by John McLaren

Key Facts

Section 1

  • Until recently very little of Scottish public spending was raised by the Scottish Government (central or local) and most budget matters were dominated by UK Government decisions on spending, tax and fiscal targets. Consequently there are no explicit Scottish borrowing or debt levels.

  • Since 1979, the 'Barnett Formula', whereby Scotland gets a population share of changes to relevant spending elsewhere in the UK, has been used to convert UK spending decisions into Scottish spending levels.

  • Post the Smith Agreement, the Scottish Government will gain control of around 40% of revenues and two-thirds of spending, although some aspects are being phased in.

Section 2

  • In comparison to the UK as a whole, Scotland raises slightly less than its population share of onshore tax revenues and receives around 10% more than its population share of public spending.

  • This 'onshore advantage' can be explained in part by special circumstances like the relative geographic size of Scotland and its series of island communities. However, a proper 'Needs Assessment' has never been undertaken to determine what scale this advantage should be to ensure fairness of distribution.

  • Since 1979 the UK also has also had sizeable offshore revenues, coming from oil and gas fields in the North Sea. Most commentators assume that Scotland would receive a geographic share of such revenues, which historically has been in the range of around 80-90% of the UK total.

  • Due to the erratic nature of offshore tax revenues, associated in particular with a fluctuating oil price, Scotland's overall fiscal position, relative to the UK, has varied over time. 

Section 3

  • If a position of full fiscal autonomy were to be achieved, either within or outside the UK, there would need to be negotiation with the rest of the UK over both shared assets and liabilities which could affect any future fiscal position. In particular, this would apply to debt interest payments and North Sea costs and benefits.

  • Future changes to Scotland's fiscal position could result from: changes in the pattern of tax raising (e.g. on corporation tax); changes in the pattern of public spending (e.g. on defence); changes in how natural resource (oil and gas) taxes are used (e.g. saved as part of a Futures/Oil Fund); and changes in the economic growth rate.

  • Due to the number of highly influential uncertainties surrounding Scotland's fiscal position, its future is difficult to predict.

For the full chapter, please see: Maclaren, J. (2017) Fiscal Matters. In Gibb, K., Maclennan, D., McNulty, K., & Comerford, M. (eds) Scottish Economy - A Living Book. London: Routledge. Available via this link.


Visualisations

Figure 4.1(i): Distribution of Revenues and Expenditures: 2016-17
- Data comes from the Scottish Government's Government Expenditure and Revenue Report
- The Scottish Government is responsible for how around 40% of Scotland's revenue is created, the rest is decided by Westminster


Figure 4.1(ii): Devolved Expenditures: 2016-17
- Data comes from the Scottish Government's Government Expenditure and Revenue Report
- The Scottish Government decides where to spend about 63% of all govenrment expenditures in Scotland, the remaining is decided by the United Kingdom


Figure 4.2: Estimated Net Fiscal Balance
- Data comes from GERS reports produced by the Scottish Government and includes shares of north sea revenue


Figure 4.3: Net Fiscal Balance with and without North Sea Oil Revenue
- All data comes from the Scottish Government's GERS reports


Figure 4.4: Total Public Sector Revenue in Scotland 2017-2018
- This chart comes directly from the GERS 2017-2018 Report


Figure 4.5: Government Revenues from UK Oil and Gas Production
- Data comes from HRMC's Oil and Gas Production Statistics


Figure 4.6: North Sea Revenue
- All data comes from the Scottish Government's GERS Report


Figure 4.7: Total Public Expenditure: Scotland 2017-18
- Data comes from the 2017-18 Scottish Government's GERS Report


Table 4.1: Onshore Revenue Shares
- All data comes from the Scottish Government's GERS 2015-16 Report.
- Scotland's population share of any tax would be 8.3%


Table 4.2: Identifiable Expenditure on Services, Per Head (£), 2015-16
- Data comes from HM Treasury, PESA, 2017


Table 4.3: Draft Scottish Budget 2017-18
- All data comes from Scotland's Budget: Draft Budget 2017-18, Table 3.01
-"Departmental Expenditure Limit (DEL) is spending on government services, for example Health, within which:
 DEL Resource expenditure is spending on day-to-day activities, dominated by wages;
 DEL Capital expenditure is spending on longer term investment type activities;
 Annually Managed Expenditure (AME) incorporates demand driven payments,mainly in relation to
 public sector pensions, etc."


Table 4.4: Breakdown by Sector of Scottish Spending on DEL
- All data comes from Scotland's Budget: Draft Budget 2017-18, Table 3.01