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Scottish Economic Statistics 2008

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A1 Producing current price GDP estimates for Scotland

Sandy Stewart, Scottish Government

Introduction

There are currently no official statistics for Gross Domestic Product ( GDP) in cash terms for Scotland. The Office for National Statistics ( ONS) produces an annual estimate for Gross Value Added ( GVA) for onshore activity in Scotland as part of the Regional GVA exercise. These figures are used in Scotland to constrain the Scottish Input-Output tables which, in turn, provide the weights for the Scottish Government's own production-based GVA estimates in real terms.

This article sets out how a Scottish cash GDP estimate may be derived by adding the appropriate product taxes less subsidies to the official GVA figures. It draws on work carried out by Sandy Stewart ( SG) and Martin Kellaway ( ONS), as part of the 2006-07 Government Expenditure and Revenue Scotland ( GERS) exercise, isolating individual detailed revenue streams to form a basic price adjustment for Scotland. Moreover, the article considers how the value added from the Extra Regio area, as defined by ONS, might be reasonably assigned to Scotland. The figures in this paper are "experimental" and not official national statistics.

This work forms part of a wider exercise to attempt to produce balanced National Accounts estimates for Scotland based on data collected for Scotland and UK apportionments. For more information see SNAP - Scottish National Accounts Project - web link: http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/nationalaccountsproject.

Adjusted Gross Value Added ( GVA) from the ONS Regional GVA estimates

The starting point for this exercise is the ONS Regional GVA estimates, last published in December 2007. These figures, which are consistent with the 2007 Blue Book, can be seen in Table A1.1.

Table A1.1: Annual GVA cash estimates for Scotland

1998

1999

2000

2001

2002

2003

2004

2005

2006

Scotland

Reg GVA

63,899

65,211

66,074

70,103

74,183

77,696

82,443

86,292

91,355

Extra Regio

Reg GVA

12,656

14,249

21,905

20,635

19,907

20,166

20,581

23,708

26,709

Statistical Discrepancy

Reg GVA

0

0

0

0

0

0

0

-916

-551

UK

Reg GVA

768,594

805,989

846,683

889,063

937,323

993,507

1,051,934

1,096,629

1,154,959

Scotland

Adjusted GVA

63,899

65,211

66,074

70,103

74,183

77,696

82,443

86,220

91,311

Extra Regio

Adjusted GVA

12,656

14,249

21,905

20,635

19,907

20,166

20,581

23,688

26,696

The regional GVA figures were estimated using an income-based approach. These, however, were not balanced to the expenditure-based GVA estimates and the differences (seen in 2005 and 2006) were presented as accounting adjustments (labelled statistical discrepancy). For this exercise, the statistical discrepancies were re-allocated across all regions and countries, including Extra Regio, pro-rated by GVA. The bottom two rows of the table show the adjusted GVA estimates for Scotland and Extra Regio.

Note, the figures presented above are the raw GVA figures, not the smoothed headline figures often quoted.

Link between Gross Value Added ( GVA) and Gross Domestic Product ( GDP)

Gross Domestic Product ( GDP) differs from Gross Value Added ( GVA) as it includes taxes on products and excludes subsidies on products. GVA is conventionally used to make comparisons between industries within a country, and GDP for comparisons at an aggregate level between countries.

Table A2.2 shows the link between GVA at basic prices and GDP at market prices. The link applies to both current prices and constant prices - only current prices is considered in this paper.

Table A1.2: Link between Gross Value Added and Gross Domestic Product

Gross Value Added at basic prices

plus

Taxes on products

less

Subsidies on products

equals

Gross Domestic Product at market prices.

Taxes on products

The ESA 95 definition of taxes on products is:

"Taxes on products are taxes that are payable per unit of some good or service produced or transacted. The tax may be a specific amount of money per unit or quantity of a good or service, or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods and services produced or transacted. As a general principle, taxes in fact assessed on a product, irrespective of which institutional unit pays the tax, are to be included in taxes on products, unless specifically included in another heading."

