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

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.”

Meanwhile, the Chancellor will announce millions more young people will become eligible for cut-price rail travel with the unveiling of a new discounted railcard for 26 to 30-year-olds.

It is expected to operate on a similar basis to the current 16 to 25 railcard, which has been available in one form or another since 1974.

The measure will come into operation in spring 2018 and is estimated will benefit 4.5m more people.

The Treasury said the announcement would be a “part of a range of measures in the Budget, which will help young people get on in life”.

Mr Hammond is also expected to announce a review, led by an independent chair, into airline insolvency arrangements.

This follows the recent collapse of Monarch airlines, which left 110,000 passengers without a return flight home while many people who had flights booked lost out.

An interim report will be published by the summer of 2018 and a full one by the end of next year.

In a separate proposal, the Chancellor is also expected to signal an end to the problem of graduates overpaying on their student loans.

A common complaint from graduates repaying their student loan through the tax system is that they often find money continues to come off their wages even when the full loan has been repaid. In 2015-16, 86,000 people with a student loan overpaid, and the average overpayment per graduate was £592 – equivalent to many people’s weekly wage. Graduates who pay by direct debit do not overpay.

By April 2019, HMRC and the Student Loans Company will have a new system in place to regularly share data, which will mean loan repayments will automatically stop when a borrower has fully repaid, without them having to opt into the direct debit scheme.