VAT Charges (Police Scotland and Scottish Fire and Rescue Service)

– in the Scottish Parliament on 31st October 2017.

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Photo of Linda Fabiani Linda Fabiani Scottish National Party

The final item of business is a members’ business debate on motion S5M-08226, in the name of Ben Macpherson, on unfair Police Scotland and Scottish Fire and Rescue Service VAT charges. The debate will be concluded without any question being put.

Motion debated,

That the Parliament understands that Police Scotland and Scottish Fire and Rescue continue to be the only territorial forces in the UK unable to reclaim VAT; believes that this costs £35 million annually, and has totalled £140 million since 2013; notes what it sees as the detrimental impact that paying this VAT has on frontline services in communities in Edinburgh Northern and Leith and across Scotland; acknowledges the view that the UK Government should change its rules to allow this VAT to be reclaimed, similar to the action that it took to enable Highways England and academy schools to reclaim VAT, and further notes the argument that the UK Government should fully reimburse the reported £140 million taken away from Scotland's frontline emergency services since 2013.

Photo of Ben Macpherson Ben Macpherson Scottish National Party

I thank the Presiding Officer for allowing debate time on the current unfair situation in which Police Scotland and the Scottish Fire and Rescue Service are the only police and fire services in the whole United Kingdom that are unable to reclaim VAT. I also thank members who have supported the motion so far, including many Scottish National Party, Green and Labour MSPs. Unfortunately, no Lib Dems or Tories have signed the motion. However, I hope that our Lib Dem and Tory colleagues will take the opportunity that is afforded by today’s debate to show their support for Scotland’s police and fire services, and to help to get back their VAT.

As I have mentioned, Police Scotland and the Scottish Fire and Rescue Service are the only territorial police and fire services in the whole UK that are unable to reclaim VAT from the UK Treasury. That anomaly needlessly costs our public services £35 million a year, which unfairly deprives Police Scotland of about £25 million and our Scottish Fire and Rescue Service of about £10 million. There is no justification for that discrepancy: it is totally unjust.

Although the Scottish Government is protecting the police budget in real terms and has increased the operational resource of the fire service this year, paying the VAT charges means that the UK Government is needlessly depriving Scotland’s police and fire services of extra resources—resources that would be better spent on front-line services in communities in my constituency and across Scotland.

Some people have previously argued that the Scottish Government was aware that there would be VAT implications when the Scottish Parliament passed the Police and Fire Reform Act (Scotland) 2012. However, the SNP never accepted or agreed with the position that our police services and fire services should be unfairly treated as a result of their mergers in 2013. There was no good reason to accept the glaring disparity then, and it should not be accepted now. The anomaly that penalises Scotland’s emergency services did not make sense in 2012, and it does not make sense now. The UK Government’s rules on VAT have needlessly disadvantaged communities across Scotland. They should, and must, be changed.

The chair of the Scottish Fire and Rescue Service, Pat Watters, described the injustice of the current situation in the Justice Committee as follows:

“When the people of Scotland have to provide for major emergencies, it costs them 20 per cent more than it costs anywhere else in the UK. ... It is not right that it costs the people of Scotland 20 per cent more to get the same protection as elsewhere in the UK. That cannot be right”.—[

Official Report

,

Justice Committee

, 27 May 2017, col 25.]

There can be no reasonable arguments for the UK Government to maintain that discrepancy.

Furthermore, there are no legal reasons why the current rules and position cannot be changed. Through section 76 of the Finance Act 2011, the UK Government has amended VAT rules to allow academy schools to reclaim VAT. Some time after the mergers of the previous police forces and of the previous fire services, Highways England was granted the ability to reclaim VAT by the UK Government by way of the Finance Act 2015. The BBC is also exempt from paying VAT. All that the UK Government needs to do to rectify the unfair anomaly is legislate similarly to how it already has for academy schools, Highways England and the BBC. It would be a very simple process for the UK Government if it were to decide to do the right thing and treat Scotland’s police and fire services equitably.

Moreover, recently some people have erroneously tried to excuse the UK Government’s indefensible position by referring to European Union legislation on VAT. However, as the UK Government well knows, individual member states have latitude on how they implement the sixth VAT directive: how individual countries operate VAT refunds is principally down to national legislation.

Considering all that, the UK Government should and must use the forthcoming UK budget to end the unfair disparity for Police Scotland and the Scottish Fire and Rescue Service when it comes to reclaiming VAT, and it should give Scotland’s police and fire services parity with other forces in the UK, with academy schools, with the BBC and with Highways England. Because the UK Government could have made such changes several years ago, it would only be right for it to refund Police Scotland and the Scottish Fire and Rescue Service the £140 million that they have already paid in VAT, which has been taken away from Scotland’s front-line emergency services since 2013.

