How Much of Scotland's Tax Revenue Does Westminster Keep?
From the archive — published in 2019 on the original Chokkablog, kept as it was written.
tl;drMore spending occurs in Scotland than tax revenues raised by Scotland.
In fact, more money is spent in Scotland than the sum of tax revenues raised by Scotland plus Scotland's per capita share of the UK's overall deficit (i.e. there is a fiscal transfer in Scotland's favour after allowing for Scotland's share of the increase in UK debt).
Both the statements above are true even before taking into consideration Scotland's share of defence costs, international aid and debt interest.
It is simply not true to argue that Westminster "keeps" any of Scotland's tax revenues
A grievance persistently pushed by nationalists on social media is that "Westminster keeps" a chunk of Scotland's tax revenues - if you've been directed to this blog post, you may even have joined this merry gang yourself
The numbers tend to differ because the people who make such claims tend not to be too interested in actual figures or data audit-trails, but the theme is consistent. For the purposes of illustration let me take one example that appeared in my timeline yesterday and quickly garnered over 1,000 likes1
I'll use the format of the above tweet to walk through the actual figures, always with reference to Scottish Government's GERS figures for 2018/19 . These are figures compiled by Scottish Government economists in St Andrews House and which qualify as National Statistics. In all cases I will reference page and table numbers from this latest GERS report.
"We raise £63bn" - This is correct
Scotland (including a full geographic share of oil revenues) raised £62.7bn of revenue in 2018/19 [p4. Table S.3]
"We keep £35bn" - This is incorrect
It's clear this figure is meant to be spending Scotland controls, because the other figures are money Westminster "keeps" or "Spends [..] on our behalf".
The correct figure is therefore £44.7bn, this being money spent by "Scottish Government, LAs and Public Corporations" [p33, Table 3.8]
"Westminster keeps £28bn [and] spends a further £12bn on our behalf" - This is also incorrect
The balance of spending allocated to Scotland that is spent by "Other UK Government" (aka Reserved spending) is in fact £30.6bn [p33, Table 3.8]
Sanity check opportunity: above we've accounted for £62.7bn of revenue and £75.3bn [£44.7bn + £30.6bn] of expenditure - that explains a deficit of £12.6bn which was indeed the GERS deficit in 2018/19 [p2. Table S.1]
So we now have the correct figure for the attempted grievance: the £12.6bn GERS deficit includes £30.6bn spent by "other UK Government" on Scotland's behalf (aka "Reserved Expenditure").
Sanity check opportunity: "Devolved expenditure including housing benefit" [p45, Table 4.8] is shown as £44.7bn "before Scotland Acts 2012 and 2016" - this is consistent with our £44.7bn figure above, hence our £30.6bn "Other UK Government Spending" is what is also referred to as "Reserved Spending" (being that spending which is not devolved). Table 4.8 shows that, of currently Reserved expenditure, an additional £3.1bn will be devolved once these Acts are fully enforced - all of this £3.1bn is related to additional powers over Social protection, as detailed on p43, Table 4.6
All we need to do now is understand how that £30.6bn is spent and we can decide how aggrieved to feel.
I'll run through the detail at the foot of this blog, but of that £30.6bn Reserved Expenditure:
£20.0bn is spent in and for Scotland, largely on Social Protection, but also Transport, Research Grants, Tax Credits etc.
£2.9bn is spent for Scotland on things like DWP, HMRC, the BBC and Nuclear decommissioning costs which also involve spending in Scotland. While £0.1bn less than BBC expenditure allocated for Scotland is actually spent in Scotland, the reverse is true in the case of Nuclear Decommissioning costs and very likely the case for DWP and HMRC costs as well. Scotland gets the "fiscal multiplier" benefit of this spending already and would still need to fund delivery of these services if independent.
Pause for breath: At this point we have explained Scotland raising £62.7bn, having £44.7bn of Devolved Spending and receiving a further £22.9bn of Reserved Spending spent in Scotland - so that's £4.9bn more spent in Scotland than raised in Scotland. Scotland's population share of the UK's deficit is just £1.9bn, so we're already receiving an effective fiscal transfer of £3.0bn by this point
£3.6bn is Public Sector Debt Interest - the SNP's own Sustainable Growth Commission accepted the principle that an independent Scotland would need to service this debt
£3.2bn is Defence Spending - in the most recent year this was 1.8% of Scottish GDP, compared with the NATO member target of 2.0%. Trident is likely to be responsible for just £0.2bn of this figure and of course some of that £3.2bn is spent in Scotland.
