Tuesday, 29 August 2017

Education and inequality - overview

This is the first in a series of posts looking at placing requests and what, if anything, they can tell us about how educational inequality varies across Scotland. In a return to what was the original format on this blog, I'm going to keep posts short and focused with only one or two graphs or tables per post.

It would be a rare child that would ask "how do I get the most out of the life ahead of me?" The answer that well-meaning adults would give, and often do give even without being asked, is "work hard". But if we were being more honest we'd say "Work hard, but first make sure you were born in the right place, with the right parents."

With this in mind, one way to assess educational inequality is to look at how parents choose to educate their children and how this varies across the country.

The map below shows hot-spots where large proportions of pupils attend schools outside the council area in which they live.1

The hottest spot is around Glasgow, though all urban areas around Edinburgh, Stirling, Aberdeen and Dundee show elevated levels. Rural areas, such as the Highlands and Dumfries & Galloway and the Borders, show the lowest levels. No data is published for the Western Isles, Orkney and Shetland (coloured black) which, according to a note in the source data, is to "prevent disclosure", which I presume means that the numbers involved are so small that individual pupils could be identified.

The table below shows more detail for the top 10 hotspots shown on the map.

The first pair of coloured columns shows the percentage of pupils who live in that council area but attend a school in another council area. The second pair of columns show the percentage of pupils who attend school in that council area but live outside it.

It's perhaps easier to understand it with examples:
  • 1.5% of primary school pupils living in East Dunbartonshire attend a school that is not in East Dunbartonshire .
  • 10.5% of pupils attending a secondary school in Stirlingshire live outside Stirlingshire.
The "Max" column shows the maximum for that row. This is used to order the rows in the table and also to colour the map.

The average percentages for the whole of Scotland are 1.9% for primary schools and 3.9% for secondary schools. (If you think about it, these percentages must be the same for the "going" and "coming" columns.)

There are two points of note here.

The first is that the percentages are higher for secondary schools than for primary schools. This is presumably because secondary school pupils can travel further from home to school and perhaps also because the choice of secondary school is more crucial to parents.

The second is that the affluent Glasgow suburbs of East Dunbartonshire and East Renfrewhire top the table with about 1 in 5 secondary pupils coming from elsewhere. Glasgow City is third with about 1 in 8 secondary pupils residing there but attending school outside Glasgow. It is of course not a coincidence that these council areas are next to each other. Stirling and Clackmannanshire are similar in that they are neighbouring and have high but opposite percentages for secondary schools.

In summary, we have found some clear patterns in this data. Specifically, it seems that parents in Glasgow are sending their children to suburban schools, with a similar but smaller effect from Clackmannanshire to Stirling.

In subsequent posts I'll look at this in more detail and see what it can tell us about inequality in education. In the next post I'll look more closely at the main hot-spot around Glasgow.

1. The data used to construct the above map and table are for 2016 and were taken from the supplementary data set for the 2016 pupil census. A spreadsheet with all data and calculations will be provided in a future blog post.

Thursday, 24 August 2017

Revenue growth

I was hoping to move on from the economy and look at a pile of education-related stuff, but one aspect of this year's GERS report caught my attention. Rather than shoe-horn anything further into the last post I thought I'd write this fresh post.

In the previous post I noted that Scotland's onshore GDP grew by 1.0% whereas onshore revenue grew by 4.0%. In this post I'd like to explore why these two numbers are so different. The issue is this: if our economy is sluggish in producing more stuff, how can more taxes be generated from our earnings (income tax and national insurance), profits (corporation tax) and shopping expeditions (VAT)?

First of all, let's give the question a bit of context by looking at the history of growth rates for GDP and revenue (Table S.1 from GERS with inflation correction using HM Treasury deflators).

As you can see the last couple of years are quite unusual, with only 1999-00 and 2007-08 showing similarly low GDP growth and high revenue growth. The year of the great financial crisis is not exactly a precedent we'd wish to follow, but let's not jump to any conclusions.

The next step is to see how different taxes contributed to the rise in revenue. To do this I've broken down the 4.0% rise into the individual taxes that contributed to it. Also, I've done the same for the 4.1% rise in UK revenues (which include the North Sea, though it's heavily diluted in the much larger UK economy).