Currently, the range of taxes on products includes, for example:

  • value added tax ( VAT) (introduced 1 April 1973)
  • aggregates levy (introduced 1 April 2002)
  • air passenger duty (introduced 1 October 1994)
  • excise duties, covering oil, alcohol and tobacco
  • import duties
  • levies on products such as fossil fuels and sugar
  • betting duties, which include the lottery duty and payments to the National Lottery Distribution Fund (introduced 19 November 1994)
  • insurance premium tax (introduced 1 October 1994)
  • landfill tax (introduced 1 October 1996)
  • climate change levy (introduced 1 April 2001)
  • stamp duties, covering property, stocks and shares
  • renewable obligation certificates (introduced 1 June 2002)

Two distinct apportionment methodologies might be considered to be appropriate: product taxes raised throughout the UK on products made in or supplied from Scotland; and, product taxes raised in Scotland from products consumed in Scotland. The former assumes, for instance, that taxes raised from whisky produced in Scotland would accrue to Scotland but no tobacco based taxes would accrue to Scotland reflecting nil production. The latter assumes, for example, that only the whisky taxes raised by consumption in Scotland would accrue to Scotland, but taxes relating to tobacco consumption would also accrue to Scotland despite nil production. Both methods probably show broadly similar results - it is important, however, not to confuse the two concepts, or to cherry-pick from both methods inappropriately.

The GERS methodology adopts the consumption-based approach. This has also been used in this paper. Some of the assumptions used are set out in Table A1.3 below.

Table A1.3: Methodology for apportioning UK product taxes to Scotland

Revenue

Apportionment Methodology

Source

VAT

Scotland's share of UK household VAT expenditure

Expenditure and Food Survey, ONS

Import duties

Scotland's share of UK less Extra Regio GVA

Regional Accounts: ONS

Beer

Scotland's share of UK household Beer expenditure

Expenditure and Food Survey, ONS

Wines, cider, perry and spirits

Scotland's share of UK household Wines and Spirits expenditure

Expenditure and Food Survey, ONS

Tobacco

Scotland's share of UK household Tobacco expenditure

Expenditure and Food Survey, ONS

Hydrocarbon oils

Scotland's share of UK road traffic fuel consumption

Fuel Consumption Statistics, BERR

Betting, gaming and lottery

Spend on betting and gaming in Scotland/ UK

Expenditure and Food Survey, ONS

Air passenger duty

Scotland/ UK population

ONS & GROS

Insurance premium tax

Scotland/ UK population

ONS & GROS

Landfill tax

Scotland's share of UK tonnage of waste sent to landfill

SEPA, Environment Agency, Dept of Environment Northern Ireland.

Stamp duties

Land and property stamp duty: actual outturns for Scotland

Stocks and shares: Scottish/ UK ratio of adults owning shares

Land and property stamp duty: HMRC

Stocks and shares: Family Resources Survey: DWP

Camelot payments to National Lottery Distribution Fund

Spend on betting and gaming in Scotland/ UK

Expenditure and Food Survey, ONS

Hydro-benefit

100% to Scotland

Aggregates levy

Scotland's share of UK aggregates production

UK Minerals Yearbook: BGS

Climate change levy

Electricity: Scotland's share of UK electricity consumption

Gas: Scotland's share of UK gas sales to commercial and industrial users

Solid and other fuels: Scotland's share of UK (less Extra Regio) GVA

Electricity: BERR

Gas: BERR

Solid and other fuels: Regional Accounts: ONS

Other product taxes

various

various

Tables A1.4a and A1.4b below show the Scottish element of the UK product tax streams, based on the above assumptions, for calendar year and financial year respectively. These are derived using the same methodology that was used in the GERS 2006-07 publication. GERS, however, differs slightly in that the revenue estimates were taken from the Budget 2007 snapshot whereas the above reconciles with the Blue Book 2007 snapshot. GERS also uses the smoothed headline figures, whereas this analysis uses the raw estimates analysed on a quarterly, not annual, basis. Future estimates will be produced on a quarterly basis using the latest quarterly National Accounts estimates.

