SCOTLAND'S SHARE OF THE UK DEFICIT
RAB BOYCE, JANUARY 2020
This article will explain the definition of fiscal balance and, using the 2018-19 ONS Country & Regional statistics, explain how the constituent nations and regions of the UK contribute to this overall figure.
Net fiscal balance, surplus and deficit
A net fiscal balance
is defined as the difference between revenue and expenditure.
A surplus
is defined when the net fiscal balance is a positive amount.
A deficit
is when this is a negative amount.
The Constituent Nations
The UK runs a countrywide fiscal deficit of
£41,372m. We can use the latest ONS Regional Statistics report for 2018-19 to examine the various countries and their contributions to this.
| Revenue (£m) | Expenditure (£m) | Net Fiscal Balance (£m) | Population | Population % | |
|---|---|---|---|---|---|
| United Kingdom | 811,347 | 852,719 | -41,372 | 66,435,550 | 100% |
| England | 698,046 | 703,000 | -4,954 | 55,977,178 | 84.3% |
| Wales | 29,475 | 42,994 | -13,519 | 3,138,631 | 4.7% |
| Scotland | 65,339 | 78,838 | -13,499 | 5,438,100 | 8.2% |
| Northern Ireland | 18,487 | 27,888 | -9,401 | 1,881,641 | 2.8% |
England has a relatively small deficit of £4,954m, Northern Ireland's deficit is almost twice as large at £9,401m
with Wales and Scotland returning higher deficits at £13,519
and £13,499
respectively.
THE UNITED KINGDOM
The UK’s net fiscal deficit
is £41,372m. If uniformly distributed (split equally across the population) this would result in a net fiscal deficit per person of £623.
UK FISCAL BALANCE
2018-19
COUNTRY FISCAL BALANCE
2018-19
This country breakdown can seem counter-intuitive and raises questions such as 'How can Scotland with only 8.2% of the population be responsible for 32% of the deficit?' The incredulity behind the question is largely based on an assumption that the deficit is spread evenly over England as a whole. It is not, as we shall now explain.
Due to population size discrepancies and a large variance in the performance of the various English regions, a country level view does not tell the whole story.
To provide more useful data with respect to Scotland’s relative fiscal performance, we will use the ONS stats to further break down England’s figures into economic regions, which are more comparable with Scotland, Wales and Northern Ireland in terms of population size
Regional
ONS use the NUTS1 region definitions. This does not diminish Scotland, Wales and Northern Ireland's status as countries in their own right and is used in the most generic definition of 'region' – meaning 'a geographical area'.
London, the South East and the East of England have positive fiscal balances. These surpluses drastically reduce England's overall deficit and somewhat mask the underperformance of the other English regions. All nine other regions run a fiscal deficit. When taken together, these nine regions have a combined population percentage of 63.5%.
| Country/Region | Revenue (£m) | Expenditure (£m) | Net Fiscal Balance (£m) | Population | Population % |
|---|---|---|---|---|---|
| North East | 25,238 | 36,041 | -10,803 | 2,657,909 | 4.0% |
| North West | 74,079 | 94,354 | -20,275 | 7,292,093 | 11.0% |
| Yorkshire and the Humber | 55,828 | 67,281 | -11,453 | 5,479,615 | 8.2% |
| East Midlands | 50,256 | 56,613 | -6,357 | 4,804,149 | 7.2% |
| West Midlands | 58,763 | 73,778 | -15,015 | 5,900,757 | 8.9% |
| East of England | 77,102 | 73,003 | 4,099 | 6,201,214 | 9.3% |
| London | 161,918 | 123,164 | 38,754 | 8,908,081 | 13.4% |
| South East | 130,989 | 109,298 | 21,691 | 9,133,625 | 13.7% |
| South West | 63,873 | 69,466 | -5,593 | 5,599,735 | 8.4% |
| Wales | 29,475 | 42,994 | -13,519 | 3,138,631 | 4.7% |
| Scotland | 65,339 | 78,838 | -13,499 | 5,438,100 | 8.2% |
| Northern Ireland | 18,487 | 27,888 | -9,401 | 1,881,641 | 2.8% |
| Country/Region | Revenue Per Head (£) | Expenditure Per Head (£) | Net Fiscal Balance Per Head (£) | Population | Population % |
|---|---|---|---|---|---|
| North East | 9,495 | 13,560 | -4,064 | 2,657,909 | 4.0% |
| North West | 10,159 | 12,939 | -2,780 | 7,292,093 | 11.0% |
| Yorkshire and the Humber | 10,188 | 12,278 | -2,090 | 5,479,615 | 8.2% |
| East Midlands | 10,461 | 11,784 | -1,323 | 4,804,149 | 7.2% |
| West Midlands | 9,959 | 12,503 | -2,545 | 5,900,757 | 8.9% |
| East of England | 12,433 | 11,772 | 661 | 6,201,214 | 9.3% |
| London | 18,177 | 13,826 | 4,350 | 8,908,081 | 13.4% |
| South East | 14,341 | 11,967 | 2,375 | 9,133,625 | 13.7% |
| South West | 11,406 | 12,405 | -999 | 5,599,735 | 8.4% |
| Wales | 9,391 | 13,698 | -4,307 | 3,138,631 | 4.7% |
| Scotland | 12,015 | 14,497 | -2,482 | 5,438,100 | 8.2% |
| Northern Ireland | 9,825 | 14,821 | -4,996 | 1,881,641 | 2.8% |
REGIONAL NET FISCAL BALANCE
2018-19
REGIONAL FISCAL BALANCE
PER HEAD 2018-19
The mixture of positive and negative numbers when added together provides a total deficit number of only £41,372m. While it is arithmetically correct if one ignores the deficit spread across the UK to take a specific region's deficit and calculate a percentage (for example the North West had a deficit of £20,275 which would be 49% of the UK deficit) , the resulting value doesn't offer any insight. It is more informative to look at the regions in deficit and regions in surplus as separate groupings.
