Government Expenditure and Revenue in Scotland

1 Government Expenditure and Revenues in Scotland, The Scottish Office, 1992; Government Expenditure and Revenue in Scotland 1993-94, The Scottish Office 1995; Government Expenditure and Revenue in Scotland 1994-95, The Scottish Office, 1996; and Government Expenditure and Revenue in Scotland 1995-96, The Scottish Office, 1997.

2 The calculations in this report are based on data available up to 22 September 1998.

3 The Government Expenditure and Revenue in Scotland 1994-95 and Government Expenditure and Revenue in Scotland 1995-96 publications are available from the Scottish Office address given at the back of this report.

4 This covers expenditure by central government departments (excluding cyclical social security), all expenditure by local authorities, and the financing requirements of nationalised industries and other public corporations. GGE is a wider measure, which also takes account of central government gross debt interest, cyclical social security expenditure, privatisation proceeds and a number of accounting adjustments.

5 Privatisation proceeds are conventionally treated in the National Accounts as negative expenditure.

6 It should be noted that the Financial Statement and Budget Reports have calculated the General Government Borrowing Requirement using GGE inclusive of privatisation proceeds. While this report concentrates on GGE excluding privatisation proceeds, FSBR practice is reflected in Table 13 (Section 8) below, where both measures are given.

7 A fuller description of the public expenditure process is given in the October 1995 and October 1996 editions of Government Expenditure and Revenue in Scotland.

8 The outturn describes the expenditure actually incurred (as opposed to forecast or planned). The Treasury publishes the results of the annual exercise in its Public Expenditure Statistical Analyses series (formerly called the Statistical Supplement to the Financial Statement and Budget Report). The most recent figures were published in the April 1998 edition (Cm 3901).

9 The Block includes government support to local authority revenue expenditure in Scotland. The element of that expenditure financed by local authorities themselves is not part of the Secretary of State's public expenditure programmes.

10 Further discussion of these definitional issues can be found in the October 1995 and October 1996 editions of Government Expenditure and Revenue in Scotland.

11 While the figures in this publication are comparable over time, it should be noted that the figures between different editions are not. This is because the boundary between "identifiable" and "non-identifiable" expenditure has been changing over time as better records and administrative procedures allow a greater proportion of expenditure to be allocated to the identifiable category.

12 Due to differences in the coverage of "identifiable" and "non-identifiable" expenditure from year to year, some caution is required in comparing the spending on individual programmes between different editions of both Public Expenditure Statistical Analyses and Government Expenditure and Revenue in Scotland.

13 For example, the October 1996 and November 1997 reports.

14 Non-identifiable expenditure known to have been incurred for the benefit of Great Britain rather than the UK has been allocated according to Scotland's share of GB GDP.

15 The estimates of international development assistance and other international services and defence expenditure in this report, as in last year's report, are allocated on a population basis. Further discussion on defence expenditure is below. Other items are allocated on a GDP basis, given its relevance as a standard economic indicator. This follows the practice adopted in previous Government Expenditure and Revenue in Scotland reports.

16 The October 1996 edition and those preceding.

17 Government Expenditure and Revenue in Scotland, 1994-95, pp18-20.

18 Payments by local authorities to the Public Works Loan Board are excluded as these represent transfers within the government sector.

19 This approach is consistent with that adopted in the previous Government Expenditure and Revenue in Scotland reports. However, it could lead to an underestimate of this component of other expenditure given that, historically, Scotland's share of public expenditure has been higher than its share of population or GDP.

20 ICCC is counted on the principle of a "double entry" basis in the presentation of the GGBR. Hence, conventions dictate that an offsetting equal amount should appear in the revenue calculations (see Section 7).

21 This approach can be criticised on the grounds that the Scottish share should be based on the proportion of Scottish-based assets being sold into the private sector. This is a valid argument. However, as described in Appendix A below, there are both practical and conceptual difficulties with such a procedure, particularly as there is no ready source of information about the geographic distribution of the assets of the privatised UK industries. Scotland's GDP share has therefore been used.

22 A longer-term series can be found in Government Expenditure and Revenue in Scotland, 1994-95, Table 11.

23 For example, the October 1996 and November 1997 editions.

24 In both cases, the GGBR excludes North Sea oil revenues. Hence, the correct denominators to use are the Scottish and UK levels of non-oil GDP (current market prices) in 1996-97. These numbers are not published. However, HM Treasury provided an estimate of UK non-oil GDP for 1996-97 in current market prices. Scotland's level of current price GDP in 1996-97 was derived by applying the 1996 share of UK GDP (the income share), as given in "Regional Accounts 1996: Part 1" and published in Economic Trends, January 1998.

The use of GDP at market prices is consistent with the Treasury's presentation of the relative size of the PSBR (for example, in the Financial Statement and Budget Report, March 1998). Some commentators on the Scottish public finances have used GDP (income) at factor cost as the denominator. As this is a smaller number (due to the factor cost adjustment), the "fiscal deficit" is a correspondingly larger percentage. Using these estimates, in 1996-97, the Scottish GGBR was 13 per cent of GDP at factor cost and the UK figure was 5 per cent.

In this section, the GGBR: GDP ratio is expressed in fractional rather than decimal terms. This follows the convention adopted by the Treasury in, for example, the annual Financial Statement and Budget Report.

25 See, for example, Government Expenditure and Revenue in Scotland, 1994-95, pp32-33.

26 The addition of oil and gas output from the North Sea to Scottish non-oil GDP is calculated for illustrative purposes only and gives a sizeable boost to the denominator in this calculation. The Scottish non-oil GDP estimate of £63.7 billion is replaced by a figure of £78.3 billion. It could be argued that, with the inclusion of North Sea activity, an appropriate measure is gross national product (GNP), which adjusts GDP for net property income to/from abroad. However, as noted elsewhere, it is conventional to use GDP for expressing the fiscal deficit percentage.

27 Both the Scottish and UK ratios here are based on GGBR inclusive of privatisation proceeds.