Table A1.4a - Scottish taxes on products - calendar year

Taxes on products

1998

1999

2000

2001

2002

2003

2004

2005

2006

VAT

4,787

5,198

5,365

5,596

5,897

6,391

6,815

7,026

7,434

Import duties

175

167

167

167

155

155

171

180

189

Beer

202

217

243

244

241

241

258

264

272

Wines, cider, perry and spirits

349

376

398

410

408

403

429

444

453

Tobacco

932

942

967

910

988

1,010

1,077

1,045

990

Hydrocarbon oils

1,718

1,810

1,877

1,797

1,790

1,836

1,927

1,930

1,945

Betting, gaming and lottery

150

154

149

135

98

92

89

88

95

Air passenger duty

71

76

81

71

69

66

73

76

81

Insurance premium tax

108

123

147

159

182

195

200

198

197

Landfill tax

38

49

52

52

51

57

62

67

73

Fossil fuel levy

15

9

4

7

3

0

0

0

0

Stamp duties

264

356

503

428

403

378

467

528

679

Camelot payments to National Lottery Distribution Fund

165

160

156

142

143

127

138

137

143

Hydro-benefit

32

35

42

46

44

44

40

10

0

Aggregates levy

0

0

0

0

30

48

49

50

50

Milk super levy

0

0

0

1

4

6

7

2

0

Climate change levy

0

0

0

60

85

85

78

77

74

Renewable energy obligations

0

0

0

0

21

38

45

24

22

Sugar levy

4

5

5

3

3

2

3

3

0

Total taxes on products

9,012

9,676

10,155

10,230

10,616

11,175

11,927

12,148

12,695

Table A1.4b - Scottish taxes on products - financial year

Taxes on products

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

VAT

4,897

5,246

5,407

5,700

5,931

6,541

6,869

7,038

7,630

Import duties

172

168

169

163

153

156

177

182

189

Beer

203

223

247

243

241

243

260

267

274

Wines, cider, perry and spirits

362

378

407

410

411

402

434

444

461

Tobacco

927

953

974

889

1,021

1,007

1,102

1,021

981

Hydrocarbon oils

1,764

1,813

1,851

1,785

1,795

1,865

1,922

1,939

1,958

Betting, gaming and lottery

149

154

146

126

97

89

90

89

94

Air passenger duty

73

76

82

69

68

68

74

77

94

Insurance premium tax

108

130

150

164

186

196

200

199

196

Landfill tax

37

51

54

50

50

60

63

69

76

Fossil fuel levy

14

7

4

7

1

0

0

0

0

Stamp duties

275

410

492

403

403

390

473

584

686

Camelot payments to National Lottery Distribution Fund

167

164

148

146

138

130

140

141

135

Hydro-benefit

32

38

44

44

44

43

40

0

0

Aggregates levy

0

0

0

0

41

48

49

50

50

Milk super levy

0

0

0

2

4

6

8

0

0

Climate change levy

0

0

0

85

84

83

77

76

74

Renewable energy obligations

0

0

0

0

29

42

45

17

23

Sugar levy

4

5

4

3

3

2

3

3

0

Total taxes on products

9,183

9,816

10,181

10,289

10,700

11,372

12,025

12,196

12,921

Tables A1.5a and A1.5b below show how VAT and other product taxes raised in Scotland compare with the equivalent UK figures. These are shown for both calendar year and financial year.