REGIONS IN SURPLUS
As shown, three regions in the UK had a positive net fiscal balance. These are London, the South East and the East of England. We see that, in particular, London and the South East have significantly large positive balances.
The fact that the three regions in surplus have disproportionately large populations (35.6% of the UK, and 43.3% of England) only serves to amplify the absolute contribution to the aggregated net fiscal position of England. So, while the other English regions have a net fiscal position similar to or worse than Scotland’s, the overall position of England appears much healthier due to the strength of these three regions.
Of the three regions in surplus, London dominates, generating 60.0% of the total from the combined surplus.
| Net Fiscal Balance (£m) | % of Surplus | UK Population % | |
|---|---|---|---|
| East of England | 4,099 | 6.4% | 9.3% |
| London | 38,754 | 60.0% | 13.4% |
| South East | 21,691 | 33.6% | 13.7% |
REGIONS IN DEFICIT
If we look at the nine regions that are running a fiscal deficit, we can see that the largest percentage is from the North West at 19.1%, with the South West lowest at 5.3%. Scotland lies half-way between, responsible for 12.7% of the total deficit when you remove the three regions in surplus.
| Net Fiscal Balance (£m) | % of Deficit | UK Population % | |
|---|---|---|---|
| North East | -10,803 | 10.2% | 4.0% |
| North West | -20,275 | 19.1% | 11.0% |
| Yorkshire and the Humber | -11,453 | 10.8% | 8.2% |
| East Midlands | -6,357 | 6.0% | 7.2% |
| West Midlands | -15,015 | 14.2% | 8.9% |
| South West | -5,593 | 5.3% | 8.4% |
| Wales | -13,519 | 12.8% | 4.7% |
| Scotland | -13,499 | 12.7% | 8.2% |
| Northern Ireland | -9,401 | 8.9% | 2.8% |
CONCLUSION
The latest statistics from ONS show that there is a wide divergence of fiscal performance at regional level in the UK. This variation can lead to confusion as the positive effect of the surplus regions partly offsets the negative effect of the regions in deficit on the UK's overall fiscal balance.
If we were to add up the percentages of all the individual regions that are in deficit, the regions with a negative fiscal balance would appear to be responsible for 256% of the UK deficit – a total of £105.915m of the actual UK deficit which is £41,372m.
| Net Fiscal Balance (£m) | % of UK Deficit | |
|---|---|---|
| North East | -10,803 | 26.1% |
| North West | -20,275 | 49.0% |
| Yorkshire and the Humber | -11,453 | 27.7% |
| East Midlands | -6,357 | 15.4% |
| West Midlands | -15,015 | 36.3% |
| South West | -5,593 | 13.5% |
| Wales | -13,519 | 32.7% |
| Scotland | -13,499 | 32.6% |
| Northern Ireland | -9,401 | 22.7% |
| Total | -105,915 | 256.0% |
As we can see from the table below, if we apply the same approach, the positive fiscal balances of the three regions in surplus (totalling £64,544m) result in a total of -156% of the actual UK deficit which is £41,372m.
| Net Fiscal Balance (£m) | % of UK Deficit | |
|---|---|---|
| East of England | 4,099 | -9.9% |
| London | 38,754 | -93.7% |
| South East | 21,691 | -52.4% |
| Total | 64,544 | -156.0% |
As explained above, the North West, with a deficit of £20,275m, should not be considered responsible for 49% of the UK's deficit, just as Scotland – with a deficit of £13,499m – should not be considered responsible for 32.6%.
To view the deficit in a meaningful way we need to look at the regional data in context to understand the spread of deficit and how the positive numbers in some regions will impact the totals.
It would therefore be more meaningful to make the claim, that of the regions that contribute to the deficit, Scotland is responsible for 12.7%.
SHARE
REFERENCES & FOOTNOTES