Single Scots emergency bodies ‘would have to pay millions in VAT’

10 Apr 12
A new VAT liability could cancel out the savings from creating national police and fire & rescue services in Scotland, the Scottish Liberal Democrat leader has claimed.

By Keith Aitken in Edinburgh | 10 April 2012

A new VAT liability could cancel out the savings from creating national police and fire & rescue services in Scotland, the Scottish Liberal Democrat leader has claimed.

Willie Rennie said: ‘The £22m that will have to be paid [by the national police force] to Revenue & Customs every year completely wipes out the savings that the Scottish National Party say will stem from their centralisation.’ 

Rennie called on ministers to ‘drop their damaging plans once and for all’. But his claims were rejected by the SNP government, which is locked in negotiations with the Treasury to ward off a VAT bill that some fear could exceed £35m a year.

At present, Scotland’s eight regional police forces – and the same number of fire & rescue services – escape VAT because of their organisational ties to local government. In a letter last month to the trade union Unison, UK Treasury minister David Gauke confirmed that the exemption would not apply to the new bodies.

Unison estimates annual VAT bills would be £26m for the police and £4m–£10m for fire & rescue. More generally accepted projections are £22m for the police, as quoted by Rennie, and a total bill of around £30m.

Scottish ministers remain hopeful, publicly at least, that the Treasury talks can resolve the matter. Justice Secretary Kenny MacAskill told Holyrood’s justice committee two weeks ago that Scottish ministers ‘feel the door is not totally closed’.

They point to VAT exemptions enjoyed by the Police Service of Northern Ireland and the UK security services, and admit that savings predicated for the move to national organisations had not taken the possibility of a VAT liability into account.

The Scottish Government continues to insist that the reforms will produce significant savings, which they put at £1.4bn over 15 years, even with a VAT liability.

But CIPFA Scotland has raised doubts about these. Policy manager Don Peebles told Public Finance recently that VAT was just one of a number of transitional risks. Others include inherited investment decisions, asset transfer complications, extricating finances from local government, excess spending by the outgoing boards and loss of access to councils’ capital borrowing rights.

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