Unified police force faces VAT bill of £20m

The Scottish Government has calculated that merging all the eight current forces into one would cost 92m to set up but save up to 154m per year. It is holding a public consultation on whether to have three regional forces, covering the north, east and west, or just one for the whole of Scotland.

But council funding experts say organisations tied to the Scottish Government rather than local authorities - as the eight forces are currently - would cease to be exempt from VAT when buying equipment.

The government has told police authorities and joint police boards that it is looking at ways of ensuring a single force would be exempt.

However, similar efforts were made when the Scottish Police Services Authority, which provides forensics, IT and the Scottish Crime and Drugs Enforcement Agency, was formed, but were ultimately unsuccessful. The SPSA currently pays 3.5m a year in VAT.

Dr Christopher Mason, a member of Strathclyde Police Authority and the convenor of Glasgow councils scrutiny committee, estimated that 10 per cent of the 1 billion Scottish police budget is spent on goods and services, such as vehicles, fuel, equipment and clothing, that would be liable for VAT. With VAT currently at 20 per cent, that would produce an annual bill of 20m.

Mason said: "There is a very real risk that the first fiscal result of abolishing local government police authorities and replacing them with a national policing board would be that it would no longer be exempt from VAT."

Asked if there was a way the Scottish Government might continue to fund police via local authorities, he replied: "I would think not. Why should there be? It would be a central government service and local authorities would not be required. This is an important issue that was not addressed in the justice department's consultation paper.

"The policing budget in Scotland is about 1bn with 80 per cent of that made up of salaries. That leaves 20 per cent and even if you halve that as VAT-applicable, that's 100m, and that would mean 20m in VAT. That's not a one-off cost, that's year on year."

He added: "When Her Majesty's Revenue and Customs looked at this in the context of the SPSA, they did not find any grounds for allowing an exemption. It appears to me it would require legislation in Westminster (for a Scottish force] to be exempt."

The Treasury and HMRC are aware of the potential bill if a single police force were to come under national control. A Treasury spokeswoman said the Treasury and HMRC would be happy to discuss the matter of VAT in relation to a single Scottish police force with the Scottish administration in order to take this forward.

The consultation on how many forces Scotland should have will end on 5 May.Scottish Labour and the Conservatives support a single police force, while the Lib Dems want to see a regional model.

Justice Minister Kenny MacAskill has said the SNP has not yet reached a conclusion and is waiting on the results of the consultation.