All that is being asked for is an equitable solution from the UK Government. For that reason, in good faith, I hope that all speakers in today’s debate will join me in pressing the UK Treasury to change its rules. That includes Scottish Conservative MSP colleagues.

The Sunday Post reported on 8 October that 13 Scottish Conservative Members of Parliament in London had written to the Chancellor of the Exchequer requesting a change in the VAT rules for Police Scotland and the Scottish Fire and Rescue Service. I hope that Tory MSP colleagues will clarify that today, and that Tory MSPs will also do the right thing by Scotland and by their constituents and join me and many others in pressing the chancellor to treat Scotland’s police and fire services with equity, parity and fairness.

The Tories like to think that they are the party of law and order. If that is to hold any credibility whatever, they need to support Scotland’s police and fire services on this matter. As MSPs, supporting our police and fire officers means much more than words. It means standing up for them as much as we can. That is what this debate and this issue is all about. It is not about grievance; it is about fairness. It is not about party politics; it is about making sure that our police and fire services are treated with parity—that they are treated the same as every other police and fire service in the UK.

The UK Government has said several times in recent years that it will respect Scotland and treat it with equality. However, when it comes to charging our police and fire services VAT, it has yet to deliver. I genuinely hope that as MSPs together we can change the UK Government’s mind. It should and must change its mind and it should and must change its rules, and change them very fast.

The Deputy Presiding Officer:

We move to the open debate. I call Murdo Fraser, to be followed by Rona Mackay, for speeches of up to four minutes.

Photo of Murdo Fraser Murdo Fraser Conservative

I congratulate

Ben Macpherson on securing the debate. However, I have to say very gently to him that the subject is a rather unusual one for a members’ business debate. The issue that he has raised is not new—we have debated it in Parliament on many occasions—and it is hard to see that there is a specific constituency interest that he or, indeed, any other member has in it.

Photo of Ben Macpherson Ben Macpherson Scottish National Party

Like any other constituency in Scotland—whether rural or urban—my constituency has policing needs. This is about ensuring a more effective and efficient service for the whole of Police Scotland and the whole of the Scottish Fire and Rescue Service. As constituency and regional MSPs, we all surely have an interest in ensuring that our services have the resources that they need and deserve.

Photo of Murdo Fraser Murdo Fraser Conservative

Perhaps I can forgive

Mr Macpherson because he was not a member of the Scottish Parliament when the legislation was passed to create the single police service and single fire service. Therefore, he might not be aware that the issues that he has referred to were thoroughly debated at that time, before the legislation was passed. The situation that we have today has arisen entirely because of the actions of the SNP Government. It went into this with its eyes fully open but is now calling for others to sort out a problem that it created.

I will spend a few moments educating Mr Macpherson on exactly what the legal position is. Section 33 of the Value Added Tax Act 1994 allows certain locally funded bodies to reclaim VAT on purchases of goods and services.

Photo of Murdo Fraser Murdo Fraser Conservative

I have already taken one intervention. I have four minutes; Mr Macpherson had seven minutes. He should listen and learn from what I am about to tell him.

Those refunds exist in order to stop VAT becoming an additional burden on local taxes. Because police forces in England and Wales are part funded by the council tax, they have the right to reclaim VAT. However, because both Police Scotland and the Scottish Fire and Rescue Service are not part funded through local taxation, there is no justification for a VAT refund. The legal position is therefore quite clear. It is quite clear today, and it was quite clear back in 2012, when the new bodies were created. Correspondence that passed between the Scottish Government and the Treasury at that time, which is in the public domain, puts that beyond doubt.

I appreciate that both Police Scotland and the Scottish Fire and Rescue Service would prefer it if the £35 million that they pay in VAT could be reclaimed. That is an issue for the Treasury, and I know that the chancellor and his colleagues are aware of it, but we should not be in any doubt that the SNP Government went into the reorganisations with its eyes fully open, and that it is living with the consequences of its actions.

In debate after debate in the chamber when the mergers were being proposed, Opposition parties and other witnesses raised the question of VAT, but the Scottish Government’s response at that time was that there would still be savings to be made from the mergers, even with VAT being taken into account. The Scottish Government was aware of what would happen when it went down that route. At the time, the Treasury even proposed to the Scottish Government alternative routes to try to avoid the problem. It proposed, for example, channelling funding for Police Scotland through local authorities, but that reasonable suggestion was rejected by the Scottish Government at the time. Even Unison the trade union made it clear in evidence that the SNP went into the mergers with its eyes fully open and fully aware that the right to reclaim VAT would be removed. Therefore, any reduction in funding, to which Mr Macpherson so objects, is entirely the fault of his SNP Government, and no one else.

Photo of Murdo Fraser Murdo Fraser Conservative

I have already taken an intervention. Just listen.

In his opening speech, Mr Macpherson said something quite inaccurate. He said that the only police and fire services in the United Kingdom that cannot reclaim VAT are those in Scotland. That is not the case. If he had done his research, he would know that the British Transport Police and the Ministry of Defence police cannot reclaim VAT.

