Government Expenditure and Revenue in Scotland

Government Expenditure and Revenue in Scotland

SECTION 7: REVENUES

INTRODUCTION
This section estimates tax receipts from Scotland. As noted in Section 1, for a variety of practical and theoretical reasons, estimating revenues for the individual countries of the UK is more difficult than estimating GGE.

Some taxes can be fairly readily allocated to Scotland, either through available survey data or through the Scottish share of UK consumers' expenditure on goods and services. These include income tax, social security contributions, inheritance tax and most expenditure taxes. Other government revenues are more difficult to apportion, either because of a lack of detailed information, or because of conceptual difficulties. Included here are corporation tax, some capital taxes (such as capital gains tax), some expenditure taxes (such as protective duties and levies), and central government interest and dividend receipts.

The section presents an estimate of aggregate General Government Receipts (GGR) in Scotland in 1996-97. Within this total, the analysis below concentrates on the 4 major taxes: income tax, social security contributions, value added tax, and local authority revenues. An account of the estimation techniques for all the revenue series, together with estimates for 1996-97, can be found in Appendix B. The section also discusses the recent trends and short-term projections for North Sea revenues.

AGGREGATE REVENUES RAISED IN SCOTLAND
Table 9 shows GGR in the UK in 1996-97, together with Scottish estimates. A longer run of the figures for Scotland, from 1992-93 to 1996-97, is shown in Appendix D.

Table 9. General government receipts in Scotland, 1996-97

		UK £ million ⁽³⁾		Scottish estimate £ million ⁽³⁾		Estimated % share of UK ⁽³⁾
Income tax		69,100		5,500		8.0
Social security contributions		47,200		4,200		9.0
Value added tax		46,700		4,000		8.6
Local authority revenues		24,700		2,200		9.0
All other revenues ⁽¹⁾		95,500		8,700		9.1
Total receipts ⁽²⁾		283,200		24,700		8.7

Notes: 1. For a list of all the taxes included under this category and an explanation of how the individual estimates were derived, see Appendix B.
2. Excluding North Sea revenues.
3. All figures have been rounded to the nearest £100 million. Percentages are based on unrounded figures.
Sources: UK figures from HM Treasury, and Financial Statistics, August 1998.

The calculations for 1996-97 suggest that revenues of £24.7 billion (excluding North Sea revenues) were raised in Scotland. This is equivalent to 8.7 per cent of total UK non-oil revenues, the same as the Scottish population share in 1996.

It is estimated that, in 1996-97, non-oil GGR as a percentage of non-oil GDP was 38³/₄ per cent for Scotland, compared with a ratio of 38 ¹/₂ per cent for the UK as a whole.

MAJOR COMPONENTS OF SCOTTISH REVENUES
Taken together, income tax, social security receipts, local authority revenue and VAT raised an estimated £16.0 billion in Scotland in 1996-97. They are highlighted here for two reasons: they are among the largest revenue earners in Scotland (together accounting for almost two-thirds of total Scottish revenues); and they can be estimated with reasonable accuracy.

*Income tax*
The estimated Scottish share of UK income tax is derived from the Inland Revenue's Survey of Personal Incomes. This is carried out annually and covers the income assessable for tax in each tax year. Incomes are allocated to regions and countries according to the residence of the recipient for the employed and the business address for the self-employed.

This estimation technique, which is unchanged from that adopted in the previous editions of Government Expenditure and Revenue in Scotland, is preferable to the allocation of income tax receipts on the basis of Scotland's share of UK income taxpayers (around 9.1 per cent in 1996-97). This is because a population-based allocation would not properly reflect differences in the distribution of taxpayers across the lower, basic and higher tax bands; nor would it take account of differences in the geographic distribution of investment income or the lower level of average earnings in Scotland.

Total income tax liabilities in 1996-97, the most recent year for which data are available for taxpayers resident in Scotland, are estimated to be 8.0 per cent of the total for the UK. When applied to the UK's income tax net receipts (rather than liabilities) of £69.1 billion, this produces a Scottish income tax estimate of £5.5 billion.

Table 10 shows the Inland Revenue's estimates of Scotland's share of UK income tax receipts over the last 5 years for which data are available. The share has been stable since 1992-93²².

Table 10. Income tax revenues: Scotland's share of UK revenues

	1992-93		1993-94	1994-95	1995-96		1996-97
Scotland's share of UK total (%)	7.9		7.9	8.0	7.9		8.0

Notes: 1. The denominator used in the calculation is the sum for UK regions and not the UK total figure, which includes some members of the Forces and Merchant Navy, together with a small number of civil servants serving overseas, who cannot be allocated to any UK region.