As you can see, Scotland and the UK's very similar percentage rises have very similar explanations. The only notable difference is that Non-domestic rates (levied by councils on business properties) contributes a small slice of growth in Scotland but next to none in the UK as a whole.

So that gets us an important step forward, in that, barring extraordinary coincidences, the revenue growth is a UK-wide phenomenon, not peculiar to Scotland.

Just under two-thirds of the revenue growth comes from National Insurance and Onshore corporation tax. This is odd because these taxes are quite unrelated. The former is essentially a tax on income and the latter is a tax on company profits. Also, if a rise in incomes caused the national insurance take to rise, why is the income tax rise relatively modest?

Next, I went to the Quarterly National Accounts Scotland (QNAS) that were released on the same day as GERS, and looked to see if "Compensation of employees" (Table F) showed any impressive increase. Its real growth turned out to be a paltry 0.7% which ruled it out as the culprit. However, this leaves only one other place to look: the tax regime itself.

A bit of web searching soon revealed that changes came into effect in April 2016 which caused National Insurance Contributions to rise, and it was regressive in that folk on lower incomes experienced larger rises in percentage terms. More than that, the Office of Budget Responsibility (OBR) forecasted a big rise in the flow of revenue to Government coffers as a result. This, plus a modest rise in incomes, evidenced by the green income tax bit in the bars above, can explain about half of the total revenue growth.

Most of the rest is down to corporation tax and the explanation for this is quite different. It seems that company profits have indeed jumped up in 2016-17. There's no single reason, but this FT article entitled the Riddle of UK's rising corporation tax receipts offers a few likely causes, including:
  • the economy has grown
  • banks are paying more corporation tax, in part because they're more profitable, but also they're operating under tighter tax rules
  • there's been a crackdown on tax avoidance with some international cooperation, and the likes of the "Google tax"
  • the UK has dropped its corporation tax rate which has attracted big company HQs, though Brexit may repel some
  • and finally, company profits look healthy now because they're not investing in their businesses, which is likely storing trouble for the future.
Another plausible reason is related to the final two points. Companies fear that any current boost to their profits may be temporary and business will get tougher due to Brexit in the years ahead. This makes them reluctant to raise wages now because they expect they would have to be lowered again in the near future, and lowering wages is harder than raising them. This explains why companies are holding onto their current gains but wage growth (see 0.7% mentioned above) is much lower.

And with that we have now explained almost all of the growth in revenue. Of course, the National Insurance change is a one-off growth spurt, and although the corporation tax surge could well continue for a while, the effects of present weak investment and Brexit uncertainty lurk in the not-too-distant future.

PS Thanks to George S. Gordon for a Twitter conversation that helped me get my head around this stuff.

Edited 26/8/17 09.04 to fix typo and mention regressive nature of NI changes.

Edited 8/9/17 09.38 to insert penultimate paragraph on poor wage growth relative to profits.

Wednesday, 23 August 2017

GERS 2016-17

GERS 2016-17 came out today. The headline figures show what most folk will have expected, namely Scotland's deficit (net fiscal balance) is still big at 8.3% though a bit improved on last year's 9.3%. Nevertheless, that's still 6 percentage points larger than UK's deficit of 2.4%. In this post I want to draw attention to some other interesting points you may not see elsewhere. This was written fairly quickly so please excuse any typos and expect a few (hopefully minor) revisions.

The Government Expenditure & Revenue Scotland 2016-17 gives a summary of all public expenditure that benefits Scotland's residents, together with revenues raised from Scotland's people and businesses, mostly through tax. It covers the financial year from April 1 2016 to March 31 2017.

In what follows I'll refer only to figures including a geographical share of Scotland's North Sea unless otherwise stated. References to specific parts of GERS are given in brackets where relevant.

Every negative has a positive

The deficit is most usually view as a problem and it would become one if Scotland had to fund it by itself. But putting that aside, you can view it as a positive for Scottish society, at least under current arrangements.

