Mackay used a meeting in Edinburgh of finance ministers from the four UK parliaments to highlight what he called “a significant difference” in the way VAT affects emergency services across the UK.
Mackay stated that Scottish police and fire services paying VAT when other territorial services in the UK do not have to.
“There needs to be a level playing field for such essential services,” he said.
“We want to invest in our emergency services and make our communities safer,” Mackay added.
“However our police and fire services continue to face £35m of unnecessary annual costs through VAT that they simply should not have to pay. This is a significant sum which other emergency services do not have to meet.”
The VAT exposure has been a source of grievance and friction between Holyrood and the UK Treasury since the national police and emergency services were set up in 2013.
Prior to that date, they ran on a regional basis, under the supervision of local authority joint boards. This mean that, like councils, they could claim back their VAT liability, whereas central government cannot. However quangos supervising the new national forces count as central, not local, government.
Both UK ministers and the opposition parties in Scotland insist that the Scottish National Party government in Edinburgh was aware of the liability at the time it pushed through the reforms – the primary objective of which was to save money.
Scottish ministers, in turn, argue that the UK government was prepared to make an exception to the normal VAT rules in favour of academy schools in England, and that their refusal to do the same for the emergency services north of the border treats them differently from all others in the UK.
The new services have been under significant budget pressure since their inception, with auditor general Caroline Gardner predicting in an appearance before MSPs last month that Police Scotland could be approaching a cumulative deficit of £200m by 2021. Audit Scotland has published adverse reports on the force’s finances in each of the three years since it was set up.
It adds to the dissatisfaction that has surrounded the new force from its creation, with critics claiming that it was imposing a “one size fits all” policing strategy across Scotland and turf wars between its operational and supervisory wings contributing to premature senior personnel departures in both.