Photo of Murdo Fraser Murdo Fraser Conservative

Mr Stevenson said the word “Territorial”.

Mr Macpherson did not use that word in his opening remarks, as the

Official Report will surely show.

The Deputy Presiding Officer:

No, Mr Macpherson. Mr Fraser, you have to close, please.

Photo of Murdo Fraser Murdo Fraser Conservative

Rather than indulging in whataboutery, Mr Macpherson needs to accept that his Government got this wrong.

Despite all the bluff and bluster from the SNP, it is a fact that it created the problem and that it is looking for others to try to bail it out of that problem. Once again, it will be the Conservatives at Westminster who are asked to sort out the SNP’s mess.

Photo of Rona Mackay Rona Mackay Scottish National Party

I thank my colleague

Ben Macpherson for bringing this crucial debate to the chamber, and I welcome the chance to take part in it.

When Ben Macpherson lodged the motion, he received an onslaught of criticism on Twitter, which I was copied into. I did not respond to any of it, because I prefer not to enter antagonistic dialogue on social media.

However, as with Murdo Fraser’s speech, the main thrust of those who support charging Police Scotland and the Scottish Fire and Rescue Service VAT—which has resulted in a loss of £140 million over the past four years—appears to be, “We told you so,” and that we were warned before setting up merged services.

My overriding thought on those comments has always been this: does that make it right? If anyone’s answer is yes, I ask them to explain why it is acceptable that Scotland is the only devolved nation to be hit with those punitive charges. As Ben said, everything that Police Scotland or the Scottish Fire and Rescue Service buys costs 20 per cent more than it would cost in the rest of the UK. That is simply outrageous and unacceptable. Its only effect is to starve our vital services of £35 million per year that would enhance law and order, justice and the safety of the public in Scotland.

The UK Government’s hypocrisy on the issue has been astounding. It rightly praises the tremendous work that our emergency services do, while starving them of much-needed resources. It has point-blank refused to reverse the VAT charge, despite there being a clear precedent for doing so. As we have heard, Highways England and academy schools are examples. It is a spiteful and disgraceful way for a national Government to act and there is no excuse for it.

Now would be the best time for Ruth Davidson to use her growing popularity with Westminster and the British establishment to do something useful for Scotland, for once. Will her motley crew of Tory MPs stand up for Scotland? Of course they will not. Why break the habit of a lifetime? I will certainly not hold my breath for that.

It is good to see that Labour has come on board, albeit grudgingly, to ask the Tory Government to hand back our money. Better late than never. It is shameful that, until now, Labour has stood side by side with the Tories and the Lib Dems to Scotland’s detriment.

I am proud of the work that the great forces of our emergency services do to keep us safe and well. Last month, I attended the annual review of the Scottish Fire and Rescue Service. While discussing the challenges and the ever-growing demand that the service faces, the much-respected chairman of the Scottish Fire and Rescue Service board, Pat Watters, stated simply, “We will make it work,” because that is what the emergency services do and always have done, against all odds.

We need the excessive VAT charge to be dropped. It serves only to hamper the efforts of our police officers and firefighters. The people of Scotland deserve better, so I ask the Westminster Government to see sense and end the petty and punitive charge.

The Deputy Presiding Officer:

I remind members that they should always refer to colleagues by their full names, because that helps the official report.

Photo of Mary Fee Mary Fee Labour

I thank Ben Macpherson for bringing the debate to the chamber. I speak on behalf of Scottish Labour as deputy justice spokesperson. We support the aim of this members’ business debate, which is to protect the finances of our police and fire and rescue services. The VAT placed on our emergency services is a barrier to them recruiting more staff and providing greater protection for our communities and constituents.

Labour backs the call for Police Scotland and the Scottish Fire and Rescue Service to be exempt from paying VAT, as they were prior to the creation of the single services. Nonetheless, the Scottish Government must also acknowledge that it was aware during the progress of the Police and Fire Reform (Scotland) Bill that VAT would apply. The bill passed without much progress being made on the issue and, five years on, we still have no solution. It is long overdue that a remedy be found, and one must be found soon.

It is reported that between April 2013—when Police Scotland and the Scottish Fire and Rescue Service started as single, national services—and March of this year, £140 million was paid in VAT to the UK Treasury. Using the lowest tax bill of £23 million for Police Scotland and £9 million for the Scottish Fire and Rescue Service, Labour’s analysis shows that we could have hired and trained an additional 547 police officers and 223 firefighters.

We support the reintroduction of the VAT exemption and will continue to press the UK Government to act on it. Our 2016 Scottish Parliament election manifesto made that clear commitment, and we also lodged amendments during the passage of the Scotland Act 2016 to exempt Police Scotland and the Scottish Fire and Rescue Service from VAT. Today, we remain committed to ensuring that unfair tax bills are not forced on our emergency services.

