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					SPICe
briefing
THE SIZE OF THE PUBLIC SECTOR
JIM DEWAR

31 March 2005 05/19

Public expenditure, government consumption and the public sector comprise a larger share of the economy in Scotland than in the rest of the UK This briefing explains these terms, provides Scottish data for each measure, shows how the data have changed over recent years, and provides comparisons with the whole of the UK.

Scottish Parliament Information Centre (SPICe) Briefings are compiled for the benefit of the Members of the Parliament and their personal staff. Authors are available to discuss the contents of these papers with MSPs and their staff who should contact Jim Dewar on extension 85377 or email jim.dewar@scottish.parliament.uk. Members of the public or external organisations may comment on this briefing by emailing us at spice.research@scottish.parliament.uk. However, researchers are unable to enter into personal discussion in relation to SPICe Briefing Papers. Every effort is made to ensure that the information contained in SPICe briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes.

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CONTENTS
BACKGROUND............................................................................................................................................................3 DEFINITIONS ...............................................................................................................................................................3 PUBLIC EXPENDITURE AS A PERCENTAGE OF GDP .......................................................................................................3 GOVERNMENT CONSUMPTION AS A PERCENTAGE OF NATIONAL CONSUMPTION ..............................................................4 PUBLIC SECTOR JOBS AS A PERCENTAGE OF ALL JOBS ................................................................................................4 TRENDS: SCOTLAND AND UK..................................................................................................................................4 PUBLIC EXPENDITURE .................................................................................................................................................4 GOVERNMENT CONSUMPTION ......................................................................................................................................6 PUBLIC SECTOR PRODUCTION .....................................................................................................................................7 SOURCES ....................................................................................................................................................................8 ANNEX .........................................................................................................................................................................9 Scottish GDP........................................................................................................................................................9 Scottish Public Sector Jobs .................................................................................................................................9

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BACKGROUND
Public expenditure in the UK as a share of Gross Domestic Product (GDP) has increased from 37.4% in 1999-00 to 41.1% in 2003-04 and is forecast to rise to 42.3% by 2007-08 (Treasury 2004). Public expenditure in Scotland as a share of GDP has also grown over this period but from a higher base. This has lead to expressions of concern that the Scottish economy is over reliant on public expenditure and the public sector (Bell, 2004) but the positive role played by the public sector since 2000 in mitigating the effects of the manufacturing recession has also been acknowledged (Ashcroft, 2005). This briefing does not discuss the merits of a larger or smaller public sector but attempts to provide factual information on public expenditure, public consumption and the size of the public sector in Scotland, shows how these have changed in recent years and provides comparisons with the UK. Statistics for the Scottish economy are not always available in the same form as for the UK which makes reliable comparisons difficult. The Scottish Executive is working to improve Scottish data but, for the purpose of this briefing, some assumptions have had to be made to ensure consistency with the UK data. These assumptions are described in the Annex. The briefing will be revised as better data is published.

DEFINITIONS
In making comparisons, it is clearly important that the data compared refer to the same thing. However, when commenting on the size of the public sector, different measures are often quoted as though interchangeable. The following measures are useful in describing different aspects of government activity. • • • Public expenditure as a percentage of GDP measures how much of total domestic output is spent by the government whether funded by taxes or borrowing Government consumption as a percentage of total consumption measures how much of total consumption is consumed by government acting on behalf of citizens, either individually or collectively Public sector employees as a percentage of all workers is an indication of the size of the public sector and hence, given certain assumptions, how much of total output is produced in the public sector.

