WHO RECEIVES Fiscal Grants in the UK and who pays for them? In every country in the world every citizen either receives from the state or contributes to the state. This also applies to regions within countries. In Germany, for instance, most people and regions will receive fiscal grants, and these will be paid for by the richest parts of Germany. It is explained here: A Germany without fiscal transfers.
The same happens in the UK. Only three regions of the UK run fiscal surpluses (they create more wealth than they spend). They are:
London
The East
The South East
But what happens at the country level? That’s easy. There is a very simple formula to calculate whether any of the countries of the UK receive a fiscal grant. It’s this:
((x – y) * z)
In this example I’ll use the UK and Scotland but it equally applies to Wales and Northern Ireland. (England doesn’t receive any fiscal grants. It actually pays for them.)
x = The UK per person Deficit
y = Scotland’s per person Deficit
z = Scotland’s population
We already know these numbers from the Scottish accounts, GERS
x = £829
y = £2,771
z = 5,463,300
£829 – £2,771 = £1,941 (rounded) * 5,463,300 = £10,606m
So, for 2019/20 Scotland received a fiscal grant of £1,941 per person, which equates to £10,606m. This money is totally free to Scots and Scotland. Not only that but we don’t even pay the interest on it either. The UK has borrowed this money to give us for free and pays the interest on it as well.
But that now brings up another problem to solve – who actually pays for this?
Again, that’s easy. In this case it turns out that England pays for it. Someone must carry the can for all this debt incurred and that someone is England. How can I prove it?
To do that I need to delve into another set of accounts. The ONS region and country fiscal balance
accounts. The latest version is that for 2018/19. This is a bit more complex than the simple formula but in essence it’s the same thing.
Firstly. What is a Deficit? A Deficit occurs when you spend more money than you earn in a single year. A Deficit also becomes a Debt. Generally a Deficit refers to a single year whereas Debt is the accumulation of all past Deficits less any surpluses.
To show you who pays for Fiscal Grants we will use the accounts for 2018/19 from the ONS. This graphic shows you all the data:
In this graphic you can see the deficits run up by the four home countries and the total deficits at the bottom, which is the UK deficit = £41,373m. In the second column you will see what the deficits for each country should be: Scotland had 8.19% of the UK population and should have run a population % deficit of £3,387m to be paying its way.
Unfortunately it ran a deficit of £13,499m.
When you take away the deficit we should have run (£3,387) from the deficit we did run (£13,499) you end up with the fiscal grant of £10,112m required to keep Scotland afloat.
Had I used the formula ((x – y) * z) for calculating fiscal grants as detailed above I would have come up with the same number. So, how do we prove that England pays for it and not the UK? That’s easy. To understand fiscal grants you need to understand debt allocation.
When calculating who owes debt in a country you apportion it on a per person basis. That is, you take the debt and divide it by the population of the UK and you find out how much debt was run up per person (on their behalf by the government) in the UK. For 2018/19 the deficit was £41,373m divided by the population of the UK (66,435,600):
41,373,000,000/66,435,600 = £623 debt per person.
Since England has 84.26% of the UK population, that means that it takes on 84.26% of the debt. This is confirmed by the interest paid in this ONS dataset:
Country and Regional Public Sector Finances, FYE 2019: Expenditure Tables
Since we know that the UK ran a deficit of £41,373 and we know that England has 84.26 per cent of the debt then England pays for £34,860m of that deficit even though it only ran up a deficit of £4,954m itself!
And here’s the really cool part of this calculation, you can see that the fiscal grants to the rUK amount to £29,606m. This is the accumulation of the Scotland, Wales and NI fiscal grants.
It turns out that if you take England’s population share of the deficit = £34,860 and take away the deficit that England ran (4,954m) you end up with the sum of £29,606m which is the fiscal grants received by the rUK.
You can see that I’ve used two totally different formulas to calculate the fiscal grants and both formulas give the same result. As well as taking on the debt (£34,860m) England also pays all the interest on that debt.
If we look at the total deficits (debt) of the UK from 1999 to 2019 they amount to the sum of £1,335,051m but England only ran up £742,194m of that debt but it takes on 84.26 per cent of that debt = £1,124,913
Using the method above we can then calculate the fiscal grants £1,124,913 (England’s debt share) minus £742,194 (England’s deficits) = £382,719m in fiscal grants to the rUK from 1999 to 2019 (20 years). England also paid the interest on these grants. Probably £30-£40bn.
Add the fiscal grants for 2019/20 probably around £42bn and this current year (maybe £50bn) and you can see that England has funded the rUK to the tune of well over £500bn in the last 22 years from 1999 to 2021.
This isn’t very easy to understand even though it’s just simple arithmetic so please read it a few times.
Finally, here’s the evidence for the fiscal grant, directly from the UK’s statisticians:
https://pbs.twimg.com/media/El2kyURWoAAgPY6.jpg
Photo by William from Adobe Stock