We know that the solution is to change the Value Added Tax Act 1994 at Westminster. That is the key to protecting the finances of Police Scotland and the Scottish Fire and Rescue Service, and I urge the Scottish Conservatives to press their colleagues in Westminster to make those changes and allow our emergency services to recruit more officers. I also point out that, if the VAT that has been paid to date is refunded, as we agree that it should be, it would be good to get a commitment from the Scottish Government that that funding will be ring fenced for reinvestment in police and fire services alone, and will not be used to prop up other areas of deficit in its budget. I would be grateful if the minister could make some comment on that in her closing speech.

The upcoming budget is an opportunity for the UK Government to correct the situation. I support the calls, which unite most of the chamber, for the reintroduction of the VAT exemption for our emergency services.

Photo of Christine Grahame Christine Grahame Scottish National Party

I congratulate Ben Macpherson on securing the debate. I also congratulate Scottish Labour and the Greens, who support the Scottish Government’s position of exempting Police Scotland and the Scottish Fire and Rescue Service from VAT liability.

I asked to take part in the debate because I chaired the Justice Committee when it dealt with the bill that produced the national services and because I chaired the first Justice Sub-Committee on Policing, and I have pursued the issue of the VAT penalty ever since.

It is true to say that, at the time of the abolition of the local services, the Government was warned of the consequences for VAT. Whether or not we agree with that, it is fair to say that warnings were given. That is as far as it goes. The reason that was given concerned the principle that, because local authorities, as the paymasters, were exempt from VAT, their police and fire and rescue services were also exempt. However, in my book—and, I am sure, in Murdo Fraser’s book—a principle is a principle and should be applied without fear or favour. Let us put to one side the pre-existing Northern Ireland arrangements, under which its single forces are exempt from VAT. As with the £1 billion hand-out to secure the support of the Democratic Unionist Party’s support for Theresa May’s floundering Government, Northern Ireland is always treated differently—in some regards, for good reason.

However, the UK Government was in a bit of a bind when it set about promoting academy schools in England as a favoured policy. What was it to do with the problem of VAT liability as those schools moved from local authority funding—just like the Scottish police and fire services—to central Government funding? Were they just to cough up VAT like the Scottish police and fire services would have to do? Of course not. With the stroke of a Treasury pen, the VAT rules were amended PDQ and thus, from 1 April 2011, a new VAT refund scheme was introduced for academies under section 33B of the 1994 act. The scheme, confined to England, permits academies to reclaim the VAT that is incurred on purchases, imports and acquisitions that relate to their non-business activities.

The Police and Fire Reform (Scotland) Act 2012 came into force in 2013. Glance at those dates. On 1 April 2011, academy schools, which are nationally funded, were suddenly granted VAT exemptions. Two years later in Scotland, no exemptions were given to the police and fire services in Scotland. There is no principle in operation here; there is only expediency for the favoured Tory policy of academy schools and punishment for Scotland for daring to do something different and deliver national police and rescue services. What other explanation can there possibly be?

Ironically, one of the driving forces—no pun intended—behind the amalgamation of the eight constabularies was Tory cuts and the unavoidable need to make efficiency savings by streamlining the services and avoiding the duplication that was involved in a situation in which there were eight chief constables, eight deputies, eight chief fire officers and so on. The policy has had its ups and downs, I admit, but it was right for a population of just more than 5 million people, and it has allowed us to retain front-line officers. After all, the Metropolitan Police serves more than 10 million people.

In England and Wales, the Government has spent its resources on some 43 constabularies with accompanying—and not cheap at the price—commissioners, and has reduced the number of officers by the hundreds. Scotland is punished for streamlining and for trying to be efficient and ensure that we have more front-line officers. English services retain VAT and spend money on commissioners and 43 constabularies. Believe you me, in some instances they would quite like to follow the Scottish example. The situation is ridiculous and indefensible, and I commend Murdo Fraser for dancing on the head of the proverbial pin.

Photo of John Finnie John Finnie Green

I join others in congratulating Ben Macpherson on securing the debate. The issue is important, as is the language that surrounds it. It may surprise some people—although not many who know me—that I did not necessarily support a single service. However, as the former convener of the Justice Committee said, we were driven to create a single service by cuts from Westminster. Where I would disagree with Christine Grahame is that there were not just eight versions of each post—there were nine versions and sometimes 10.

We now have a strategic model that deals with top-level issues such as cross-border crime, organised crime and trafficking. There is also a significant local model, although it is not necessarily as robust as I would like it to be. As another member mentioned, some officers are directly funded by local government, unless that has changed since the last time that we looked at the issue. However, there is local input and, most important, there is local scrutiny.

