Chapter 7: Simulated budget balances for Scotland in 2007/08 using GERS data and the Raise and Remit scheme.
Summary position: Scotland should set all tax rates/bands (save VAT whose variance within a
nation-state is forbidden by EU rules), collect all taxes raised in Scotland, and remit to the UK
Treasury to cover shared services.
Using 2007/0837 as an example, total revenues raised in Scotland by both the Scottish and
UK governments would be £52.5bn – all passing through a Scottish exchequer. From that,
two types of payments are passed on to the UK Treasury: those for shared services (defence,
international services, share of UK debt servicing); and those which reflect an existing
contract between the UK government and Scottish citizens (pensions), for which the Scottish
exchequer is acting as a collecting agency without creating any liabilities for the Scottish
budget or Scottish spending.
Total spending that year was £52.3bn (£48.1+£2.7current spending adjustment+£1.5capital
consumption) using the UK own government’s measure and the standard national accounting
definition of the public spending-revenue balance. A surplus of £219m (compared to a UK
deficit of 2.8% of GDP, or £39bn approx, for the same period).
Total revenues were raised as follows:
revenue Scotland's share (£bn)
income tax 11.2
VAT 8.0
national insurance 7.9
North Sea revenues 7.3
corporation tax (excl NS revs) 3.5
all other revenues (each<£3m) 14.6
total 52.5
Of these totals, UK Government Spending and Revenues in Scotland are:
Payments to be made by Scotland would be a) for shared services, and b) transfers as agent to the UK Treasury (not from the Scottish government). A total of £11.7bn...
a) payments to Westminster £bn
defence 2.8
international services 0.6
debt servicing 2.6
total to UK for shared services 6.0
b) payments to UK pension fund £bn
state pension 5.0
pension credit 0.7
... leaving £40.8bn free for Scotland to spend as she wishes.
These are the most recent GERS data available. All numbers here are from GERS, Scottish budget and DWP pension figures.
Thus, total spending by the UK government in Scotland would be:
a) spending by Westminster in Scotland £bn
defence (estimated) 2.0
international services 0.0
debt servicing 0.0
total spent in Scotland 2.0
b) spending by pension fund £bn
state pension 5.0
pension credit 0.7
total spent in Scotland 5.7
... implying a UK government surplus of £4bn on the services rendered.
The New Scottish Budget
• In 2007/08, Scotland had a budget of £32.3bn – of which it raised ~11% (£3.7bn in non-
domestic rates and council tax)
• Under our Raise and Remit Model for the same financial year, Scotland would raise 100% of
its budget. If the spending pattern remains the same, the new budget would include all the
items covered within the £32.3bn budget, plus:
- social protection, other than state pensions, previously covered by Westminster, such as
housing benefit, unemployment benefits, council tax rebate, tax credits, income support,
disability allowances etc – £6.9bn
- areas of ‘identifiable expenditure’ by UK Government in Scotland – £1.0bn
- areas of ‘non-identifiable expenditure’ by UK Government, previously attributed to
Scotland – £1.4bn
Total: £41.6bn.
● These expenditures are £1bn above the GERS national accounting definition of Scottish
public spending(£53.3 vs. £52.3 on GERS p22) – reflecting the TES (Total Expenditure on
Services) definition of spending which the UK government uses to record items spent “off
budget” or via fiscal slippage (unattributed “accounting adjustments”). This extra spending
is not an obligation on the Scottish budget (and may not even have been spent in Scotland),
and could be cut if shown to have no particular benefit for Scotland.
• The Scottish Government would now also pay 1% of the Scottish budget (£0.4bn) into a UK
solidarity fund.
Hence, under these rules, total spending by the Scottish Government would be:
line item £bn
status quo budget 32.3
social protection (other than state pension) 6.9
re-allocated UK Gov identifiable spending 1.0
re-allocated UK Gov non-identifiable spending 1.4
solidarity fund 0.4
total 42.0
Scotland’s New Balance Sheet
• If the Scottish Government spent exactly the same amount of money under Raise and Remit
as had been spent under the Block Grant, then its overall picture would be as in 2007/08 +
the solidarity fund. So, whereas under the block grant system Scotland had a £219m surplus
before capital spending, under Raise and Remit she would have the option to run a small
surplus or a surplus of around £1bn by cancelling the solidarity fund contributions and
eliminating the UK government’s slippage (or “off budget”) expenditures in a period when
the UK government had a significant deficit.
● Following the GERS definitions, if a golden rule was rigorously applied under supervision of
the Fiscal Policy Commission, net borrowing for new capital would have been £3.8bn-£4.2bn
(2.8% of GDP). That is also smaller than the UK deficit (as a proportion of national income).
● After the UK debt servicing is paid off, that is in steady state, the £1.2bn deficit would
become a surplus of £1.4bn, reducing net borrowing for new capital to £2.6bn (1.8% GDP).
Further Adjustments to the Scottish Budget
• It is entirely possible that a Scottish Government funding expenditures in Scotland would
find other savings to be made: e.g. in the ‘non-identifiable’ spending category, or under the
TES classification where expenditures are made “for the benefit of Scotland but not
necessarily in or for Scotland”. For example, in 2007/08, GERS attributes £348m of UK
non-identifiable spending on ‘recreation, culture and religion’ to Scotland. These are exactly
the expenditures that the contributions to the solidarity fund/grants commission are designed
to cover.
● It is also estimated that Scots working in England (rest of the UK) pay about £900m more in
income and other taxes than the rest of UK citizens working in Scotland.38 Once tax is paid
by residence, not by work place, this will be repatriated to the Scottish budget.
● The effect of these two adjustments, without any change to tax rates, would be to turn a near
balanced budget under Raise and Remit for 2007/08 into a surplus of £1.2bn – with an
option to increase that surplus further by eliminating the UK government’s “off-budget” and
accounting adjustments spending.39
• The key point here is that Scotland’s budget would be Scotland’s responsibility, and Sotland’s decision.