Table A1.5a - Scotland and UK taxes on products - calendar year

Taxes on products

1998

1999

2000

2001

2002

2003

2004

2005

2006

VAT - Scotland

4,787

5,198

5,365

5,596

5,897

6,391

6,815

7,026

7,434

Other product taxes - Scotland

4,225

4,478

4,790

4,634

4,720

4,783

5,112

5,122

5,261

Total taxes on products - Scotland

9,012

9,676

10,155

10,230

10,616

11,175

11,927

12,148

12,695

VAT - UK

56,541

61,512

64,189

67,097

71,059

77,335

81,540

83,382

87,679

Other product taxes - UK

46,999

50,512

54,086

52,845

53,945

54,813

58,102

59,076

62,752

Total taxes on products - UK

103,540

112,024

118,275

119,942

125,004

132,148

139,642

142,458

150,431

VAT - Scot as % of UK

8.47%

8.45%

8.36%

8.34%

8.30%

8.26%

8.36%

8.43%

8.48%

Other product taxes -

Scot as % of UK

8.99%

8.87%

8.86%

8.77%

8.75%

8.73%

8.80%

8.67%

8.38%

Total taxes on products - Scot as % of UK

8.70%

8.64%

8.59%

8.53%

8.49%

8.46%

8.54%

8.53%

8.44%

Table A1.5b - Scotland and UK taxes on products - financial year

Taxes on products

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

VAT - Scotland

4,897

5,246

5,407

5,700

5,931

6,541

6,869

7,038

7,630

Other product taxes - Scotland

4,286

4,570

4,773

4,589

4,769

4,831

5,156

5,158

5,291

Total taxes on products - Scotland

9,183

9,816

10,181

10,289

10,700

11,372

12,025

12,196

12,921

VAT - UK

57,845

62,127

64,908

68,322

71,599

79,201

81,869

83,421

89,855

Other product taxes - UK

47,655

51,863

53,528

52,602

54,404

55,600

58,196

60,209

63,381

Total taxes on products - UK

105,500

113,990

118,436

120,924

126,003

134,801

140,065

143,630

153,236

VAT - Scot as % of UK

8.47%

8.44%

8.33%

8.34%

8.28%

8.26%

8.39%

8.44%

8.49%

Other product taxes - Scot as % of UK

8.99%

8.81%

8.92%

8.72%

8.77%

8.69%

8.86%

8.57%

8.35%

Total taxes on products - Scot as % of UK

8.70%

8.61%

8.60%

8.51%

8.49%

8.44%

8.59%

8.49%

8.43%

Subsidies on products

The ESA 95 definition of subsidies on products is:

"Subsidies on products are subsidies payable per unit of a good or service produced or imported. The subsidy may be a specific amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specific percentage of the price per unit. A subsidy may also be calculated as the difference between a specified target price and the actual market price actually paid by a buyer. A subsidy on a product usually becomes payable when the good is produced, sold or imported. By convention, subsidies on products can only pertain to market output or to output for own final use."

A similar apportionment methodology is used to allocate UK subsidies on products to Scotland. For subsidies from Central Government relating to housing, transport, coal, electricity, recreation and economic affairs, the ratio of Scottish GVA to UK less Extra Regio was used. The GVA ratios for the appropriate industry grouping was used for agriculture, construction and health. For subsidies from Local Government (transport and other economic affairs), the figures provided by the Scottish Government to ONS for the UK National Accounts were used directly.

The methodology equates broadly to that used by ONS in the Regional Accounts for taxes and subsidies on production. Further refinements will be considered in due course as part of the SNAP exercise.

Tables A1.6a and A1.6b below show the estimated Scottish and UK subsidies on products for both calendar year and financial year respectively.

Table A1.6a - Subsidies on products - calendar year

Subsidies on products

1998

1999

2000

2001

2002

2003

2004

2005

2006

Subsidies - Scotland

621

582

572

526

580

622

580

338

400

Subsidies - UK

6,424

6,068

6,027

5,708

6,534

7,410

7,280

5,111

5,768

Total subsidies on products - Scot as % of UK

9.66%

9.59%

9.48%

9.22%

8.88%

8.40%

7.97%

6.62%

6.94%

Table A1.6b - Subsidies on products - financial year

Subsidies on products

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Subsidies - Scotland

621

580

555

520

596

611

542

343

373

Subsidies - UK

6,414

6,030

5,958

5,563

6,796

7,400

7,042

5,145

5,480

Total subsidies on products - Scot as % of UK

9.69%

9.62%

9.31%

9.35%

8.76%

8.25%

7.69%

6.67%

6.80%

Calculating GDP from GVA

Using the definition in Table A1.2, the GVA figure from Regional Accounts may now be adjusted to include the estimates of taxes less subsidies on products to form an estimate of GDP for onshore Scotland.