Source: Inland Revenue Survey of Personal Incomes; see Table 3.11 in Inland Revenue Statistics 1998 and past issues.

*Social security contributions*
The estimates of National Insurance and related contributions from Scottish residents are again available directly from survey evidence. In 1996-97, total contributions in the UK were £47.2 billion and the Department of Social Security's latest estimate is that 9.0 per cent of this amount, or £4.2 billion, relates to people resident in Scotland. The share attributable to Scotland is taken from analyses of a one per cent sample of National Insurance records.

*Value added tax (VAT) revenues*
VAT revenues are the third largest receipt in Scotland. A share of the UK total is allocated to Scotland on the basis of consumers' expenditure on the final goods and services affected by the tax, using data from the UK Regional Accounts. The calculations suggest that Scotland's share of UK VAT revenues was 8.6 per cent in 1996-97, amounting to £4.0 billion.

*Local authority revenues*
The figure for Scotland in 1996-97 is the sum of council tax and non-domestic rates. These estimates have been obtained direct from the Scottish Office's Local Government Finance Division. The council tax estimate for Scotland was £1 billion, around 9.7 per cent of the UK total. An estimated £1.2 billion was collected in non-domestic rates in Scotland, representing 8.5 per cent of the equivalent UK amount.

In total, therefore, the two local government taxes yielded some £2.2 billion, or 9.0 per cent of the equivalent taxes in the UK. This is higher than Scotland's 8.7 per cent share of the UK population.

*Other taxes*
These taxes, which are described in Appendix B, are estimated to have amounted collectively to £8.7 billion in 1996-97, or 9.1 per cent of the UK total.

The largest tax is corporation tax (excluding North Sea), which is estimated at £2.5 billion. A share of the UK total is attributed to Scotland based on information from the UK Regional Accounts.

The "other taxes" category also includes a number of expenditure taxes where Scotland's share is notably higher than the UK average. This is due to Scotland's relatively high share of UK consumers' expenditure on items such as alcohol and tobacco. In addition, the category includes the "double entry" offsetting ICCC charge measuring depreciation on the public sector capital stock (as discussed in Section 5). In 1996-97, these three measures accounted for 10.2 per cent, 11.3 per cent, and 16.6 per cent of their respective UK amounts.

NORTH SEA REVENUES
Table 11 shows that North Sea revenues have been highly volatile in the last two decades. From a peak of £12 billion in 1984-85, revenues declined sharply to £1 billion in 1991-92. Since then, revenues increased to £3.6 billion in 1996-97, but they fell again to £3.3 billion in 1997-98 and they are forecast to amount to £2.6 billion in 1998-99.

Table 11. North Sea oil revenues ⁽¹⁾

Year		£ billion ⁽³⁾		Year		£ billion ⁽³⁾
1981-82		6.5		1990-91		2.3
1982-83		7.8		1991-92		1.0
1983-84		8.8		1992-93		1.3
1984-85		12.0		1993-94		1.2
1985-86		11.3		1994-95		1.6
1986-87		4.8		1995-96		2.4
1987-88		4.6		1996-97		3.6
1988-89		3.2		1997-98		3.3
1989-90		2.4		1998-99		2.6⁽²⁾

Notes: 1. North Sea corporation tax before ACT set-off, petroleum revenue tax and oil royalties. Figures for 1981-82 and 1982-83 include supplementary petroleum duty.
2. Forecast as prepared for the Financial Statement and Budget Report, March 1998.
3. Figures are on a current price basis.
Source: Inland Revenue Statistics 1998, Table 11.15.

As with the earlier expenditure analysis, the revenue analysis presented here has followed the Regional Accounts conventions when apportioning financial flows to Scotland. One consequence is that the North Sea is treated as a separate region (the UK Continental Shelf), with North Sea revenues excluded from the allocation of revenues to Scotland. However, previous Government Expenditure and Revenue in Scotland reports²³ have shown the effect of incorporating different assumptions about the allocation of North Sea revenues on the Scottish GGBR and this analysis is repeated in Section 8 (Table 13).

SECTION 7: REVENUES

INTRODUCTION

AGGREGATE REVENUES RAISED IN SCOTLAND

MAJOR COMPONENTS OF SCOTTISH REVENUES

NORTH SEA REVENUES