Have we paid £8bn more in than we've had out?

12 Aug 2014

From the archive — published in 2014 on the original Chokkablog, kept as it was written.

• "In each one of the last 33 years, Scotland has paid more in tax per person than the average of the UK. Over the last five years we have [paid] 8 billion pounds more into the Treasury than we have had out of it, in relative terms. That is 1,500 pounds a head for every man, woman and child in Scotland."

• In the last 5 years public expenditure in Scotland (what we've "had out of" the Treasury) exceeded our tax receipts (What we have "put in" to the Treasury) by £51.3bn¹ .. or over £9,000² a head for every man woman and child in Scotland.

• "Alex Salmond said Scotland had contributed £8bn to UK finances. According to Scottish government figures, Scotland has contributed more to the Treasury per head than the UK average, if you assume a geographic share of North Sea revenues. In 2011-12, it was £1,500 more per head (the figure Mr Salmond quoted) and, if you multiply that by the Scottish population, you come to £8bn"

• The figure quoted is for 2011-12 - not the last five years
• The figure represents tax contribution (what's "put in") and takes no account of the public expenditure received (what's "taken out") - the First Minister said the figure represents an amount "more into the Treasury than we have had out of it"

• In 2011-12 (the year before last): assuming a full geographic share of oil (and using the Scottish Government's definition of geographic share) Scots contributed £1,500 more per capita to the treasury than the the UK average (before taking account of how much more we received back in the form of public expenditure).  In absolute terms that is equivalent to £8bn

• "Over the last five years we have [paid] £1.4bn pounds more into the Treasury than we have had out of it, in relative terms. That is £270* a head for every man, woman and child in Scotland."

To make what I might humbly suggest is a more fairly representative statement (figures in green)

• In recent years Scotland gets more back from the Treasury than we put in, even applying the most favourable assumptions around keeping "our" geographic share of oil revenue.
• If you want to be precise in the numbers; looking at this on an average annual per capita basis relative to rUK;
• Over the last 7 years on average we've paid £2(!) pa. more in than we've had out
• Over the last 5 years on average we've paid £54 pa. more in than we've had out
• Over the last 4 years on average we've received £156 pa. more out than we've put in
• Last year we received  £512 more out than we put in to the Treasury

So we can see why the 5 year time period was chosen; take a longer or shorter time period and the picture changes dramatically.  I have neither the time nor the inclination to go back even further than 7 years - we should really be discussing the future after all.

But hold on; we still haven't explained the £8bn figure.  It was at this point that I initially concluded our First Minister and his script writers must have simply lied - I accept now that I was wrong and am happy to put the record straight.  I'm indebted to Ivan McKee of Business for Scotland (and another Anonymous contributor) for giving me a steer on this.

The figure can be arrived at if you assume over the 5 year time period Scotland should have received the same share of expenditure as its share of tax contribution.  Sure enough you can get to the £8bn figure on that basis (highlighted in blue).  There is a massive and - once you've thought it through - fairly obvious problem with this approach; it would mean our share of the deficit would become the same as our share of tax contribution - we would be disproportionately responsible for the deficit and the debt associated with it.

Let me offer a narrative interpretation of the figures (figures not already quoted above are highlighted in the table in orange.)

Assuming Scotland keep "our" oil money on a geographic share basis (and taking the Scottish Government's most favourable definition of geographic share);

• The higher levels of public spending we currently receive mean we run a very similar per capita deficit to the rest of the UK (although in recent years Scotland has been running a significantly higher per capita deficit)
• Over the last 7 years £2(!) per capita per annum lower
• Over the last 5 years £54 per capita per annum lower
• Over the last 4 years £156 per capita per annum higher
• Last year £512 per capita higher
• If our share of expenditure was the same as our share of tax contribution (the First Minister's hypothesised case) we would run a higher deficit (as our share of deficit would become the same as our share of tax contribution).  
• Over the last 5 years Scotland's share of deficit generated (8.2%) is very similar to our population share (8.4%); over the last 7 years its identical (8.4%) and over the last 4 years its higher (8.9%)
• Under the hypothesised case we would have spent an extra £8.3bn; of course that means our deficit would also have been £8.3bn greater
• Under the hypothesised case Scotland's 8.4% of the UK population would have been responsible for 9.5% of the deficit (i.e. debt requirement) - that's an additional £1,332 of debt for every man woman and child in Scotland

So what can we conclude from all of this number crunching?  Funnily enough the same as when I looked at these figures nearly 3 months ago here > Oil & Gas Part I: For Richer for Poorer;

• Scotland receives back in higher expenditure about the same amount as we contribute in higher tax if you assume we get to keep "our" oil and gas
• On this basis Scotland historically runs a similar deficit/capita as the rest of the UK (although last year it was £470/capita higher)
• A corollary of this would be that we are (at least over the period I've analysed here) responsible for our per capita share of debt even if we are allowed to retrospectively  keep "our" historical oil & gas revenues

To account for the First Minister's statement we can add;

• If we decided that Scotland should have produced a higher per capita deficit than rUK because we contributed a higher share of tax (assuming we keep "our" oil) then we would indeed  have needed to receive an extra c.£8bn over the last five years ... and our deficit (and hence implicit share of debt) would be £1,332 per capita higher than our per capita share

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