Tables A1.7a and A1.7b show the Scottish and UKGVA and GDP disaggregation for both calendar year and financial year respectively.

Table A1.7a - Scottish and UKGVA and GDP disaggregation - calendar year

1998

1999

2000

2001

2002

2003

2004

2005

2006

UK - GVA

768,594

805,989

846,683

889,063

937,323

993,507

1,051,934

1,096,629

1,154,959

UK - taxes on products

103,540

112,024

118,275

119,942

125,004

132,148

139,642

142,458

150,431

UK - subsidies on products

-6,424

-6,068

-6,027

-5,708

-6,534

-7,410

-7,280

-5,111

-5,768

UK - GDP

865,710

911,945

958,931

1,003,297

1,055,793

1,118,245

1,184,296

1,233,976

1,299,622

Scotland - GVA

63,899

65,211

66,074

70,103

74,183

77,696

82,443

86,220

91,311

Scotland - taxes on products

9,012

9,676

10,155

10,230

10,616

11,175

11,927

12,148

12,695

Scotland - subsidies on products

-621

-582

-572

-526

-580

-622

-580

-338

-400

Scotland - GDP

72,290

74,304

75,658

79,806

84,219

88,249

93,790

98,030

103,606

GVA - Scotland/ UK

8.31%

8.09%

7.80%

7.89%

7.91%

7.82%

7.84%

7.86%

7.91%

GDP - Scotland/ UK

8.35%

8.15%

7.89%

7.95%

7.98%

7.89%

7.92%

7.94%

7.97%

Table A1.7b - Scottish and UKGVA and GDP disaggregation - financial year

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

UK - GVA

777,185

819,370

858,844

898,007

952,262

1,008,792

1,062,495

1,109,993

1,172,855

UK - taxes on products

105,500

113,990

118,436

120,924

126,003

134,801

140,065

143,630

153,236

UK - subsidies on products

-6,414

-6,030

-5,958

-5,563

-6,796

-7,400

-7,042

-5,145

-5,480

UK - GDP

876,271

927,330

971,322

1,013,368

1,071,469

1,136,193

1,195,518

1,248,478

1,320,611

Scotland - GVA

64,179

65,696

67,202

70,875

75,136

78,935

83,338

87,395

92,726

Scotland - taxes on products

9,183

9,816

10,181

10,289

10,700

11,372

12,025

12,196

12,921

Scotland - subsidies on products

-621

-580

-555

-520

-596

-611

-542

-343

-373

Scotland - GDP

72,740

74,932

76,828

80,645

85,241

89,697

94,822

99,248

105,274

GVA - Scotland/ UK

8.26%

8.02%

7.82%

7.89%

7.89%

7.82%

7.84%

7.87%

7.91%

GDP - Scotland/ UK

8.30%

8.08%

7.91%

7.96%

7.96%

7.89%

7.93%

7.95%

7.97%

The methodology described above is more sophisticated than the conventional, and more limited but internationally-accepted approach, which applies a national GDP/ GVA scaling factor to all regions uniformly within a nation. This new approach is possible, because a basic price adjustment may be derived from the GERS calculations (not generally available regionally); and desirable as it helps us to move to a more coherent set of economic accounts for Scotland. More work of this nature will appear as part of the SNAP programme of work.

The difference between the two approaches is small as can be seen in Chart A1.1 below.

Chart A1.1: Scottish GVA and GDP estimates

Chart A1.1: Scottish GVA and GDP estimates

Inclusion of Extra Regio

The calculations in this paper so far have only considered onshore Scottish activity.

In the GERS 2006-07 publication, Scotland's capital and current budgets were shown as a percentage of GDP. Care was taken to adopt the same assumptions in estimating GDP as those made in the corresponding budget calculations.

