23 June 2000
In an exchange of letters, the two political heavyweights argue over the Treasury's refusal to allow the National Crime Squad (NCS) and the National Criminal Intelligence Service (NCIS) to reclaim their VAT payments. The correspondence has been discussed as part of a judicial review on the issue being heard this week.
In letters during 1998 and 1999, Straw says he is 'extremely disappointed' at Brown's decision, which is based on a 'fundamental misapprehension' of the situation. Police authorities, which fund the NCS and the NCIS, can reclaim their VAT, but the two new bodies have been denied this facility.
Straw writes that they should be treated in the same way as police authorities. To not do so would be 'incomprehensible' to the public.
In one letter Straw states: 'I am satisfied that neither service can reasonably be expected to absorb the costs of VAT if they are to continue to play their crucial role in the fight against organised and international crime.'
But Brown argues that allowing the two bodies to reclaim VAT would create an expensive precedent. 'If these bodies were admitted, the breach would be clear and could open the floodgates to applications that would become increasingly difficult to resist,' he writes.
The judicial review has been organised by tax consultants Williams Jeffery Barber on behalf of the NCS, NCIS and the Greater Manchester Police Authority. They argue that cuts will have to be made in police authority services if VAT of £7.6m is not repaid this year.
An earlier unpublished report from the Police Service Forecasting Group suggested that the VAT ruling could mean the loss of 300 police officers. Given the NCIS's high-profile role in identifying English football hooligans, particularly during the current Euro 2000 championships in Belgium and the Netherlands, threats to service levels are likely to produce more negative headlines for an increasingly beleaguered government.
A spokeswoman for the Treasury denied there was a disagreement between her department and the Home Office. She said: 'Funds have actually been allocated to cover the VAT costs that the two bodies incur. There is no suggestion that they are going to need any money as a result of this decision.'
The outcome of the judicial review is expected in the next few weeks.