PUBLIC EXPENDITURE AS A PERCENTAGE OF GDP Public expenditure as a percentage of Gross Domestic Product is the most frequently quoted measure. It has the merit that statistics on total government expenditure and GDP are readily available; data are collected and presented in a reasonably consistent manner through time and between countries; and the concept is widely understood. Public expenditure as a percentage of GDP shows the proportion of national output spent by government. However public expenditure includes both transfer payments e.g. pensions, unemployment benefits, interest payments; and provision of services e.g. health, education, transport infrastructure. While the distinction may be immaterial to the taxpayer, the economic impact is important. Transfer payments leave the final spending decision with the recipient of the payment while provision of public services is decided on behalf of users with the service often provided by the public sector. Public expenditure as a percentage of GDP therefore invariably exceeds the proportion of national output consumed by government.
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On the other hand, public expenditure does not include income raised through the sale of goods and services by public corporations e.g. the Post Office, Scottish Water. Thus public expenditure as a percentage of GDP differs from the proportion of national output produced by the public sector. It measures how much of national output is raised in taxes plus borrowed by government but it is only one measure of the scale of government economic activity. GOVERNMENT CONSUMPTION AS A PERCENTAGE OF NATIONAL CONSUMPTION Government consumption as a percentage of national consumption is a measure of how much of all consumption of goods and services is controlled by government. It measures the cost of goods and services provided by government to the citizen paid for by taxation rather than by charges to the user. It excludes transfer payments and excludes services which are paid for directly by the user rather than funded by taxation, even though the goods or services may be produced by the public sector. It also excludes capital expenditure on the basis that capital is not consumed when it is first purchased but used up gradually over the life of the item. This depreciation in capital values is included in the full resource cost of government consumption. PUBLIC SECTOR JOBS AS A PERCENTAGE OF ALL JOBS The ratio of public sector jobs to all jobs is often used as an indicator of the size of the public sector. Again the concept is widely understood but it assumes that on average public sector and private sector jobs have equal economic weights. The reason for using jobs rather than the value of the output is that for outputs financed by taxation there is no market value which can be used to convert outputs into money for comparison with the rest of GDP. Calculating value added is notoriously difficult to measure for services like health, education and defence. Work is being done by the Office of National Statistics to improve the measurement and valuation of public sector outputs (Atkinson, 2005; Burnside et al, 2005) but it will be some years before comprehensive time series data on the value of public sector outputs is available for Scotland and the UK. In the absence of such data, number of jobs in the public sector is a good indicator of the size of the public sector. Comprehensive time series data for numbers employed in the public sector in Scotland are not readily available. Scottish Economic Statistics 2004 gives data for 2003 although some organisations only provide data on full time equivalents rather than total jobs. Figures for jobs in the public sector in Scotland consistent with UK figures are due to be published later in the year (Scottish Executive personal communication). For the purpose of this paper estimates have been made of the number of jobs in the public sector using published data where available but with some interpolation and extrapolation to fill gaps.

TRENDS: SCOTLAND AND UK
PUBLIC EXPENDITURE Table 1 shows public expenditure in Scotland and the UK since 1996-97 in money terms and as a percentage of GDP. Scottish GDP is estimated from Gross Value Added (GVA) at basic prices (see Annex). UK GDP includes extra-regio value added i.e. earnings from the UK continental shelf and by UK residents working in other countries. This adds about 2% to UK GDP.
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To avoid spurious accuracy Scottish GDP has been rounded to the nearest £billion. Public expenditure as a percentage of Scottish GDP has been rounded to the nearest whole percent for the same reason. Scottish figures for public expenditure and GDP for 2003-04 are not yet available. Table 1: Public Expenditure as a Share of GDP: Scotland and UK Public Expenditure £billions 1 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Sources
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Scotland GDP £billions 2 66 69 72 75 77 80 85

Public Exp as a % of GDP 48 47 45 45 46 48 48

Public Expenditure £billions 3 315.6 322.7 332.7 343.6 367.1 390.7 419.1 459.0

UK GDP £billions 4 774 823 869 917 960 1005 1058 1116

Public Exp as a % of GDP 40.8 39.2 38.3 37.4 38.2 38.9 39.6 41.1

31.6 32.3 32.3 33.7 35.7 38.4 40.9

Government Expenditure and Revenue in Scotland 2002-03 Table 6.7 (Scottish Executive 2004); Government Expenditure and Revenue in Scotland 2000-01 Table 18 (Scottish Executive 2002) 2 Figures derived from Scottish GVA (Office of National Statistics). See Annex. Scottish GVA has been multiplied by the ratio of UK GDP to UK GVA to allow comparison with UK GDP. Note: Figures are estimates and rounded to the nearest £billion. Does not include extra-regio value added. 3 2004 Spending Review Statistical Annex Table A.11 (HM Treasury 2004) 4 Office for National Statistics

