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Written Ministerial Statements

Monday 3 November 2008

Business, Enterprise and Regulatory Reform

Regulatory Issues

The Economic Secretary to the Treasury (Ian Pearson): My noble Friend the Secretary of State made the following ministerial statement:

On 18 September 2008, the then Secretary of State for Business, Enterprise and Regulatory Reform issued an intervention notice to the Office of Fair Trading (OFT) under section 42 of the Enterprise Act 2002 in relation to the proposed merger between Lloyds TSB Group and HBOS plc. This stated his belief that the stability of the UK financial system ought to be specified as a public interest consideration under section 58 of the Act and that it may be the case that the stability of the UK financial system is relevant to a consideration of the merger situation. That new public interest consideration relating to “the stability of the UK financial system” has now been finalised and has been added to the Act as section 58(2D).

The intervention notice required the OFT to provide a report to the Secretary of State pursuant to section 44 of the Act. My noble Friend the Secretary of State received the OFT’s report on this matter on 24 October 2008. This includes the OFT’s advice that it is or may be the case that: arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation, the creation of that merger situation may be expected to result in a substantial lessening of competition, and that it would not be appropriate to deal with the matter by way of statutory undertakings under paragraph 3 of schedule 7 to the Act. Under section 46(2) of the Act, my noble Friend is bound to accept the decisions of the OFT included in its report on these issues.

The report also included the representations made to the OFT by the parties to the merger and other interested third parties as well as by the tripartite authorities (the Financial Services Authority, the Bank of England and HM Treasury) who made submissions concerning the public interest issues raised by the merger. My noble Friend also received a small number of written representations directly.

Having received the OFT’s report and the other representations, my noble Friend the Secretary of State was then required to make a decision under section 45 of the Act, on whether to refer the merger to the Competition Commission. In considering this matter, he was required to reach a decision on whether, taking account of both the competition and public interest issues, the merger may be expected to operate against the public interest. Under the terms of the Act, any anti-competitive outcome shall be treated as being adverse to the public interest unless it is justified by one or more than one public interest consideration which is relevant.

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My noble Friend the Secretary of State announced his decision on this matter on Friday 31 October and at the same time published a non-confidential version of the OFT’s report and annexes. He has placed a copy of the full decision document in the Libraries of both Houses and the OFT report may be found on both the BERR and OFT websites. My noble Friend has decided not to refer the merger to the Competition Commission on the grounds that the possible anti-competitive effects identified in OFT’s report are outweighed by the public interest in preserving the stability of the UK financial system.

There is no question of ignoring the potential effects of the merger on competition the OFT has identified. My noble Friend takes these seriously. The merged bank will still be subject to the provisions of competition law with the competition authorities continuing to have the powers to investigate any breaches. The Office of Fair Trading will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy.

But the stability of the UK’s financial markets is the Government’s priority and it is right that this merger should have been considered on the basis of how that crucial public interest is best served. It is clear from the evidence that HBOS plays a major role in the UK financial sector and that its failure would have a number of very significant consequences that would severely damage the stability of the financial system and the wider economy. It is also clear that the merger provides an effective, market-based means of restoring the stability of HBOS and helps to secure the stability of the UK financial system as a whole. On balance, my noble Friend the Secretary of State believes these considerations justify the potential anti-competitive outcome the OFT has identified and that the public interest is best served by clearing the merger. It is now a matter for Lloyds TSB and HBOS to take the merger proposal to their shareholders.


Government Fraud Report

The Exchequer Secretary to the Treasury (Angela Eagle): Today I am publishing the Government Fraud Report for 2007-08. Copies of the document entitled, “Fraud Report 2007-08: an analysis of reported fraud in government departments” have been deposited in the Libraries of both Houses and will be available on the HM Treasury website.

Tax Information Exchange Agreement / Double Tazation Agreement (UK-Virgin Islands)

The Financial Secretary to the Treasury (Mr. Stephen Timms): A new Tax Information Exchange Arrangement and an Agreement for the Avoidance of Double Taxation of Individuals were signed with the British Virgin Islands on 29 October 2008. After signature, the text of the agreements were deposited in the Libraries of both Houses and made available on HM Revenue and Customs’ website. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

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Children, Schools and Families

School Adjudicator's Report

The Secretary of State for Children, Schools and Families (Ed Balls): The independent Schools Adjudicator has today published his annual report and the review of compliance with the admissions code for 2009 admissions that I commissioned from him in the spring of this year. I am able to update the House accordingly.

