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UKScotLocalTotal
Tax %
Spend %
£ billion
Tax
Spend
Transfers
From Scot Gov
From UK Gov
After transfers
Income
Spend
Deficit
New debt costs
Borrowing
Interest rate %
Interest*

*Interest is in £ million

Help

This simulation illustrates how public money flows through Scotland's three levels of government: UK (Westminster), Scottish (Holyrood) and Local (councils).

It is based on a diagram originally produced for the book An Active Citizen's Guide to Scotland.

Quick start

Play with the first two sliders to divide up tax and spending in Scotland across the three levels of government.

The third slider controls borrowing and fiscal transfers. At zero (red), all borrowing is done at the UK government level, and at max (blue/green), it is all done at Scottish and Local government levels.

Pay attention to how your changes affect the deficit at each level and the extra interest that deficit incurs. The total deficit is always equal to the total public spending of Scotland less its tax revenue, but the total interest does depend on how borrowing is spread across the three levels of government.

The initial numbers are close to the reality of 2015-16, although final figures for that financial year won't be published until early 2017. Press the Reset button to go back to these numbers.

You can switch between the Diagram view and the Tables using the tabs at the top.

Auto fiscal framework

The automated fiscal framework will calculate the necessary fiscal transfers between levels of government for you. If the borrow slider is set to zero (red) then fiscal transfers — the vertical arrows between governments — are set so that deficits are kept at zero for the Scottish and Local governments. If the borrow slider is at full (blue/green) then all fiscal transfers are zero and Scottish and Local governments fund their deficits by borrowing.

The interest shown is the extra interest incurred per year if borrowing is done to cover the deficit. It is not the total interest paid on all debt; that will be substantially larger.

If you uncheck Auto fiscal framework, then the borrow slider will disappear and you can set fiscal transfers manually, and also alter tax and spend totals for Scotland.

The sliders

There are three sliders which you can adjust:

How do I declare independence?

This can be simulated by zeroing tax and spend for the UK government and directing all borrowing to Scottish and Local governments: drag the upper slider handles for tax and spend to the very top, and the borrow slider handle to the top too.

The Scottish Government interest rate of 2.5% refers to current borrowing arrangements within the UK (see below for more info). No one can say for sure what this rate will be for an independent Scotland, but with a deficit of £15 billion or 10% of GDP, it is likely to be higher than 2.5%. You can set your own interest rate by unchecking Auto fiscal framework and entering a value in the table below it. You might also want to consider altering the the Spending total to account for possible reductions in defence spending but also new costs of the Scottish Government expanding its administration and paying interest on its borrowing.

What's a fiscal flow?

The word fiscal refers to the flows of money involved in tax and public spending, or, in other words, the flow between the private and public sectors.

The three levels of government — the public sector — are shown on the left as coloured squares and the private sector of Scotland is shown as the oval on the right.

Arrows going left represent tax, and those going right represent spending. Arrows going down represent fiscal transfers between levels of government.

The total amount of money leaving each level of government (spending plus fiscal transfers out) minus income (tax plus fiscal transfers in) is the called deficit (or to be strictly accurate, the net fiscal balance).

Deficits are usually matched by borrowing and at present this is almost entirely done at the UK level (it can borrow most cheaply). More detail on how tax funds, or rather doesn't fund spending can be found below.

More details

Tax is a flow of money from the private sector to the public sector. Most tax comes from people's income and the VAT on stuff that they buy. Public spending is a flow of money in the opposite direction and provides money needed for building roads or schools and for paying nurses or teachers.

The tax collected almost always falls short of public spending and the difference is the deficit. The UK has run a deficit in 54 of the last 60 years.

Deficits can be funded in a number of ways. The Scottish and Local Government deficits are mainly funded by fiscal transfers with borrowing playing a minor role. The UK government funds its deficit with borrowing by carving up new debt into £100 chunks called government bonds. UK government bonds are referred to as gilts.

The UK has its own currency and central bank and so can, in principle, fund deficits by creating money. However, funding public spending in this way would violate the Maastricht treaty and can, if done to excess in the wrong circumstances, lead to inflation. Nevertheless, money creation did play a part in attempts to deal with the aftermath of the 2008 financial crisis when the Bank of England created £375 billion to purchase gilts. As a result of this, about a quarter of UK public sector debt is owed to the UK public sector. Yes, you read that correctly, the UK public sector owns its own bonds, and pays itself interest! This part of the debt is therefore not really debt at all, and in other ways UK government debt isn't what you think it is.

Source code

If you know a bit of HTML5, CSS and javascript, then please take my code, alter it, improve it and share it. It's released as Free Software under the GNU AGPL license which means that if you take it and use it on a website you need to make your version available to others too. You can get the source code on github.

References

Tax

Tax

Spend

Spend

Borrow

Borrow
Auto fiscal framework
UKScotLocal
to Scot --
to Local -
interest %
Totals
Tax
Spend