Think of it this way. The public sector in Scotland is spending £13,175 per person into the private sector and it removes £10,722 in tax and other revenues. That's a net flow of £2453 per person. Put it another way, would you prefer if we were giving the government(s) that amount per Scottish resident? The benefit to society is mostly through government services and this benefit is greater for the less well-off who rely more on the state for support (Tables S.2 and S.4)

This flow of monies from the public to private sector can be viewed an economic boost and at 8.3% of GDP it's a considerable one too. (Table S.6)

Of course there are some caveats here. Firstly, an economy dependent on state spending may suffer from unhealthy distortions because too much economic power is wielded by one actor, in this case the government(s). Also, money that seems to be flowing into the Scottish private sector may not stay there if it, for example, goes to companies owned outside Scotland. And, of course, some of the expenditure will go directly to companies outside Scotland (e.g. a council buys a German bin lorry).

Expenditure top 3

The graph below shows the top 3 areas of expenditure adjusted for inflation using standard HM Treasury deflators to be in 2016-17 prices.

Health and education are completely devolved to the Scottish Government and councils whereas Social protection is mostly reserved to the UK Government.

Social protection, at a third of all expenditure, is the largest single area of spending and includes welfare spending which is itself dominated by the state pension.

Much of the rise in Social protection and Health can be explained by the extra demands placed on them as the post-World War 2 baby-boomers move into old age.

In contrast, until 2014 the number of children in Scotland was decreasing. Despite that, spending on Education and training, which is dominated by school spending, was rising until 2007-08 after which it plateaued and fell. Numbers of children are now rising and Education and training spending has started to rise in the last couple of years but it still sits about £0.5 billion below its peak.

(From table 3.6 and relevant population statistics are summarised here.)

What we give to the government(s)

The 'R' in GERS standard for revenue and it's mostly tax. More than half of revenue in 2016-17, and indeed in most years, was from the big 3 taxes that most of us pay: income tax and national insurance from what we earn, and VAT from what we buy.

The graph below takes revenue values from GERS and GDP from the Quarterly National Accounts Scotland 2017Q1 which were released on the same day as GERS (with much less hoo-haa). I checked that the GDP implicit in the GERS report matches that published in the National Accounts.

There's a lot going on in this graph, so look first at the solid lines which include a geographical share for the North Sea. The picture here is that both GDP and revenue peak in 2007-08 prior to the financial crisis and then plateaued or slightly decreased thereafter. GDP remained flat in the last couple of years whereas this year's GERS shows a noticeable uptick in revenues though it is still well below its 2007-08 peak.

Now turn your attention to the dashed line which excludes the North Sea, often referred to as being for the onshore economy. Unlike the solid lines, both GDP and revenue have been growing since 2010-11 and we can see that all revenue growth in 2016-17 is due to the onshore economy (the solid and red lines merge).

What's interesting here is that in 2016-17 the onshore economy's revenue increased in real terms by 4.0% whereas GDP increased by only 1.0%. Something similar is true for 2015-16 with its figures being 2.7% and 0.5% respectively. This is unusual though not unprecedented, but it's perhaps concerning that the last time this happened was in 2007-08. Without looking at other data it's hard to be sure what's going on here, or what its implications are, but it does make me wonder if it's a signal that the economy is in a peculiar state. That said, if we take a longer view and average over the last five years then the difference is much smaller: GDP grew on by 1.5% per year and revenue by 2.3%.

(Data from GERS Table S.1 and see this post for more on how the GDP of the North Sea and the onshore economy are linked.)


For these year's figures, devolution can be rather glibly summarised in percentage terms as
  • 42.1% of revenue is devolved or assigned to Scottish Government control (latter is because EU doesn't permit VAT variation within a member state)
  • 63% of expenditure is under devolved control, either Scottish Government or councils
(Pie charts in Chapter 4)

What has the EU ever done for us? Or us for it?

GERS contains estimates of Scotland's share of the UK's contribution to the EU, and also its share of what the UK receives from the EU. Overall, Scotland makes a net contribution to the EU budget of £1.0bn, and a net contribution to EU institutions of £0.3bn. The UK as a whole also makes net positive contributions and, by proportion of the population, they are larger, being £12.2 bn and £8.1bn respectively. (Box 3.2)

By many measures, Scotland is relatively well-off compared to much of the EU and most of the rest of the UK, e.g. by poverty rates Scotland is on a par with the southeast and east regions of England. This is why Scotland and the UK as a whole make net contributions to the EU. There are of course significant non-financial aspects of EU membership, but that's an issue for another blog post and not something that is the remit of GERS either.