The School Standards and Framework Act 1998 introduced the first school admissions code of practice and established the independent schools adjudicator to consider complaints about admission arrangements. We further strengthened the Code of Practice in 2003 and then, with wide support from across the education sector and faith groups, replaced it with the mandatory School Admissions Code in the Education and Inspections Act 2006.

The code sets out clear requirements and promotes equality and fairness for all children by prohibiting unfair admission practices. It places a duty on local authorities to refer any admission arrangements to the Schools Adjudicator that are unlawful, do not comply with the code or appear to be unfair, unclear, subjective or to encourage social segregation.

As the law currently stands, the Adjudicator can only consider complaints about admission arrangements made directly to him within a prescribed period. In his annual report last year Sir Philip Hunter reported that 173 admission arrangements had been referred to him. This year Sir Philip has received 369 objections about admission arrangements.

In January 2008 the Minister of State for Schools and Learners wrote to all admission authorities reminding them of their responsibilities to ensure compliance with the code. I asked officials to undertake an examination of published admission arrangements for 2008 in three local authorities. The results of this exercise showed that the majority of arrangements were compliant with the code but that a significant minority were not.

In my statements on school admissions on 11 March and 2 April this year, I set out the reforms we would now take to ensure that all parents and children benefit from fair admission arrangements in line with the Admissions Code.

We announced reforms to ensure the Adjudicator's powers can be more effectively exercised. We extended the statutory period in which formal objections can be made from this year to ensure there is sufficient time for local and religious authorities and parents to examine admission arrangements and refer objections to the Adjudicator. The proposals in the Education and Skills Bill currently before Parliament would allow him to consider complaints about admission arrangements whenever and however he receives them.

In the meantime, I also asked the Schools Adjudicator to report to me on the steps he was taking to ensure compliance with the statutory requirements in respect of 2009 admission arrangements.

It is this review of compliance with the code for 2009 admissions that the Schools Adjudicator is publishing today.

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In his review, the Schools Adjudicator has examined a large sample of school admission arrangements in England - looking at arrangements of all 150 local authorities, which control admissions in the majority of schools, and a further 3000 foundation and aided schools.

He identified no apparent breaches of the code in the vast majority of community schools. However, he identified aspects in more than half of the foundation and aided schools that might not comply with the code. Of these about half appeared to have clear breaches of the code. Sir Philip has worked with local and religious authorities and schools over the summer to ensure that all are corrected in time for the 2009 admissions round. He has today published his annual report in which he confirms that the necessary action has been taken to ensure compliance with the code.

These findings support the action we are taking to strengthen the system to ensure compliance with the law.

Sir Philip Hunter has made a number of recommendations for further improvements to the admissions system in his report and I will consider these and respond in due course.

I am most grateful to Sir Philip, his office, local and religious authorities and schools for the work they have undertaken to ensure fair access to schools for all children, whatever their background. A copy of his report has been placed in the libraries of both Houses.

Environment, Food and Rural Affairs

Environment Council

The Secretary of State for Environment, Food and Rural Affairs (Hilary Benn): I and my right hon. Friend the Secretary of State for Energy and Climate Change represented the UK at the Environment Council in Luxembourg on 20 October 2008.

At this Council, member states set out their positions on the 2020 climate and energy package. The UK intervened to highlight the importance of reaching agreement by the end of 2008 to send a strong signal in support of a new international climate change deal. The UK broadly agreed that qualitative and quantitative criteria for carbon leakage should be included in the directive, and argued in favour of full auctioning in the power sector from 2013. The UK emphasised that it could not accept mandatory earmarking of auction revenues—hypothecation. The UK spoke strongly in favour of using the New Entrant Reserve (NER) to finance Carbon Capture and Storage (CCS) demonstration projects. The UK signalled that we will do our fair share of the emission reductions under the greenhouse gas effort sharing proposal, but these targets should be met cost-effectively. Finally, the UK and many others emphasised the importance of coherent sustainability criteria for biofuels.

