Row over Scottish police reform VAT change
The justice secretary has said a UK Treasury decision not to allow reformed Scottish police and fire services to recover VAT was "manifestly unfair".
Kenny MacAskill is pushing ahead with plans for single police and fire services instead of regional bodies.
The UK government argued the single services would not be eligible for VAT refunds, worth more than £30m a year.
Mr MacAskill said the policy was in contrast to Westminster's treatment of Academy schools in England.
He said the rules for the government-funded schools were changed to allow VAT to be reclaimed.
Under Section 33 of the VAT Act 1994, local authorities can recover the VAT they pay for supplies, which relate to their non-business activities.
A letter from Mr MacAskill said he had not received any formal reasons for the UK Treasury decision not to allow the new Scottish Police Authority to reclaim VAT but he understood it was because it would be "funded by central government".
Mr MacAskill said the decision would mean the police and fire services in Scotland would be the only ones in the UK unable to recover VAT.
End Quote Kenny MacAskill Justice Secretary
This provides a direct link with local taxation, which we consider meets the Treasury's policy on VAT recovery”
He said: "This decision by the Treasury is unacceptable, unjustifiable and manifestly unfair. This charge on Scottish public sector reform is not levied on similar reforms in the rest of the UK."
Mr MacAskill said the UK government had changed the rules on VAT for Academy schools - which are entirely funded by central government.
He added: "It also ignores the fact that the new Police Authority will continue to be able to receive funding from Scottish local authorities to pay the costs of agreed local priorities.
"This provides a direct link with local taxation, which we consider meets the Treasury's policy on VAT recovery."
The Police and Fire Reform Bill reaches Stage 3 in the Scottish Parliament this week and the new single services are scheduled to begin in April 2013.
The Treasury insists that the Scottish government knew all along that their model for service reform would lead to the loss of VAT exemption.
Public sector union Unison claimed the ending of the exemption would cost the police £26m a year and the new national fire service between £4m and £10m.
A union spokesman said: "It appears that Scotland's public services are going to have to pay a high price for allowing greater ministerial control of our police and fire services."