I am very keen to see the application of the highest level of devolved resource management. I was proud to serve in Lothian and Borders Police initially, and then in Northern Constabulary, which had the most advanced system of devolved resource management, to the extent that the two police officers from Barra were responsible for their own overtime bill. Who better to judge when they needed to work extra hours? That is proper local policing and there is nothing in the strategic model that would stop that. Sadly—and I mean sadly—it became a constitutional issue. I am glad that it seems to be less of a constitutional issue now.

My MP for a while was Mr Danny Alexander, who was Chief Secretary to the Treasury. Thanks to all the good people sitting in the chamber—but not me and my Green colleagues—as a senior member of the Asian Infrastructure Investment Bank he was recently granted privileges and criminal immunity, but there we go. He was very busy on VAT, and I do not mean just in relation to academy schools. He grabbed a crucial issue in the local area, and chased and secured VAT exemption for ski lift passes.

As has been alluded to, this Parliament has oversight of community safety, which is the responsibility of our police and fire and rescue services. We could go on for ever talking about examples, although I suggest that we do not—the Presiding Officer would not let us anyway. However, I will just say that the National Crime Agency, which was set up when Theresa May was Home Secretary, does not have local funding, is a nationwide body and, as I understand it, is exempt from VAT.

There are recruitment challenges in our rural communities for the police and fire and rescue services. In the Justice Committee today, we heard a fascinating statistic: 20 per cent of police time is taken up dealing with domestic abuse issues. We all have wider obligations. There are rules, laws, democratic accountability and public opinion, but there is also political will. If there is a will to resolve this issue, I am sure that we can resolve it.

I ask Mr Fraser and Mr Kerr to forget where the motion came from. I ask them to forget the Scottish National Party for once—I ask them not to be obsessed with it—and think about their obligations in relation to the 20 per cent more that could be done, such as improving community safety and providing additional resources for our police and fire and rescue services. I ask them to fully support the motion. First and foremost, let us get it right henceforth, and we can maybe talk about the back money after that.

The Deputy Presiding Officer:

A few members still want to speak, so I am minded to accept a motion without notice, under rule 8.14.3, to extend the debate by up to 30 minutes.

Motion moved,

That, under Rule 8.14.3, the debate be extended by up to 30 minutes.—[

Ben Macpherson

.]

Motion agreed to.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

My speech will draw on a number of sources, one of which is the House of Commons paper on police funding that was published in February 2016 and discusses all the police forces. However, I will start with a letter of 26 February 2016 from David Gauke, the UK minister at HM Treasury, to the convener of the Justice Committee. It specifically says:

“As you may be aware eligibility for VAT refunds for public bodies is subject to strict criteria, as set out in UK legislation, for the two main VAT refund schemes.”

This is the bit that cuts to the heart of the matter:

“The first, under Section 33 of the VAT Act 1994”— referred to by Murdo Fraser and others—

“allows local authorities and bodies whose funding is reliant on local taxation to reclaim irrecoverable VAT.”

That is the relevant scheme; the second one does not apply in this instance.

The first and obvious exemption is the Police Service of Northern Ireland, which was established in 2001 as the successor to the Royal Ulster Constabulary. It is almost wholly funded by the UK Treasury, with a top-up of £22 million a year at the current rate from the Northern Ireland Assembly, and it is permitted to reclaim its VAT.

If we look at page 12 of the Justice Committee’s report on the draft budget 2015-16, we see that 329 Police Scotland officers are funded by subventions from local authorities. Therefore, local authority funding is involved in the provision of Police Scotland services.

Let us go on a bit further. We have heard a little bit about section 33 of the 1994 act. Let us have a look at it. It is maybe just as well to point out that the original act—including section 33, which is the one that matters—was amended in 2012 by paragraph 217 of part 3 of schedule 16 to the Police Reform and Social Responsibility Act 2011. There are some very interesting and odd things in section 33 of the 1994 act. It has two lists: one for England and Wales and one for Northern Ireland and Scotland. I will give members a flavour of some of the things that are on the Northern Ireland and Scotland list. It includes

“a police and crime commissioner, the Mayor’s Office for Policing and Crime and a police authority and the Receiver for the Metropolitan Police District”.

They are on the Scottish list, yet Police Scotland is not. The British Broadcasting Corporation, which is based in London, is also on the Scottish list.

I do not need to go on. The whole thing is a legal and practical guddle that is unsustainable politically and, in the light of David Gauke’s letter, almost certainly unsustainable in legal terms.

In bringing this debate to the chamber, Ben Macpherson has given us the opportunity to visit some of the detail that is before us. The Police Service of Northern Ireland is the clear example that shows us why we should get our VAT back.

In four minutes, one can touch on a few things, Presiding Officer, but there are a few things that need to be looked at again.

Photo of Liam McArthur Liam McArthur Liberal Democrat

I join members in congratulating Ben Macpherson not only on securing the debate but on the passionate way in which he prosecuted his argument. As members have said, the debate is timely, not least given the financial straits in which our Police Service and our Fire and Rescue Service find themselves at the moment.

