We have all heard Chancellors past and present wax lyrical about the deficit. This of course was referring to the UK’s national deficit – the difference between spending and revenue. But how are the deficits faring at a regional level?
In the financial year ending April 2016, all countries and regions except London, the South East and the East of England had a public sector net fiscal deficit. That is government expenditure exceeded revenue from taxation etc. Significantly, the East of England posted its first fiscal surplus since 2007/08. Effectively, these three UK regions are subsidising the rest of the country.
Estimates of public sector revenue are based on the concept of “who pays”. Revenue is attributed to the countries and regions of the UK using apportionment methods, such as the use of surveys, population shares and GVA (gross value added) shares. Meanwhile estimates of public sector expenditure are based on the “who benefits” principle. Expenditure in each of the countries and regions of the UK is calculated using methods which attempt to apportion expenditure based on the location of the residents or enterprises who have benefited from expenditure of a particular department or body.
According to the ONS calculations, Northern Ireland’s fiscal deficit stood at just over £10bn in 2015/16 (expenditure of almost £26bn & revenue of £15.9bn). This was on a par with North East of England. However, the latter’s population is around 800,000 larger than Northern Ireland’s. Therefore it is the fiscal deficit per head metric that is of interest. The North East’s net fiscal balance (or deficit) per head was £3,827 in 2015/16. This compared with £5,437 for Northern Ireland, £4,545 for Wales, £2,824 for Scotland and just £599 for England. Northern Ireland’s fiscal deficit per head is almost five times the UK average £1,108.
When it comes to the public finances, Northern Ireland has the best of both worlds – the highest per capita expenditure and lowest taxation within the UK. However, from a fiscal deficit perspective this is viewed as the worst of both worlds. In 2015/16, each man, woman and child in Northern Ireland received £14,018 of public expenditure. This represented a premium of £2,721 relative to England, £1,487 higher than Wales and £964 above Scotland.