£0.9bn is International Services (basically Foreign Aid) and again: the SNP's own Sustainable Growth Commission accepted the principle of maintaining this expenditure.
Check this all adds up: we'd got to a £4.9bn deficit, now we've explained the remaining £7.7bn that gets us to the correct £12.6bn GERS deficit
So people can have a bun-fight about what these figures would look like for an independent Scotland, but it's simply nonsensical to suggest that under current arrangements Westminster in any way "keeps" any of the tax money Scotland raises.
More is spent in Scotland than Scotland raises in taxes and the big sums that are spent for but not in Scotland are (with the possible exception of some defence spending) costs that an independent Scotland would still expect to incur.
Addendum: I have now analysed in more detail how much reserved spending takes place in Scotland, and the answer is over £24 billion [see Addendum 2 here]
The Bad News
To do this properly you need to go through the GERS Supplementary Data: Detailed Expenditure Database. For each of the line-items in Table 3.8 you can see there the detail broken down as per the UK Government Country and Regional Analysis (CRA) Categories - you'll be surfing a database with 4,225 rows. In each case you can then see which items of expenditure are considered "Identifiable" (that is expenditure that can be clearly allocated to Scotland as having been spent for the benefit of Scotland) and which are not (aka "ID" vs "Non-ID"). Just because expenditure is considered "Identifiable" doesn't mean that expenditure is necessarily spent in Scotland - but you can then email the Chief Economic Adviser to the Scottish Government and ask for some help.
The Good News
I've already done this so can now summarise it for you.
The full audit-trail is only available for 2017-18 (because of the timing of CRA data and GERS data publications) - but fortunately Reserved Expenditure in 2017-18 was £30.7bn, so almost identical to the most recent year.
Of that £30.7bn, £20.1bn is considered Identifiable (spent for the benefit of Scotland):
£17.4bn = Social Protection (Pensions, Tax Credits, Allowances and Benefits)
£1.1bn = Transport (mainly Network Rail expenditure in Scotland)
£0.5bn = Science & Technology (Renewable Heat Incentive and various Research Council grants)
£0.4bn = Enterprise & Economic Development (mainly Tax Reliefs & Tax Credits)
£0.2m = Employment Policies (Department of Work & Pensions)
£0.5bn = Other (Lottery Grants, Medical Research Council, NERC, etc. etc.)
But what about expenses that are included in this £20.1bn of "Identifiable" expenditure that people might challenge as being "fair" or "appropriate" to allocate to Scotland? Well I've been through the detail and I'm used to the examples most often raised, so let's cover them off here. Of that £20.1bn considered "Identifiable" expenditure for Scotland, the following costs are not spent in Scotland:
£57m = High Speed 2 (based on Scotland's expected share of the economic benefit)
£35m = House of Commons and House of Lords
That's it - if you don't believe me go and look for yourself. So frankly those costs are no more than a rounding error: we can say with confidence that £20bn of Reserved Expenditure is considered as Identifable expenditure for Scotland and is money spent directly in Scotland.
So where does that get us to?
Revenue Raised = £62.7bn
Devolved Expenditure = £44.7bn
Reserved Expenditure For and In Scotland = £20.1bn
So at this point Scotland has a deficit of £2.1bn - so where does the other £10.5bn of deficit come from?
The big figures are well known - these are UK costs that are allocated to Scotland on the basis of Scotland's population share:
Public Sector Debt Interest = £3.6bn
International Services = £0.9bn (almost entirely Foreign Aid)
Defence Expenditure = £3.2bn
The first two figures were accepted by the SNP's own Sustainable Growth Commission, who proposed an annual "Solidarity Payment" to be paid to rUK by an independent Scotland of £5bn pa. They explained this £5bn pa as being: "debt servicing contributions, 0.7% of GNP for Foreign Aid and a further £1bn set aside for shared services"2.