To be clear, the Scottish Liberal Democrats strongly support a resolution to the impasse on VAT. That was set out in our manifestos for the 2016 and 2017 elections, and my colleague Alistair Carmichael has written to the Chancellor of the Exchequer to prosecute the point. As we have heard in the debate, there now appears to be cross-party support for such a resolution. It is also pertinent to point out that the Scottish Liberal Democrats strongly opposed the Police and Fire Reform (Scotland) Act 2012, which centralised police services and fire and rescue services.

Prior to the 2012 act, as Murdo Fraser reminded us, police and fire services were controlled by local authorities and were able to reclaim VAT. The Scottish Government was aware of that at the time—there seems to be no dispute on that point—and the then Cabinet Secretary for Justice, Kenny MacAskill, was warned repeatedly of the tax implications ahead of centralisation. On that issue, as on so many other issues, the bold Kenny was not for listening. Doing the wrong thing for the right reason was the mantra of the day.

Over time, the efficiency savings that Mr MacAskill and his ministerial colleagues told us would undoubtedly be delivered have simply not materialised. As a consequence, the financial plight of the SFRS and of Police Scotland in particular has become more acute. Although I disagree with John Finnie on some things, he is absolutely right to point us in the direction of where we should go now in pursuing a resolution.

Last year, my colleague Willie Rennie wrote to the Cabinet Secretary for Finance and the Constitution, Derek Mackay, to draw attention to proposals that, at that stage, had the backing of the Convention of Scottish Local Authorities. They would have involved changing the governance structure of the services from non-departmental public bodies to a shared local government body, which would have allowed the centralised structure to be maintained but would at least have enabled exemption from VAT.

There may be other options, and there may be changes in the way that the UK Government applies the VAT regulations that may allow a solution to be sought at this stage. Nevertheless, there is a mess that I would still argue was largely a result of the Scottish Government’s decision to press ahead with the 2012 act, and it is police officers and staff, and their counterparts in the SFRS, who are now paying the price. We ask those men and women to carry out difficult and often dangerous tasks on our behalf, and it is a price that they can ill afford to pay.

I thank Ben Macpherson for bringing the debate to the chamber, and I look forward to the Scottish Government and the UK Government reaching a resolution without further delay to allow these vital services to be properly funded in the way that we would all wish them to be.

Photo of Maree Todd Maree Todd Scottish National Party

I thank my colleague Ben Macpherson for bringing to the chamber a debate on this important issue. I sense that there are a few points on which members across the chamber disagree, so I will focus first on the points on which we can all agree.

First, Police Scotland and the SFRS play a vital role in protecting our communities. It goes without saying that every member in the chamber values our emergency services, and we are grateful for the hard work and dedication that are shown by the men and women who work for them. Secondly, Police Scotland and the SFRS pay around £35 million annually in VAT, which has totalled £140 million since 2013. Thirdly, Police Scotland and the SFRS are, uniquely, the only territorial forces in the UK that are subject to VAT. None of that is disputed.

What is also not disputed is the challenging fiscal environment that we are currently in. We have had several years of Tory austerity, and we have more ahead of us—and we now know that Scotland will be one of the parts of the UK that will suffer most economically as a result of our withdrawal from the European Union. It has been tough, and it is about to get tougher. Scotland has faced cuts to its budget from Westminster totalling £2.9 billion over 10 years. That means that, every year, the Scottish Government is given a more and more difficult job to do in sustaining the high quality of public services that people in Scotland deserve.

The Finance and Constitution Committee, of which I am a member, has been told on a number of occasions that Brexit will result in budgetary pressures worsening significantly in Scotland. Our police and fire and rescue services cannot afford to be needlessly denied £35 million per year, and that funding will be crucial to keeping a high quality of service through the financial difficulties that Brexit will cause in the future.

Every economist whom we have had in front of us at the Finance and Constitution Committee predicts that the economy will shrink because of Brexit—they disagree only on how much it will shrink by. That will undoubtedly put pressure on the public purse.

The Scottish Government has repeatedly called on the UK Government to end the glaring disparity in the way that VAT affects emergency services across the UK. If I am to believe the

Sunday Post

, even the 13 Scottish Tory MPs in the House of Commons have written to the Chancellor to seek an end to what is in effect discriminatory treatment of the Scottish emergency services as far as VAT rules are concerned, yet not one Tory member of this Parliament has signed the motion.

We have heard that the UK Government could choose to deal with this anomaly as it did with Highways England, academy schools and various other bodies. It is happy to change the VAT law when it suits itself, so it seems that it does not suit the UK Government to change the VAT laws for our emergency services. That same Government that hands out tax cuts to the rich is more than happy to continue taking £35 million every year from essential front-line services in Scotland.

