-6,331

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 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 2009-10, the UK capital consumption of £14.3 billion represented 46.8 per cent of the total UK accounting adjustment. Table 6.16 shows the component disaggregation of the UK accounting adjustment. The total UK accounting adjustments was estimated at £30.4 billion in 2009-10.

Table 6.16: Accounting Adjustment: UK 2005-06 to 2009-10

(£ million)

2005-06

2006-07

2007-08

2008-09

2009-10

UK total managed expenditure ( TME)

524,006

550,046

582,567

629,599

669,661

UK total expenditure on services ( TES)

501,208

522,853

555,619

602,102

639,238

UK accounting adjustment

22,798

27,193

26,948

27,497

30,423

of which:

Central government capital consumption

5,744

5,951

6,170

6,544

6,700

Local government capital consumption

5,960

6,466

6,774

7,164

7,550

Current VAT refunds

8,624

9,419

9,701

9,952

9,354

Capital VAT refunds

1,636

1,710

1,888

1,940

1,838

Nigerian debt cancellation

1,246

1,406

0

0

0

Student loans subsidy 1

-441

-305

-1,046

-814

-1,466

Imputed subsidy from Local Authorities to the Housing Revenue Account 2

1,431

1,528

1,535

1,603

1,433

Imputed flows for Renewable Obligation Certificates 3

370

474

542

472

470

Residual

-1,772

544

1,384

636

4,544

1 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.

2 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporation gross operating surplus, which scores on the revenue side of the account).

3 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.

The corresponding Scottish figures, as highlighted in Table 6.17, 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 2009-10, general government capital consumption for Scotland was estimated at £1.3 billion (9.2 per cent of UK capital consumption). This is relatively high for Scotland, reflecting a higher stock of public sector assets ( e.g. roads, hospitals, schools) than elsewhere in the UK. These figures are identical to those used in the general government gross operating surplus calculations in the revenue account. The figures cancel out in the net borrowing calculation.

VAT refunds have been allocated to Scotland using the apportionments derived in the revenue calculations for VAT refunds which form part of the total VAT calculations (see Appendix A), and therefore cancel out in the calculation of net borrowing. The figures for Scottish student loan subsidies were provided by HM Treasury. The imputed subsidy from local authorities to the Housing Revenue Account adopt the same apportionment allocation as in the gross operating surplus calculations on the revenue side, and the imputed flows for Renewable Obligation Certificates adopts the same methodology used in 'other taxes, royalties and adjustments'. These items cancel in the net borrowing calculations. The Scottish share of the Nigerian debt write-off has been allocated on a per capita basis. The current and capital residuals are allocated to Scotland using the appropriate TES ratios.

In sum, the total Scottish public sector accounting adjustment was estimated at £2.9 billion in 2009-10, or 9.6 per cent of the total UK accounting adjustment. The relatively higher proportion compared to per capita or GVA shares reflects the high share of general government capital consumption for Scotland.

Table 6.17: Accounting Adjustment: Scotland 2005-06 to 2009-10

(£ million)

2005-06

2006-07

2007-08

2008-09

2009-10

Capital consumption: 1

Central government capital consumption

502

528

544

580

594

Local government capital consumption

652

610

656

683

723

Current expenditure:

Current VAT refunds

852

840

878

905

888

Student loans subsidy 2

-52

-42

-58

-17

-63

Imputed subsidy from Local Authorities to the Housing Revenue Account 3

159

158

146

137

114

Imputed flows for Renewable Obligation Certificates 4

33

35

52

56

55

Current expenditure residual

-87

155

202

151

232

Capital expenditure:

Capital VAT refunds

162

152

171

176

174

Nigerian debt cancellation

105

119

0

0

0

Capital expenditure residual

-96

-137

-86

-100

199

Total accounting adjustment

2,230

2,418

2,503

2,571

2,916

Percentage of UK accounting adjustment

9.8%

8.9%

9.3%

9.4%

9.6%

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

2 TES includes the subsidy implied in student loans being issued at lower than market rate. This is not included in TME - the National Accounts measures (in the current balance) the difference between interest received from students and the amount of interest paid by the government on the debt incurred to make the loans.

3 The Housing Revenue Account ( HRA) is classified as a Public Corporation by the ONS, which means that they pay dividends on their profits to local authorities. To ensure that these dividends are non-negative, the ONS impute a subsidy from local authorities to HRAs to cover any shortfall (offset in Public Corporations gross operating surplus, which scores on the revenue side of the account).

4 Renewable Obligation Certificates are bought and sold by energy companies. The ONS have decided that these flows should be channelled through central government and so impute offsetting amounts of spending and income.