Hindsight is a marvellous thing, and one indication of the quality or uncertainty of annual statistics is whether they need substantial revision in subsequent years. Sometimes an error is uncovered, but more commonly improved data becomes available; gathering and processing data takes time. The third reason for changes is that accounting conventions change, and that is the dominant reason for revisions in this year's GERS.

In what follows I refer to figures for 2012-13 to 2015-16 compared to figures given in last year's GERS report (2015-16).

GERS figures for revenue have risen by about £0.75 bn (1.4%). Three reasons, each causing a revision upwards:
  • housing associations now classed in public sector*
  • corp tax changed from cash to accruals*
  • correction to NDR (Scotland up 35%, UK 1.9%)
*Affects UK as a whole too.
(Tables B.1 and B.2)

Cash vs accruals crops up a lot in GERS, especially within the "Accounting adjustments" category. With a cash accounting basis you date amounts according to when the cash moved from one account to another. With accruals you date it by when the reason for moving the cash was agreed. It is like the difference between the date an invoice was paid and when it was issued.

North Sea revenues were revised down for past years by about £0.5 bn, except 2015-16 which went down by only £4 million. (Table B.3)

Expenditure has been revised up by approx £0.5 bn each year, mainly due to housing association reclassification into the public sector, but also due to revisions to network rail, student loans and Scottish Water. (Table B.4)

Impact on net fiscal balances for each year is tiny, by about -0.1% of GDP or less. (Table B.10)

International comparisons

You might be tempted to see how Scotland is doing relative to other countries. To account for economies of different sizes, this is usually done by comparing public expenditure and revenue as percentages of GDP using datasets such as those from the OECD.

However, a word of warning. GERS is a rather unique report in that it's trying to give a fiscal picture of a country within a state (Scotland in the UK). As such it is likely to be difficult to compare it to other countries directly. In addition to that, different definitions of "public sector" and differing accounting conventions (cash vs accrual being one such example) can make comparison very tricky.

If you really want to compare Scotland with other countries, then you can get some clues as to likely differences by comparing UK values first. For example, according to GERS the UK's 2015-16 (tax) revenue is 36.2% of GDP whereas the OECD 2015 figure is 32.5%. Notice that GERS uses the financial year whereas the OECD uses the calendar year.

(See note at end of this page in GERS.)

Edited 23/8/17 at 16.03 to fix a typo and tidy up wording of EU section.

Edited  23/8/17 at 17.10 to correct garbled bit of spend and tax per person (thanks to @FraserWhyte for spotting it), and to add Expenditure top 3 section and graph.

Edited 24/8/17 12.15 to add revenue section and graph and fix a couple more typos.

Tuesday, 1 August 2017

A Nation Changed?

There's not been a post here for a while as I've been otherwise occupied with assorted projects and personal stuff. Rest assured, normal service will be resumed.

In the meantime you may want to take a look at a new book called A Nation Changed? The SNP and Scotland Ten Years On edited by Gerry Hassan and Simon Barrow. It has over 40 chapters with each one written by a different author.

The penultimate chapter contains ten charts from my Active Citizen book which are updated to the latest data available and adapted so that each one can stand on its own with a caption of about 150 words. The aim was, as far as possible, to present the information with a light touch and let the data speak for itself and, I hope, let the reader come to their own, tentative conclusions.

(Had I seen the cover at time of writing I would've entitled my chapter Tomorrow Never Knows.)

I've not yet read the entire book but a glance at the constellation of contributors impressed me greatly (and made me feel a little like a sixth magnitude interloper). I've had long chats with Gerry and a good chat on the phone with Simon, but at no point did they instruct or lead me. Quite the reverse. They let me decide what I should contribute. I'm sure this was true of all contributors.

You can order A Nation Changed? from Luath Press or a take a sneak peek at parts of it on Google Books.

Below is a list of links which will grow in coming days as I add links to all sources and spreadsheets that show my working. I'll be most grateful if you alert me to any errors, either in the comments here, or else to @mcnalu on twitter.

Figure 1 - Budget

Figure 2 - Fiscal flows

Figure 3 - Income inequality

Figure 4 - Population

Figure 5 - School

Figure 6 - Energy

Figure 7 - Employment

Figure 8 - Poverty