Last month we asked the Scottish Tories in this chamber to put their constituents before their party and call a halt to the roll-out of universal credit. So far, they have failed to do so. I ask them today to stand up for our police and fire services. Will they?

Photo of Liam Kerr Liam Kerr Conservative

I am pleased to have been called to speak in the debate and am grateful to Ben Macpherson for securing it. It allows Parliament the opportunity to correct some of the significant misconceptions and misunderstandings that have crept into the issue and are inherent in the motion. That might be the reason why, the last time I looked, only half the SNP MSPs had supported it—the rest, I presume, had taken the time to inform themselves of the veracity or otherwise of some of the claims.

It is important at the outset to make it clear to Ben Macpherson that Police Scotland and the Scottish Fire and Rescue are not, in fact, the only forces in the UK that are unable to reclaim VAT. The member’s researchers seem to have missed that the British Transport Police and the Ministry of Defence Police are also in that category.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

They are the only territorial forces that are unable to reclaim VAT

Photo of Liam Kerr Liam Kerr Conservative

I say to Stewart Stevenson that Ben Macpherson did not say that in his speech.

Photo of John Finnie John Finnie Green

One of the services that Liam Kerr mentions is, of course, funded by the Ministry of Defence, and the other takes its income from a commercial contract with the rail companies. Should not that influence the situation?

Photo of Liam Kerr Liam Kerr Conservative

The key point that I am making is that when Ben Macpherson sets up his opening speech by saying that Police Scotland is the only force that cannot reclaim VAT, his argument is grounded fundamentally on a misconception. It cannot reclaim VAT because it is a centrally funded service.

Photo of Liam Kerr Liam Kerr Conservative

I do not have time. I am sorry.

One might say that those are examples of what would happen when Police Scotland and the fire service were created, and that is the crux of the matter. Organisations that are part-funded locally can reclaim VAT, the idea being that VAT should not be an extra burden on local taxes. [

Interruption

.]

The Deputy Presiding Officer:

Excuse me, Mr Kerr. Mr Stevenson, please stop muttering loudly—that is how I describe it—from your seat.

Photo of Liam Kerr Liam Kerr Conservative

Police forces in England and Wales can reclaim VAT because they are part-funded by council tax, as police and fire services in Scotland used to be.

Photo of Liam Kerr Liam Kerr Conservative

I just do not have time. I am sorry.

When the services were centralised, the VAT refund—appropriately—ceased to apply. That was all explained by the UK Government to Kenny MacAskill in 2012. I have the letters here that explain about academy schools, if Ms Todd would care to read them. They will help her to understand what is going on. The then Scottish Government’s proposed savings from the single force’s creation were predicated on VAT not being provided for: that is, they budgeted for it and went ahead anyway.

The debate is not at all about fairness. It is about the Scottish Government making a decision that it now regrets, and creating a narrative to the effect that if the UK Government will not change the entire tax system to sort out the Scottish Government’s mess, that is somehow unfair. [

Interruption

.] Then, in an utterly brass-necked move, it asks for all the money that has been paid since 2013 to be given back. That is money that it told the people of Scotland was budgeted for and costed, and would ultimately produce savings. It is an extraordinary piece of spin that is designed to distract from SNP failures.

The SNP is responsible for ensuring that our services have the resources that they need, but the SPF has warned that Police Scotland is becoming a response-only service; thousands of officers have been taken off the streets and lack of information technology is threatening the safety of officers and staff. Papers that have been circulated to senior fire service management say that the current model is not financially sustainable. Longer response times have been blamed on firefighter cuts and Audit Scotland has warned that the fire service faces a financial black hole.

Enough of the Westminster grievance. Let us remember the words of an SNP member at this year’s conference. She said:

“I am angry. Mr Matheson, this isn’t a Tory government in Scotland, this isn’t a Labour government in Scotland. This is my party in Scotland and you are letting down your officers.”

She is right. Sort it out.

Photo of Annabelle Ewing Annabelle Ewing Scottish National Party

I also congratulate Ben Macpherson on securing the debate and welcome the opportunity to respond. In the time that is available, I hope to be able to deal with various points that have been raised.

I begin by restating that the SNP Government believes that it is completely unacceptable that our police and fire services face a combined annual VAT cost of approximately £35 million per year, which other territorial services in the UK do not have to bear. Since the establishment of Police Scotland and the Scottish Fire and Rescue Service in 2013, the total amount of VAT that cannot be reclaimed is about £140 million. If the situation continues throughout the current parliamentary session, the total cost to the Scottish public purse will be about £280 million. To put that figure in context, that is more than the resource budget of the Scottish Fire and Rescue Service for a whole year.

Photo of Murdo Fraser Murdo Fraser Conservative

For the avoidance of doubt, will the minister confirm that, when it went down the route of creating the single police and fire services, the Scottish Government was fully aware that the consequence would be as it is today in respect of the ability to reclaim VAT?