Chart 1: Public Expenditure as a Share of GDP: Scotland and UK
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50

40

(% of GDP)

Scotland
30

20

UK

10

0 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

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Note that public expenditure in Scotland includes expenditure on reserved matters such as defence and social security. For comparison expenditure in 2003-04 on devolved matters was about £22.5bn or a little over half of all public spending in Scotland. GOVERNMENT CONSUMPTION Table 2 shows government consumption and total consumption by calendar year in Scotland and the UK since 1997. Government consumption is also shown as a percentage of all consumption in Scotland and in the UK. Figures for UK consumption are only available up to 2002 and for Scottish consumption up to 2000. Table 2: Government Consumption as a Share of All Consumption: Scotland and UK Scotland UK Government Total Government Government Total Government consumption consumption consumption consumption consumption consumption £billions 2 £billions 1 £billions 1 as % of all £billions 2 as % of all consumption consumption 15.5 57.1 27.1 148.3 671.5 22.1 16.9 59.7 28.3 154.0 711.9 21.6 18.1 62.2 29.1 166.3 758.8 21.9 18.8 66.6 28.2 177.8 804.3 22.1 191.2 851.6 22.5 209.0 901.9 23.2

1997 1998 1999 2000 2001 2002

Sources
1 2

Scottish Executive: Scottish Economic Statistics Input Output Tables various years Office for National Statistics: The Blue Book 2003 Table 1.2

Chart 2: Government Consumption as a Share of All Consumption: Scotland and UK
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30

25

20 Scotland UK 15 % 10 5 0

1997

1998

1999

2000

2001

2002

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PUBLIC SECTOR PRODUCTION Table 3 shows trends in public sector jobs in Scotland and the UK. Scottish public sector jobs are derived from various sources but due to incomplete data some interpolation and extrapolation has had to be made. Details of assumptions made are given in the Annex. Table 3: Public Sector Jobs as a Share of All Jobs: Scotland and UK Public sector jobs 000s
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Scotland All jobs 000s
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UK Public Public sector as a sector jobs % of all 000s 3 jobs 22.5 22.2 22.5 22.5 21.9 22.6 22.9 4 958 4 945 5 094 5 111 5 203 5 292 5 454 All 000s
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jobs Public sector as a % of all jobs 27 786 28 028 28 415 28 684 28 862 28 995 29 255 17.8 17.6 17.9 17.8 18.0 18.3 18.6

1997 1998 1999 2000 2001 2002 2003 Sources

532 530 537 539 540 551 564

2361 2389 2391 2400 2463 2439 2458

Scottish Economic Statistics 2004; Civil Service Statistics; Scottish Joint Staffing Watch Survey; Scottish Health Statistics. See Annex for details. 2 Labour Force Survey: Civilian jobs plus workers with second jobs plus armed forces. March-May quarter. 3 Office of National Statistics: Jobs in the Public Sector mid-2003, Labour Force Trends July 2004
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Chart 3: Public Sector Jobs as a Share of All Jobs: Scotland and UK
25

