PHILIP Hammond is poised to exempt Scotland’s police and fire and rescue services from future VAT payments in the Budget.

However, the Chancellor will stop short to agreeing a £140 million Treasury refund for past payments.

Whitehall insiders cautioned against giving too much credence to suggestions from Westminster sources that Mr Hammond was about to reimburse the two services for £140m they have paid to the Treasury in VAT since becoming single national bodies in 2013.

Rather, it was suggested Mr Hammond would seek to draw a line under the political controversy by introducing a future exemption in Wednesday's Budget.

Such a move will be claimed as a victory by Ruth Davidson, the Scottish Conservative leader, and the 13-strong group of Scottish Tory MPs for their pressure while the Scottish Government and the SNP are expected to insist the Chancellor’s move will not be enough as it would still leave the two services massively out of pocket.

One senior Conservative source told The Herald: “Representations have been made by us to the Chancellor and we feel this is a mess that needs clearing up.”

Last week, Theresa May dropped a big hint that there would be a development in the VAT row.

The Prime Minister told Ian Blackford, the SNP’s Westminster leader, that Treasury officials were looking at the issue, emphasising the “very constructive representations,” which had been made by her Scottish Conservative colleagues.

She suggested the blame for the emergency services losing out was down to the SNP Government, which was told at the time, that making them national rather than regional bodies would mean they would be ineligible for VAT refunds. “They pressed ahead despite knowing that,” declared Mrs May.

Mr Blackford had stressed how the Nationalists had been campaigning for a £140m refund for some considerable time and would “not give up”.

At the weekend, his colleagues, Kirsty Blackman and Joanna Cherry, wrote to the Scottish Conservative Group of MPs, seeking confirmation that they understood “scrapping the VAT alone will not suffice”.

The SNP MPs added: “If they agree that it is unjust for Scotland’s emergency services to pay VAT, they should agree with the full reimbursement of £140m that police and fire services have been unfairly forced to pay.”

However last night in response, the Scottish Conservative Group of MPs again stressed how the SNP had been warned by the UK Government that a decision to centralise Scotland’s emergency services would lead to them losing their VAT refund but that the Nationalist administration decided to “press ahead with the changes regardless”.

It went on: “It was the SNP Government that rejected suggested structures from Westminster that would have avoided this issue and have since done nothing to make up the shortfall.”

The Group added: “Unlike SNP Members of Parliament, the Scottish Conservatives have been working constructively with the UK Government over the last few months to achieve the best outcome for Scotland on a range of issues from Wednesday’s Budget. We are working closely with ministers to ensure that Scotland’s interests are represented at the heart of the UK Government.”