The defence expenditure figure works out as 1.9% of GDP (1.8% in 2018-19) which should be compared with the 2.0% target expenditure level for NATO members. A common refrain at this point is "but Nukes" or "what about Trident" - well there are plenty of debates to be had there, but focusing purely on the economics: the annual cost of Trident included in this defence expenditure figure for Scotland is likely to be just £0.2bn3.
Of course Scotland could choose to spend less on defence - maybe choose not be a NATO member - those arguing the case for independence are free to make their case for what that £3.2bn cost would be replaced by in an iScotland.
The SNP's Growth Commission was clear that an iScotland would service its population share of UK debt (while trying to build credibility on the international stage and preparing to launch its own currency) and would continue to be a provider of foreign aid. But again: those arguing the case for independenec are free to make alternative arguments.
So what are we left to make up the "other" £2.8bn of non-identifiable expenditure allocated to Scotland in GERS?
£0.5bn = Social Protection: This is DWP benefit delivery and what appears to be some legacy pension costs - as my colleague @staylorish has pointed out before, 12.4% of DWP employees are in Scotland, so there is probably more DWP benefit delivery cost spent in Scotland than allocated to Scotland (based on population share in GERS)
£0.5bn = Public and Common Services: this includes £299m of HMRC costs and - again as @staylorish points out - 14.2% of HMRC employees are in Scotland so again probably more HMRC cost is spent in Scotland than allocated to Scotland (based on population share in GERS). The £0.5bn figure also includes c.£0.2bn of Cabinet Office, DfID etc. costs.
Mea culpa: the 12.4% and 14.2% figures above are incorrect. They form no part of the analytical audit trail, but were wrongly used to illustrate my point that "probably more is spent in Scotland than allocated to scotland" in those areas. This is hardly a material issue, but I care about getting things right, so here we go:
As Sam Taylor points out in the thread I link to above, he made a (quickly corrected) error in his intitial calculation which I mistakenly quoted - he has subsequently updated the analysis anyway (see here) and the correct figures for share of employees are DWP 10.3% and HMRC 11.7%.
In both cases these percentatge are still materially greater than 8.2% (the population share of the non-Identifiable elements of these costs allocated to Scotland in GERS) so I think my "probably more is spent in Scotland than allocated to scotland" point still stands - but I'm happy to hold my hands up, admit to the error on those specifc figures and offer the correct figures here - it's what I've always said I'll do if an error is spotted on Chokkablog,
In addition, some confusion seems to have arisen because at this point I am discussing the non-identifable element of DWP benefit delivery costs, which are as I correctly say allocated on a population share basis. In GERS there are also identifiable DWP benefit delivery costs (as shown in the first of the back-up tables below) of which 10.3% are allocated to Scotland in GERS. This means that of all DWP benefit delivery costs (ID and non-ID), Scotland is allocated an 8.98% share.
I accept that my slip above did overstate the share of DWP and HMRC FTEs in Scotland and could have led a careless reader to believe that all DWP delivery costs are allocated on a population share basis.
Somebody got very excited on Twitter about this, claiming that spotting this slip was "sufficient to defeat your point". This is like dancing on the head of a pin while steel girders are falling about your ears, but for those who might not have grasped the materiality here;
£0.3bn = Recreation, Culture and Religion: this includes £0.3bn for BBC of which £0.2bn is spent in Scoltand
£0.2bn = Environment Protection: mainly £197m allocated Nuclear decommissioning costs - in fact £57m more than that is spent in Scotland [GERS Table A.6]
£0.7bn = Accounting adjustments - this is just technical stuff to get the figures in comparable format with other National Statistics
£0.2bn = EU Transactions - let's not go there
£0.4bn = "Other" - I'm getting tired and bored of this, so see the tables below if you have the enthusiasm to chase this detail down futher (I have and can assure you there's nothing exciting to see)
The following tables back-up each rows of the table above based on querying the GERS supplementary expenditure database - column headings are Total, ID and non-ID:
NOTES
1. I replied with a brief thread explaining why that tweet (which had been retweeted by high profile campaigners for Scottish independence including at least 1 SNP MP) was wrong - it has since been deleted so I am not including the twitter handle in the screen cap
2. Sustainable Growth Commission report, p37, 3.139
3. According to Full Fact, the annual running cost of Trident is c.£2bn, of which Scotland's population share would be just £0.2bn
****
The Painful Detail, for the super-keen
The Bad News
To do this properly you need to go through the GERS Supplementary Data: Detailed Expenditure Database. For each of the line-items in Table 3.8 you can see there the detail broken down as per the UK Government Country and Regional Analysis (CRA) Categories - you'll be surfing a database with 4,225 rows. In each case you can then see which items of expenditure are considered "Identifiable" (that is expenditure that can be clearly allocated to Scotland as having been spent for the benefit of Scotland) and which are not (aka "ID" vs "Non-ID"). Just because expenditure is considered "Identifiable" doesn't mean that expenditure is necessarily spent in Scotland - but you can then email the Chief Economic Adviser to the Scottish Government and ask for some help.