20

15 Scotland UK 10 % 5 0 1997 1998 1999 2000 2001 2002 2003

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SOURCES
Ashcroft, B. (2005). Outlook and Appraisal: Quarterly Economic Commentary Vol. 29 No 4. Fraser of Allander Institute. Glasgow. Atkinson (2005) Measurement of Government Output and Productivity for the National Accounts: Final Report. London: Office of National Statistics. Available at: http://www.statistics.gov.uk/about/data/methodology/specific/PublicSector/Atkinson/downloads/ Atkinson_Report_Full.pdf Bell, D. (2004) Finance Committee Official Report 2 November 2004. Scottish Parliament Edinburgh. Available at: http://www.scottish.parliament.uk/business/committees/finance/or04/fi04-2702.htm Black, O. and Richardson, I. (2004). Jobs in the Public Sector mid-2003. Labour Market Trends July 2004 London: Office of National Statistics. Available at: http://www.statistics.gov.uk/articles/economic_trends/ET608black.pdf Cabinet Office (2004). Civil Service Statistics [Online] Available at: http://www.civilservice.gov.uk/management_information/statistical_information/statistics/index.a sp HM Treasury (2004). 2004 Spending Review Statistical Annex Table A.11. Available at: http://www.hm-treasury.gov.uk/spending_review/spend_sr04/report/spend_sr04_repindex.cfm ISD Scotland (2004). Scottish Health Statistics. [Online] Available at: http://www.isdscotland.org/isd/files/WFA01_A02_050210_AM.pdf Office of National Statistics (2004) Headline Gross Value Added at Current Basic Prices by Region Available at: http://www.statistics.gov.uk/downloads/theme_economy/RegionalGVAArticleApril2004.pdf Scottish Executive (2002) Government Expenditure and Revenue in Scotland: 2000-01 Available at: http://www.scotland.gov.uk/library5/government/gers03-14.asp Scottish Executive (2004a) Government Expenditure and Revenue in Scotland: 2002-03 Available at:http://www.scotland.gov.uk/library5/government/gers05-08.asp Scottish Executive (2004b). Scottish Joint Staffing Watch Survey. [Online] http://www.isdscotland.org/isd/files/WFA01_A02_050210_AM.pdf Scottish Executive (2004c) Scottish Economic http://www.scotland.gov.uk/library5/finance/ses04-00.asp Statistics. Available at: Available at:

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ANNEX
Some of the Scottish figures used in the tables are not readily available in the form shown. This Annex explains in more detail how the figures have been derived. Scottish GDP The Scottish Executive only publishes figures for Scottish GDP at basic prices i.e. prices excluding taxes and subsidies, also referred to as Gross Value Added (GVA). Most comparisons express public expenditure as a percentage of GDP at market prices i.e. including taxes and subsidies. To obtain Scottish GDP, Scottish GVA has been multiplied by the ratio of UK GDP to UK GVA. Note: Figures are estimates and rounded to the nearest £billion. Does not include extra-regio value added. Scottish Public Sector Jobs Public sector jobs in Scotland have been calculated by adding the number of jobs i.e. headcount rather than full time equivalents, in the Scottish Executive and its agencies and associated bodies, UK Central Government staff working in Scotland, Armed forces based in Scotland, Non Departmental Public Bodies (NDPBs), National Health Service, Local Government and Public Corporations. The Table below sets out the figures used for each category. NHS and Local Government account for about three quarters of all public sector jobs and reliable data are available for these categories and for the Scottish Executive and its associated Agencies and Departments. Other categories have been assumed to be constant at 2003 levels pending better data but it would require very large revisions to these data to change the share of jobs in the public sector by more than 0.1%. Public Sector Employment in Scotland 1997 1998 1999 2000 2001 2002 2003 Scot Ex + 12223 12410 14641 14510 14420 15360 15660 Other Govt Depts 34100 34100 34100 34100 34100 34100 34100 Armed forces 14500 14500 14500 14500 14500 14500 14500 NDPBs 13900 13900 13900 13900 13900 13900 13900 NHS 134835 134248 135216 135589 137720 142446 147512 Local govt 292000 290595 293516 295522 294888 300073 307511 Public Corporations 30700 30700 30700 30700 30700 30700 30700 Total 532258 530453 536573 538821 540228 551079 563883
Notes: Figures are for jobs using head count of employees or estimates derived from full time equivalents. Scot Ex+ = Scot Ex + Agencies +4 other Depts’ head count at April taken from Civil Service statistics. Figures for 1997 and 1998 are FTEs increased by 3.7% being the difference between headcount and FTEs in 1999. Other Govt Depts from Table 6.6 of Scottish Economic Statistics 2004. 2003 figures applied to all years . Armed forces from Table 6.6 of Scottish Economic statistics 2004. 2003 figure applied to all years. NDPBs from Table 6.6 of Scottish Economic Statistics 2004. 2003 figures applied to all years. NHS figures from ISD Local govt figures from Joint Staffing Watch June of each year except for 1998 (Sept) and 1997 ( estimate derived from FTEs) Public corporations from Table 6.6 of Scottish Economic Statistics 2004. 2003 figures applied to all years.
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