Philip Hammond uses Budget to settle multi-million pound Holyrood VAT row

The Chancellor said that the UK government will provide the estimated £35 million a year needed to cover the disputed bill in the future.

Police Scotland and the Scottish Fire and Rescue Service are estimated to have paid around £140 million in VAT since 2013, when the services were merged into national organisations by the Scottish government.

But the regional police forces and fire brigades they replaced were exempt from paying the tax, leading to calls by the SNP for Westminster to intervene.

Mr Hammond decided to act following intense lobbying by the 13 Scottish Conservative MPs.

A senior Tory source said: "It shows the difference in approach taken by the SNP MPs and the Scottish Conservative group. The SNP created a situation in the full knowledge that a national police force would not be exempt from VAT.

"At the time, they argued that savings from the merger would outweigh the loss of the VAT exemption. They then turned it into a grievance, shouted loudly and achieved nothing. In contrast, what the Scottish Conservatives have done is work behind the scenes to get a result."

SNP MSP Ben Macpherson said: "While it remains to be seen what the Chancellor will actually deliver in Wednesday's Budget, consistent pressure from the SNP has made the UK government sit up and listen. 

"If, at long last, the Westminster is set to end the VAT injustice on Scotland's police and fire services then this will be down to the SNP standing up for Scotland. 

"But there are two parts to this - not only do we need the VAT burden lifted on police and fire services, but we need the £140m in excess charges backdated. To do one without the other would be inconsistent and unfair."

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