Police VAT - the plot thickens

UNISON Scotland has previously highlighted the cost to the taxpayer of the creation of centralised police and fire services, because this structure means the loss of VAT exemption enjoyed by the current organisations. As a consequence the Scottish taxpayer has to pick up a bill of some £30m.

We have argued that you 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.

Some of the Scottish Government explanations raised suspicions that they knew about this issue before the Bill was published. So we did an FoI for the correspondence in relation to police and fire VAT. They refused on the catch all grounds that this was advice to ministers. They even refused to confirm that such papers existed. A very similar line to today’s FoI story in relation to legal guidance on Scotland's EU membership.

We then appealed to the Commissioner and the Scottish Government has now reconsidered their position and provided the documents.

They key point from these documents is that HMRC made it very clear in their letter dated 15 August 2011 that a national force would not qualify for the s33 VAT exemption.

They set out the criteria:

“Over the years, numerous different bodies have asked to be admitted to the section 33 scheme. To ensure a fair and consistent basis for decisions on admission, and to stick closely to the original rationale for the scheme, successive Governments have applied two strict criteria when assessing these requests. Bodies would only be admitted to section 33 if they:

(i) were both carrying out activities ordinarily carried out by local government; and

(ii) had the power to draw their funds directly from local taxation. I understand that in Scotland his may be referred to as requisitioning powers.”

Self evidently neither of these criteria would be met by a national force, funded by the Scottish Government and the letter makes it clear that BOTH criteria must be met and it is strictly applied.

Despite this letter (15 August) the Scottish Government published its second consultation paper on 8 September 2011. That consultation paper makes it clear (para4.3 P19) that funding “should be consolidated into a single funding stream which the Scottish Government will provide to the Scottish Police Authority”. There is a similar section (p42) for fire. The issue of VAT is not mentioned in this paper despite Scottish Government officials raising their concerns with HMRC in May 2011. 

The Bill was published in January 2012 and only then is the issue of VAT raised. The policy memorandum states that “the Scottish Government is currently liaising with HMRC and HM Treasury”. Technically true, but as the correspondence shows the UK officials just keep referring back to the position clearly stated in the original reply in August 2011.

The failure to include the VAT position in the September consultation meant that consultees were not given the full picture of the consequences of the centralisation of police and fire. Not the standard of openness we are entitled to expect from any government. More a case of  burying bad news that doesn't support the Government line. The Scottish taxpayer will now pay the price.