The Good News
I've already done this so can now summarise it for you.
The full audit-trail is only available for 2017-18 (because of the timing of CRA data and GERS data publications) - but fortunately Reserved Expenditure in 2017-18 was £30.7bn, so almost identical to the most recent year.
Of that £30.7bn, £20.1bn is considered Identifiable (spent for the benefit of Scotland):
£17.4bn = Social Protection (Pensions, Tax Credits, Allowances and Benefits)
£1.1bn = Transport (mainly Network Rail expenditure in Scotland)
£0.5bn = Science & Technology (Renewable Heat Incentive and various Research Council grants)
£0.4bn = Enterprise & Economic Development (mainly Tax Reliefs & Tax Credits)
£0.2m = Employment Policies (Department of Work & Pensions)
£0.5bn = Other (Lottery Grants, Medical Research Council, NERC, etc. etc.)
But what about expenses that are included in this £20.1bn of "Identifiable" expenditure that people might challenge as being "fair" or "appropriate" to allocate to Scotland? Well I've been through the detail and I'm used to the examples most often raised, so let's cover them off here. Of that £20.1bn considered "Identifiable" expenditure for Scotland, the following costs are not spent in Scotland:
£57m = High Speed 2 (based on Scotland's expected share of the economic benefit)
£35m = House of Commons and House of Lords
That's it - if you don't believe me go and look for yourself. So frankly those costs are no more than a rounding error: we can say with confidence that £20bn of Reserved Expenditure is considered as Identifable expenditure for Scotland and is money spent directly in Scotland.
So where does that get us to?
Revenue Raised = £62.7bn
Devolved Expenditure = £44.7bn
Reserved Expenditure For and In Scotland = £20.1bn
So at this point Scotland has a deficit of £2.1bn - so where does the other £10.5bn of deficit come from?
The big figures are well known - these are UK costs that are allocated to Scotland on the basis of Scotland's population share:
Public Sector Debt Interest = £3.6bn
International Services = £0.9bn (almost entirely Foreign Aid)
Defence Expenditure = £3.2bn
The first two figures were accepted by the SNP's own Sustainable Growth Commission, who proposed an annual "Solidarity Payment" to be paid to rUK by an independent Scotland of £5bn pa. They explained this £5bn pa as being: "debt servicing contributions, 0.7% of GNP for Foreign Aid and a further £1bn set aside for shared services"2.
The defence expenditure figure works out as 1.9% of GDP (1.8% in 2018-19) which should be compared with the 2.0% target expenditure level for NATO members. A common refrain at this point is "but Nukes" or "what about Trident" - well there are plenty of debates to be had there, but focusing purely on the economics: the annual cost of Trident included in this defence expenditure figure for Scotland is likely to be just £0.2bn3.
Of course Scotland could choose to spend less on defence - maybe choose not be a NATO member - those arguing the case for independence are free to make their case for what that £3.2bn cost would be replaced by in an iScotland.
The SNP's Growth Commission was clear that an iScotland would service its population share of UK debt (while trying to build credibility on the international stage and preparing to launch its own currency) and would continue to be a provider of foreign aid. But again: those arguing the case for independenec are free to make alternative arguments.
So what are we left to make up the "other" £2.8bn of non-identifiable expenditure allocated to Scotland in GERS?