Photo of Annabelle Ewing Annabelle Ewing Scottish National Party

Although we were aware of the arguments of the UK Government, we did not accept those arguments, nor did we accept the principle when we were already seeing exceptions being made to the rules, and moving goalposts being provided for the BBC, for example. I will come on to the intricacies of the legislation in a moment.

The Treasury windfall of £140 million could be invested in our police and fire and rescue services. It would make a huge difference to their ability to respond to the needs of the people of Scotland for emergency front-line services. We have been in discussion with the UK Government for more than five years on the issue and so far, sadly, it has rejected all requests for an equitable solution.

When we considered the creation of Police Scotland and the SFRS, we focused on the wider benefits that would be attained by moving from eight regional police and fire bodies to single national organisations. We introduced new and more streamlined bodies in order to reduce bureaucracy and improve the efficiency and effectiveness of those key public services, so that they could meet the challenges of the 21st century. However, the core functions and purposes of both bodies remain as they were before reform, and funding continues to come from the public purse, as is the case with respect to territorial police and fire services across the rest of the UK.

As Mr Fraser has just said, we were indeed aware of the implications of VAT for our reform propositions. Equally—as I have said—that was not a position that we either accepted or agreed with, and we have continued to lobby UK ministers and seek fairness of approach in respect of other changes that they have made before and since. I will come to those in a moment.

Photo of Ben Macpherson Ben Macpherson Scottish National Party

The minister has spoken about how she has recently been in correspondence with the UK Government about the matter. As the Scottish Conservatives were not able to clarify the point, can she tell us whether 13 Scottish Conservative members of Parliament have written to the chancellor to request a change in the rules?

Photo of Annabelle Ewing Annabelle Ewing Scottish National Party

That is not clear to me, because I have not seen the letter that was apparently referred to in

The Sunday Post

. We might be able to find that out in the fullness of time. Listening to the statements that are being made in the chamber by Tory MSPs, I am not encouraged to believe that those MPs are doing the right thing by their constituents and supporting key front-line services in their constituencies.

I turn to the VAT legislation. Other territorial police and fire services are able to reclaim VAT through section 33 of the Value Added Tax Act 1994. Since 2013, Police Scotland and the Scottish Fire and Rescue Service have moved to being wholly funded by the Scottish Government, rather than being funded in part by local authorities.

Notwithstanding that that funding process does not precisely meet the highly constraining criteria that are set out for section 33 status, that has not proved to be an impediment for other bodies that are currently covered by section 33, such as the BBC. Indeed, the BBC does not meet the criteria that are set out, including having the power of precept over local taxation, but notwithstanding that, it has been given the ability to reclaim VAT, and it has had that since before the creation of Police Scotland and the Scottish Fire and Rescue Service in 2013.

We also know that the UK Government has the power to make changes to VAT rules by way of a finance act to suit its policy objectives, and we know that it has exercised that power. For example, changes were made to section 33 of the Value Added Tax Act 1994 in 2011, following the introduction of academy schools in England and Wales, and we welcome the more recent change in 2015 to allow VAT to be reclaimed by search and rescue charities. We note that the UK Government also made changes to section 41 of the 1994 act to allow Highways England to reclaim VAT from 1 April 2015. It was acknowledged that the existing legislation would not permit the recovery of VAT by Highways England. What did the UK Government do? It simply changed the rules to suit its policy objectives.

It is clear that the UK Government has both the ability and the political will, where it suits it, to change VAT legislation. As we have seen, the BBC was already allowed to reclaim VAT before the establishment of Police Scotland and the Scottish Fire and Rescue Service, and since 2013 the UK Government has changed the rules to allow Highways England to reclaim VAT.

Why does the UK Government refuse to change the rules for Scottish front-line emergency services? We have heard about the cost of that: every piece of kit or equipment costs 20 per cent more for the Scottish Fire and Rescue Service and Police Scotland than it does for any other territorial police or fire service.

It might also be of interest to members to note that in the on-going project to introduce a new emergency services mobile communications system—a vital project that will ensure that police and fire services and other emergency services across the UK have a modern communications system that will allow them all to work together effectively—only Police Scotland and the Scottish Fire and Rescue Service will be subject to payment of VAT that cannot be reclaimed, which will involve an additional £50 million over the life of the contract. That cannot be right.

In conclusion, I urge the Conservatives to use their influence with their chancellor to stand up for their constituents and for policemen and policewomen and firemen and firewomen in their constituencies, and to ensure that, finally, we can bring this anomaly to an end. It is not fair, it is not equitable and it does not make sense because the goalposts have been moved for other bodies.

Finally, I thank members from the Labour Party, the Greens and the Liberal Democrats for supporting the call to end the VAT grab. I call once again on the UK Government to do the right thing by Scotland’s front-line emergency services.

Meeting closed at 17:58.