Two distinct assumptions were made relating to Scotland's share of the value added from Extra Regio. The first assumption simply allocates to Scotland a population share of all components of Extra Regio. The second assumption assumes Scotland has a population share of the public administration and defence elements of the Extra Regio, and a Continental Shelf apportionment based on a hypothetical share based on Scotland's geographical share of the North Sea. This was based on academic research carried out by Professor Alex Kemp and Linda Stephen from the University of Aberdeen. For further details refer to Chapter 5 of GERS 2006-07.

Scotland's geographical share of the North Sea sector, used in this article, is highlighted in the following diagram. Demarcation by the median line is shown by the dark shaded area in Figure A1.1. All value added from oil and gas fields located in this region were apportioned to Scotland under the assumption of 'geographical share'.

Figure A1.1: UK Continental Shelf and Scottish boundary

Figure A1.1: UK Continental Shelf and Scottish boundary

Source: Scottish Government Marine Directorate

Tables A1.8a and A1.8b below show the decomposition of Extra Regio into the two components: Public Administration & Defence ( PAD); and Continental Shelf activity ( CS); and, how these may then be attributed to Scotland following the two assumptions detailed above. Estimates of Scottish GDP including Extra Regio are then derived for these two scenarios.

Table A1.8a: Estimates of Scottish GDP including Extra Regio using a (i) population and (ii) geographical assumption - calendar year

1998

1999

2000

2001

2002

2003

2004

2005

2006

UK - Extra Regio

12,656

14,249

21,905

20,635

19,907

20,166

20,581

23,688

26,696

UK - ER - PAD

917

928

965

1,009

1,051

1,147

1,218

1,267

1,332

UK - ER - CS activity

11,739

13,321

20,940

19,626

18,856

19,019

19,363

22,421

25,364

Pop - ER - PAD

80

80

83

86

90

97

103

107

113

Pop - ER - CS activity

1,019

1,151

1,800

1,681

1,607

1,615

1,643

1,896

2,142

Geog - ER - CS activity

9,075

10,583

17,085

15,856

15,730

15,575

16,106

18,935

20,760

Scot - GDP - excl ER

72,290

74,304

75,658

79,806

84,219

88,249

93,790

98,030

103,606

GDP + pop ER

73,389

75,536

77,541

81,574

85,916

89,961

95,537

100,033

105,861

GDP + geog ER

81,445

84,968

92,826

95,748

100,038

103,921

110,000

117,072

124,479

Table A1.8b: Estimates of Scottish GDP including Extra Regio using a (i) population and (ii) geographical assumption - financial year

1998-991999-002000-012001-022002-032003-042004-052005-062006-07

UK - Extra Regio

13,034

16,192

21,633

20,390

19,995

20,286

21,338

24,406

27,110

UK - ER - PA & Def

919

941

978

1,016

1,076

1,165

1,229

1,282

1,353

UK - ER - CS activity

12,115

15,251

20,655

19,374

18,919

19,121

20,108

23,124

25,757

Pop - ER - PAD

80

81

84

87

92

99

104

108

114

Pop - ER - CS activity

1,051

1,316

1,774

1,658

1,611

1,623

1,705

1,955

2,175

Geog - ER - CS activity

9,434

12,227

16,814

15,774

15,710

15,719

16,796

19,366

21,082

Scot - GDP - excl ER

72,740

74,932

76,828

80,645

85,241

89,697

94,822

99,248

105,274

GDP + pop ER

73,871

76,329

78,686

82,389

86,943

91,419

96,630

101,311

107,564

GDP + geog ER

82,254

87,240

93,725

96,505

101,043

105,515

111,722

118,722

126,470

Conclusions

The figures presented in this paper are "experimental" and the methodologies are still being developed. The figures will shortly be updated when the ONS issue the next release of Regional Accounts on 12 December 2008. These figures will incorporate an adjustment due to new methodology relating to Financial Intermediation Services Indirectly Measured ( FISIM) - for more information, see Article 3 (Mortimer and Croasdale).

Further details about the development of this exercise will be made available on the web in due course. Updates are likely to be quarterly.