£0.5bn = Social Protection: This is DWP benefit delivery and what appears to be some legacy pension costs - as my colleague @staylorish has pointed out before, 12.4% of DWP employees are in Scotland, so there is probably more DWP benefit delivery cost spent in Scotland than allocated to Scotland (based on population share in GERS)
£0.5bn = Public and Common Services: this includes £299m of HMRC costs and - again as @staylorish points out - 14.2% of HMRC employees are in Scotland so again probably more HMRC cost is spent in Scotland than allocated to Scotland (based on population share in GERS). The £0.5bn figure also includes c.£0.2bn of Cabinet Office, DfID etc. costs.
** Correction / Clarification **
Mea culpa: the 12.4% and 14.2% figures above are incorrect. They form no part of the analytical audit trail, but were wrongly used to illustrate my point that "probably more is spent in Scotland than allocated to scotland" in those areas. This is hardly a material issue, but I care about getting things right, so here we go:
As Sam Taylor points out in the thread I link to above, he made a (quickly corrected) error in his intitial calculation which I mistakenly quoted - he has subsequently updated the analysis anyway (see here) and the correct figures for share of employees are DWP 10.3% and HMRC 11.7%.
In both cases these percentatge are still materially greater than 8.2% (the population share of the non-Identifiable elements of these costs allocated to Scotland in GERS) so I think my "probably more is spent in Scotland than allocated to scotland" point still stands - but I'm happy to hold my hands up, admit to the error on those specifc figures and offer the correct figures here - it's what I've always said I'll do if an error is spotted on Chokkablog,
In addition, some confusion seems to have arisen because at this point I am discussing the non-identifable element of DWP benefit delivery costs, which are as I correctly say allocated on a population share basis. In GERS there are also identifiable DWP benefit delivery costs (as shown in the first of the back-up tables below) of which 10.3% are allocated to Scotland in GERS. This means that of all DWP benefit delivery costs (ID and non-ID), Scotland is allocated an 8.98% share.
I accept that my slip above did overstate the share of DWP and HMRC FTEs in Scotland and could have led a careless reader to believe that all DWP delivery costs are allocated on a population share basis.
Somebody got very excited on Twitter about this, claiming that spotting this slip was "sufficient to defeat your point". This is like dancing on the head of a pin while steel girders are falling about your ears, but for those who might not have grasped the materiality here;
- The difference between 8.2% (the non-ID allocation) and the 9.0% (the total of ID and non-ID allocation) for DWP delivery costs being discussed here is just £21m
- The point still stands that a greater proportion of HMRC and DWP employees are in Scotland than the share of HMRC and DWP costs allocated to Scotland in GERS
- Before considering any of these non-ID costs, per the audit-trail above Scotland is already receiving £2.0bn more in expenditure than it "sends to Westminster"
- The "we send more to Westminster than we get back" nonsense involves ignoring £20.0bn of Identifiable expenditure and all non-identifiable expenditure - even if the above observations don't convince you that "there is probably more DWP benefit delivery cost spent in Scotland than allocated to Scotland", nobody can credibly argue that none of these cost are spent in Scotland
£0.3bn = Recreation, Culture and Religion: this includes £0.3bn for BBC of which £0.2bn is spent in Scoltand
£0.2bn = Environment Protection: mainly £197m allocated Nuclear decommissioning costs - in fact £57m more than that is spent in Scotland [GERS Table A.6]
£0.7bn = Accounting adjustments - this is just technical stuff to get the figures in comparable format with other National Statistics
£0.2bn = EU Transactions - let's not go there
£0.4bn = "Other" - I'm getting tired and bored of this, so see the tables below if you have the enthusiasm to chase this detail down futher (I have and can assure you there's nothing exciting to see)
The following tables back-up each rows of the table above based on querying the GERS supplementary expenditure database - column headings are Total, ID and non-ID:
NOTES
1. I replied with a brief thread explaining why that tweet (which had been retweeted by high profile campaigners for Scottish independence including at least 1 SNP MP) was wrong - it has since been deleted so I am not including the twitter handle in the screen cap
2. Sustainable Growth Commission report, p37, 3.139
3. According to Full Fact, the annual running cost of Trident is c.£2bn, of which Scotland's population share would be just £0.2bn