The Scottish Government

« Previous | Contents | Next »

Listen

Section 4: Revenue

This section presents estimates of Scottish public sector receipts. As noted in Section 1, for a variety of practical and theoretical reasons, estimating revenues for the individual countries of the UK is generally more difficult than estimating expenditures.

UK national taxes cannot usually be allocated directly to a region, although HMRC can provide estimates of Scottish income tax and inheritance tax liabilities. Some other taxes can be reasonably estimated for Scotland. For example, most taxes on products can be estimated based on Scottish shares of UK consumers' expenditure on certain goods and services. Other revenues are more difficult to apportion, either because of a lack of detailed information to form the basis of estimation, or because of conceptual difficulties. Included here are capital gains tax, and central government interest and dividend receipts.

The analysis below concentrates on five major taxes: income tax, social security contributions, VAT, local authority revenues and corporation tax. An account of the estimation techniques for the revenue series, together with detailed estimates for 2004-05, can be found in Appendix B.

The following section also discusses the recent trends in North Sea revenues.

Aggregate Revenues for Scotland

Table 4.1 shows revenues in the UK in 2004-05, together with Scottish estimates. A longer run of the figures for Scotland, from 2000-2001 to 2004-05, is presented in Section 6.

The calculations for 2004-05 suggest that revenues for Scotland were £36.4 billion (excluding North Sea revenues). This is equivalent to 8.1 per cent of total UK non-oil revenues, and is roughly equivalent to the Scottish GVA share in 2004.

Table 4.1 Revenue in the UK and Scotland ¹, 2004-05

Sources: UK figures from ONS, HMRC and Treasury.
Notes: 1 The figures for the individual items in the table are on a cash basis; an accruals adjustment is included in all other revenues. 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 Includes adjustment deducting EU contributions with respect to VAT, customs duties, and agricultural and sugar levies. - 3 Excludes North Sea revenues.

It is estimated that, in 2004-05, non-oil revenues as a percentage of non-oil GDP were around 39 per cent for Scotland, which is equal to the percentage in the UK as a whole.

Main Components of Scottish Revenues

Taken together, income tax, social security receipts, local authority revenues, VAT and corporation tax raised an estimated £27.2 billion in Scotland in 2004-05, nearly three- quarters of total Scottish revenues. These five components are described below.

Income Tax

The estimated Scottish share of UK income tax is derived from HMRC's Survey of Personal Incomes ( SPI). This survey is carried out annually, sampling from the HMRC's PAYE, Self-Assessment and Claims databases, and covers the income assessable for tax in each tax year. Data for 2004-05 are not yet available, so the 2003-04 apportionment has been used for this exercise. Based on these data, total Scottish income tax liabilities in 2004-05 are 7.3 per cent of the UK total, resulting in estimated receipts of £8.9 billion. As the single largest source of revenue any changes in the revenue share have a significant effect on net borrowing. For example, an increase in the revenue share by 0.1 percentage point lowers net borrowing by over £100 million. For further information on the estimate see Appendix B.

Corporation Tax

This tax is exceptionally difficult to estimate for Scotland, due to both conceptual difficulties and a lack of data. Therefore, the estimate of Scottish corporation tax should be treated with extra caution. It is obtained by attributing a share of the UK corporation tax revenue total to Scotland based on information from the UK Regional Accounts from ONS. Corporation tax is thereby estimated at around £2.4 billion for 2004-05. Specifically, the apportionment data used in this calculation are the Regional Accounts estimates of profits of public and private corporations excluding holding gains which form part of Gross Operating Surplus within Gross Value Added.

Methodological changes in the treatment of financial intermediation and extra regio activity, together with balancing adjustments, in the Regional Accounts have resulted in revised estimates of the Scottish allocation of UK corporation tax revenues. Further information can be found in Appendix B.

Value Added Tax ( VAT) Revenues

A share of the UKVAT total is allocated to Scotland on the basis of consumers' expenditure on the final goods and services affected by the tax. The Scottish share of VAT receipts is based on analyses of Scottish and UK household expenditure data from the Expenditure & Food Survey. The calculations suggest that Scotland's share of UKVAT revenues was 8.1 per cent in 2004-05, amounting to around £6 billion.

Social Security Contributions

In 2004-05, total social security contributions in the UK were £78.1 billion. The estimate of the Scottish share involves splitting the total UK receipts into employers' and employees' contributions based on the breakdown published in table 11.1 of the 2006 Blue Book, and allocating shares of these totals to Scotland separately. More information on how this has been done is given in Appendix B. This methodology gave an estimate of £6.5 billion of social security contributions from Scottish residents in 2004-05, which was 8.3 per cent of the UK total.

Local Authority Revenues

Total Local Authority revenue for Scotland of £3.4 billion in 2004-05 is the sum of council tax and non-domestic rates. This total is 8.8 per cent of the UK total of equivalent taxes, which is higher than Scotland's 8.5 per cent share of the UK population. These estimates have been obtained directly from the Scottish Executive Finance and Central Services Department, which collects the data from Local Authorities. The council tax estimate for Scotland was £1.6 billion, 8.1 per cent of the UK total. An estimated £1.8 billion was collected in non-domestic rates in Scotland, representing 9.6 per cent of the equivalent UK amount.

Other Revenues

Other revenues, which are listed in Appendix B, are estimated to have amounted collectively to £9.3 billion in 2004-05, or 8.8 per cent of the UK total. The "Other revenue" category 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 General Government Operating Surplus which is offset by depreciation on the public sector capital stock (as discussed in Section 3). The category also comprises a number of national accounts adjustments, such as the ESA95 treatment of the contributions made to the EU from VAT, customs duties, and agricultural and sugar levies.

North Sea Revenue

Table 4.2 shows the North Sea revenues accruing to the UK Exchequer. ⁵ These have been highly volatile in the last two decades. From a peak of £12 billion in 1984-85, revenues declined sharply to a trough of £1 billion in 1991-92. Revenues stood at £5.2 billion in 2004-05. In the Regional Accounts, the UK Continental Shelf is included in a (notional) separate region of the UK (the Extra-regio territory) and is not allocated to specific geographic regions. Following this convention, North Sea revenues are excluded from the allocation of revenues to Scotland. However, previous GERS reports have shown the effect of incorporating different assumptions about the allocation of North Sea revenues on the Scottish fiscal position and this analysis is repeated in Section 5.

Table 4.2 North Sea Revenues ¹

ONS Note: 1 Consists of North Sea (ring fenced) corporation tax, petroleum revenue tax, supplementary charge (from April 2002), and royalties (abolished on 1 January 2003).

« Previous | Contents | Next »