Wednesday, 13 June 2012

Police and fire VAT liability

A number of column inches in today's media cover the admission by the Cabinet Secretary for Justice that he hadn't been able to persuade the Treasury to allow a VAT exemption for the new national police and fire bodies. At the Justice Committee he called the decision "unjustifiable and manifestly unfair" and others have also attacked the Treasury's position. The cost of  losing the VAT exemption (known as s33 status) is around £26m for the police and between £4m and £10m for the fire and rescue service

We would accept that the Treasury can be a very wicked body capable of imposing all sorts of infamy on Scotland. However, on this occasion the story is more complex.

The Financial Memorandum to the Police and Fire Reform Bill states that “the Scottish Government is currently liaising with HMRC regarding whether the service could be given s33 status” and ministers have indicated that they continue to lobby the Treasury on this point. However, Treasury Minister David Gauke MP in a letter to UNISON last March states, “The eligibility criteria for Section 33 are set out in HMRC’s published guidance and the Scottish Government was aware of them when formulating the current reforms”.

This shows that despite holding out the prospect of resolving the VAT exemption throughout the Bill process, they knew at the outset that this would not be the case. Incidentally they have also refused to publish any of the correspondence on the issue with the Treasury. Raising suspicions that they have something to hide.

There is also a Scottish solution to the problem as UNISON set out in evidence to the Justice Committee. We could have a single police force established as local government joint board, funded through a precept and retain s33 status. Of course that would mean less direct ministerial influence over the police, but it would strengthen local democratic accountability.

So, yes of course the Treasury should grant a similar exemption to the one that applies in Northern Ireland. However, this problem was created by the Scottish Government, not the Treasury. There is also a simple Scottish solution. However, it appears that Scotland's public services are going to have to pay a high price for allowing greater ministerial control of our police and fire services.

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