GERS does not present a balanced view of the Scottish economy. The possible financial costs and risks, or savings and opportunities, of implementing a new constitutional framework are, naturally, not considered in GERS. Similarly, it does not report on the effects of faster or slower economic growth in an independent Scotland.
What is GERS?
GERS is an annual estimate of the Scottish fiscal position. It provides a summary of how much revenue is raised in Scotland, how much the country pays for the public services consumed, and to what extent the revenues raised cover the costs of these public services. It takes the current constitutional arrangement as given.
GERS captures the entire public sector in Scotland and provides both analysis of aggregate expenditure and revenue as well as breakdowns according to the individual expenditure and revenue components.
All the data presented in GERS are nominal figures, with no adjustment for inflation.
How is GERS calculated?
GERS is produced by statisticians in the Scottish Government. The publication is an accredited National Statistics publication, meaning that the statistics have been independently assessed as being based on appropriate methods and produced without political interference.
Is GERS based on real data?
The data that feeds into the spending side of GERS are predominantly real numbers and not estimates. The total spending is made up of Scottish and local government services and spending by the UK Government for the benefit of the people of Scotland. Scottish Government (and local government spending in Scotland) consists of spending on education, health, and public order and safety, among other things. UK Government spending for Scotland can be split into identifiable and non-identifiable expenditure.
Identifiable expenditure is spending specifically for the benefit of the residents of Scotland, such as social security. If we consider recent events, the UK’s fiscal response to coronavirus is an example of UK Government spending for the benefit of the residents of Scotland. For instance, the UK Government increased spending to finance the Job Retention Scheme which allowed employers to claim for up to 80% of a furloughed employees wage. The spending on the scheme that was allocated to applications made by Scottish employers is directly for the benefit of the residents of Scotland and will therefore appear in GERS, but not until next year. As the fiscal year runs from April to March the following year, spending on the coronavirus response will figure in the GERS report for 2020-21, published in August 2021.
Non-identifiable expenditure consists of spending on matters such as defence and debt interest, with data only collected on a UK-level. Because such expenditure is spent for the benefit of everyone in the UK, GERS estimates a proportion apportioned to Scotland’s spending. This is one part of the GERS numbers that attracts controversy. For example, Scotland is allocated a population share of UK defence expenditure, irrespective of where the spending takes place.
For revenues, more directly collected data is available following increased devolution in recent years. Taxes with available revenue data in Scotland include council tax, Non-Domestic (or business) Rates, Land and Buildings Transaction Tax (LBTT), and Landfill Tax. In addition to this, the Scottish Government gained power to set the rates and bands for income tax for Scottish residents in 2017-18. In this way, income tax should be thought of as partially devolved tax. The UK Government remains responsible for the tax base and the personal allowance, and HMRC remains responsible for the collection of income tax in Scotland. However, the extension of Scottish income tax powers has made it possible to directly identify Scottish income tax receipts. This mean that the income tax revenue figured in GERS since 2017-18 is based on actual receipts, whereas before it was estimated using a sample of income taxpayers.
For other revenues where revenue data is not available from tax receipts for Scotland, estimation of these receipts is required.
For revenues that are only collected on a UK-wide level – such as by the HMRC – apportionment methodologies are applied to estimate GERS data – the details of which are set out in painstaking detail in the accompanying methodology documents. For instance, the revenue generated from fuel duties are appointed to Scotland by estimating Scotland’s share of UK fuel consumption. This estimation is based on UK road traffic fuel consumption broken down by region, based on weighted traffic flows on a sample of roads across the UK. GERS applies the estimate to the figure for total fuel duty revenue to apportion Scotland’s share. The GERS methodologies papers provide a more in-depth outline of the methodologies used to estimate revenue and spending data.