Government Expenditure and Revenue Scotland (GERS) 2021-22 - The Main Headlines And What Does It Really Tell Us?
24th August 2022
Government Expenditure and Revenue Scotland (GERS) is a National Statistics publication. It reports estimates of the revenue raised in Scotland and the cost of public services provided for Scotland.
Main Findings
Net Fiscal Balance 2021-22
This is the difference between total revenue and total public sector expenditure including capital investment. The net fiscal balance:
Was a deficit of 12.3% of GDP (£23.7 billion).
When excluding the North Sea, was a deficit of 15.7% of GDP (£27.2 billion)
For the UK as a whole, was a deficit of 6.1% of GDP.
Total Public Sector Revenue 2021-22
Scottish public sector revenue was estimated as £73.8 billion (8.0% of UK revenue). Of this, £3.5 billion was North Sea revenue. Scottish non-North Sea revenue was £70.3 billion (7.7% of UK revenue).
Non-North Sea revenue increased by £8.4 billion in 2021-22, an increase of 13.6% as in particular VAT, non-domestic rates, fuel duties, and income tax and national insurance contributions grew strongly.
Scotland's illustrative geographical share of North Sea revenue was £3.5 billion in 2021-22, up from £0.8 billion in 2020-21, as energy prices recovered from the falls during the pandemic.
Scotland's public sector revenue is equivalent to £13,463 per person, £221 less than the UK average. Excluding North Sea revenue, it is £12,831 per person, £805 less than the UK average.
Total Public Sector Expenditure 2021-22
Total expenditure for the benefit of Scotland by the Scottish Government, UK Government, and all other parts of the public sector was £97.5 billion. Spending fell by 1.0%, reflecting the phasing out of interventions in response to the pandemic. This is equivalent to 9.2% of total UK public sector expenditure, or £17,793 per person, which is £1,963 per person greater than the UK average.
Background
The aim of GERS is to enhance public understanding of fiscal issues in Scotland. The primary objective is to estimate a set of public sector accounts for Scotland under the current constitutional arrangements through detailed analysis of official UK and Scottish Government finance statistics. The report is designed to allow users to understand and analyse Scotland's fiscal position under different scenarios within the current constitutional framework.
The Office for National Statistics produce a similar publication which covers all countries and regions of the UK. The latest publication of Country and regional public sector finances, UK covers years up to 2020-21.
GERS is a National Statistics publication, which means that it is produced independently of Scottish Ministers and has been assessed by the UK Statistics Authority as being produced in line with the Code of Practice for Official Statistics. This means the statistics have been found to meet user needs, to be methodologically sound, explained well and produced free of political interference.
Official statistics are produced in accordance with professional standards - more information can be accessed on the standards of official statistics in Scotland.
Read the full report HERE
From Fraser of Allender Institute
GERS 2022 - the main headlines... and what does it really tell us?
This morning sees the publication of Government Expenditure and Revenue Scotland (GERS) 2021-22.
These statistics set out three main things:
The revenues raised from Scotland, from both devolved and reserved taxation;
Public expenditure for and on behalf of Scotland, again for both devolved and reserved expenditure;
The difference between these two figures, which is called in the publication the "net fiscal balance" - but as you may well hear colloquially referred to as the "deficit".
These statistics form the backdrop to a key battleground in the constitutional debate, particularly when it is focussed on the fiscal sustainability of an independent Scotland and what different choices Scotland could make in terms of taxation and spending.
So what do the latest statistics show?
The latest figures show that the net fiscal balance for 2021-22 was -£23.7 bn, which represents -12.3% of GDP. This is a huge fall from the 2020-21 figure of -22.7% of GDP, but we have to remember that this was the first year of COVID-related spending which hugely inflated both the UK and Scottish deficit.
The comparable UK figure for 2021-22 is -6.1% of GDP.
The difference between the Scottish and UK deficit is driven by both sides of the net fiscal balance equation.
On revenues, Scotland raised £221 less per head than the UK, whilst on expenditure, Scotland spent £1,963 more per head than the UK average.
One of the changes from the last few years has been the increased contribution from oil revenues, which were estimated to be £3.5bn for 2021-22. [As an aside, there is no revenue from the UK Government's new "windfall tax" in these figures - that started to be collected in May 2022 so will feature in next year's GERS].
So what do these statistics really tell us?
These statistics reflect the situation of Scotland as part of the current constitutional situation, that is, Scotland as a devolved government as part of the UK. The majority of spending that is carried out to deliver services for the people of Scotland are provided by devolved government (either Scottish Government or Local Government). To a certain extent therefore, the higher per head spending levels are driven by the way that the funding for devolved services is calculated through the Barnett formula. Add on top of that the higher than population share of reserved social security expenditure, and we have identified the two main reasons for higher public expenditure in Scotland.
Let's go over some of the main points that may come up today when folks are analysing these statistics.
Scotland isn't unusual in the UK in running a negative net fiscal balance
This is absolutely right. ONS produce figures for all regions and nations of the UK, and these have shown consistently (in normal years, so excluding COVID times) that outside of London and surrounding areas, most parts of the UK are estimated to raise less revenue than is spent on their behalf.
Last year, we discussed the differences between parts of the UK in an episode of BBC Radio 4's More or Less programme.
The Scottish Government doesn't have a deficit as it has to run a balanced budget
Again, this statement is broadly true*. The Scottish Government's Budget is funded through the Barnett determined Block Grant, with some adjustments to reflect the devolution of taxes and social security responsibilities (most significantly, income tax).
Limited borrowing powers are available to the Scottish Government to fund capital investment and cover forecast error, but they do not have the flexibility to borrow for discretionary resource spending.
However, to focus on this around the publication of GERS somewhat misses the point of the publication. It looks at money spent on services for the benefit of Scotland, whoever spends it, and compares that to taxes raised, whoever collects them. As touched on above, the Barnett-determined block grant funds services at a higher level per head in Scotland than in England in aggregate.
*changed from "absolutely" originally given the limited borrowing powers available
Onshore revenues cover devolved spending and social security
This has come up a few time in recent months, and also features in the Scottish Government’s press release:
"But even without North Sea receipts, the record revenue generated was sufficient to cover all day-to-day devolved spending as well as all social security spending in Scotland, including the state pension.
It is true that onshore revenues of £70.3bn are more than devolved current spending of £53.5bn plus social protection spending by the UKG of £16.7bn (£53.5bn+£16.7bn=£70.2bn).
What this does not include is any capital investment, of course, including £8bn of devolved capital expenditure.
More significantly, there are a number of reserved functions that are also funded outwith these 2 categories - including reserved economic development spending of £2.2bn (so on programmes like Innovate UK), public sector debt interest payments (£4.5bn), reserved transport spending (£988m), public and common services (£1.4bn - including running administrative services such as HMRC), defence (£3.9bn), International services (£659m - including foreign aid) etc.
What does this tell us about independence?
Setting aside the noise that will no doubt accompany GERS today, there are essentially two key issues, that need to be considered together.
GERS takes the current constitutional settlement as given. If the very purpose of independence is to take different choices about the type of economy and society that we live in, then it is possible that these a set of accounts based upon the world today could look different, over the long term, in an independent Scotland.
That said, GERS does provide an accurate picture of where Scotland is in 2022. In doing so it sets the starting point for a discussion about the immediate choices, opportunities and challenges that need to be addressed by those advocating new fiscal arrangements. And here the challenge is stark, with a likely deficit far in excess of the UK as a whole, other comparable countries or that which is deemed to be sustainable in the long-term. It is not enough to say ‘everything will be fine’ or ‘look at this country, they can run a sensible fiscal balance so why can’t Scotland?’. Concrete proposals and ideas are needed.
And please guys... dodge the myths!
We have produced a detailed guide to GERS which goes through the background of the publication and all of the main issues around its production, including some of the odd theories that emerge around it. A couple of years ago, we also produced a podcast which you can enjoy at your leisure.
In summary though, to go through the main claims usually made about GERS:
GERS is an accredited National Statistics produced by statisticians in the Scottish Government (so is not produced by the UK Government) and is a serious attempt to understand the key fiscal facts under the current constitutional arrangement
Some people look to discredit the veracity of GERS because it relies - in part - on estimation. Estimation is a part of all economic statistics and is not a reason to dismiss the figures as "made up".
Will the numbers change if you make different reasonable assumptions about the bits of GERS that are estimated? In short, not to any great extent.
If you have any more questions about how revenues and spending are compiled in GERS, the SG publish a very helpful FAQs page, including dealing with issues around company headquarters and the whisky industry.
See more HERE
Scottish Secretary Alister Jack comments on 2021-22 GERS
figures
The Government Expenditure & Revenue Scotland figures show the difference between total revenue and total public sector expenditure in Scotland.
Commenting on the Scottish Government’s Government Expenditure & Revenue Scotland figures, Scottish Secretary Alister Jack said:
Today’s Scottish Government figures show how people and their families benefit massively from being part of a strong, resilient UK.
Scotland’s deficit - the shortfall between taxes raised here, including oil, and public spending - stands at £23.7bn. But as part of the UK, we can rely on the Treasury to step up to support us in plugging the gap.
At a time of unprecedented challenges, sharing resources around the UK has never been more important.
As we continue to recover from the pandemic and confront global pressures on prices and the cost of living, it is clear we need a shared and a relentless focus on boosting the economy.
Background
Total expenditure for the benefit of Scotland fell from £98,439 million in 2020-21, to £97,502 million in 2021-22.
The decline in spending reflects a reduction in spending associated with coronavirus support schemes.
Although spending as a share of GDP has fallen from the peaks seen during 2020-21, it remains above 50% of GDP, and around 5 percentage points higher than prior to the pandemic.
On top of receiving additional Barnett consequentials for the Scottish Government for 2021-22, these figures account for Scotland having benefited from at least an additional £3.7 billion in reserved spending, down from £9.4 billion in 2020-21.
The figures from the Scottish Government show that Scotland’s notional deficit fell from £35,774 billion in 2020-21 to £23,727 billion in 2021-22. This is more than Scotland’s entire health, education, economic development, tourism and culture budget for the year, which was a cumulative £23.4 billion in 2021-22.
Public expenditure per person in Scotland in 2021-22 was £1,963 higher than the UK average. This was an increase from £1,530 in 2020-21.
Revenue per person in Scotland remained below the UK average. In 2021-22, including an illustrative geographical share of North Sea revenue, revenue per person was £221 lower than the UK average. In 2020-21 when revenue per head was £395 lower than the UK average. This shows the higher variability when North Sea revenues are included.
The ‘Union dividend’ per person in Scotland (the combined value of higher spending and lower revenue) was £2,184 in 2021-22. This was an increase from £1,924 in 2020-21 (revised).
Although spending on the pandemic fell in 2021-22, this has mostly been offset by increases in the cost of servicing public sector debt.