Ministers adopted Council conclusions on preparations for 14th Conference of the Parties (COP 14) to the United Nations Framework Convention on Climate Change (UNFCCC) and the fourth meeting of the parties to the Kyoto protocol (CMP 4) to be held in Poznan from 1 to 12 December 2008. The conclusions emphasise the EU’s ambitions for Copenhagen and
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Poznan, and outline a shared vision, addressing mitigation action in developed and developing countries, adaptation, technology and funding and investment.

On the European Commission’s proposal for a regulation to reduce CO2 emissions from new cars, the UK intervened to stress the importance of getting agreement and of an ambitious long-term target.

Ministers shared views on genetically modified organisms (GMOs). The UK said there were two key responsibilities for Governments: deciding whether GMOs were safe to eat, and determining what the environmental impact of growing them would be. The UK emphasised that it was important to have efficient and effective evidence-based decision-making and to avoid further delays to the approvals process. Finally, the UK pressed the European Commission to propose seed labelling thresholds.

Ministers held a public debate on trade in seal products. The UK welcomed the proposal and urged swift adoption to respond to strong public concerns over inhumane hunting methods. The UK believed derogations would make enforcement difficult and could create loopholes. We preferred a complete ban.

Ministers adopted the annexe to the Euro-Mediterranean declaration on water—the ‘Barcelona process’. Discussion of Council conclusions on the sustainable consumption and production (SCP) and sustainable industrial policy (SIP) action plan was postponed until Environment Council on 4 and 5 December 2008.

Under ‘any other business’, the presidency provided information on: the common agriculture policy (CAP) health check; the EU-Africa climate meeting due to be held in Algiers on 20 November 2008; the Réunion Conference on Europe’s overseas areas faced with climate change and loss of biodiversity; GMES (global monitoring for environment and security) services; and a proposal for a soils directive.

Under ‘any other business’, the presidency and the European Commission also presented information on proposals for: substances that deplete the ozone layer; industrial emissions (integrated pollution prevention and control); the outcome of the Conference on soil and climate change held in Brussels on 12 June this year, and; a Commission communication and legislative proposal to prevent marketing in the EU of unlawfully harvested timber and timber products.

International Development

CDC Group

The Secretary of State for International Development (Mr. Douglas Alexander): In a statement to the House on 8 January 2004, Official Report, column 14WS the then Secretary of State for International Development, my right hon. Friend the Member for Leeds, Central (Hilary Benn), described the investment policy for CDC, formerly called the Commonwealth Development Corporation. The 2004 investment policy set out CDC’s investment targets, which were that all new investments should be in developing countries—those with an annual GNI per capita of less than $9,075. Within this, CDC should make at least 70 per cent. of new investments in countries with an annual GNI per capita of less than $1,750 and at least 50 per cent. in sub-Saharan Africa
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and South Asia. Under this policy some 47 per cent. of CDC’s total investments were in low-income countries in the four years since 2003, to end 2007.

CDC has outperformed these targets and other objectives agreed by Government by considerable margins. I am now making a further written statement to inform the House of a revision to CDC’s investment targets and its investment code to enhance further CDC’s contribution to the Government’s objectives of reducing poverty in developing countries.

The Government’s objectives for CDC, which were set out in the 2000 White Paper and remain unchanged, are two-fold: CDC should invest in the creation and growth of viable private businesses in poorer developing countries to contribute to economic growth for the benefit of the poor; and mobilise private investment in these markets both directly and by demonstrating profitable investments. The Government rely on the CDC board both to oversee management’s investment decisions in meeting these objectives and to maintain an adequate and responsible investment risk profile.

The Government continue to believe that economic development, which is impossible without a thriving private sector, is among the most important drivers of poverty reduction. It is private businesses that will create the bulk of the new jobs, income and taxes that the poorest countries need to generate for their people.

A major reorganisation in 2003-04 restructured CDC. CDC remained 100 per cent. owned by the Government but it was restructured into a fund of funds investment company with a remit to establish relationships with a range of fund managers which would then invest the capital of CDC and other investors in companies in developing countries. For the first five years, the majority of CDC’s capital was to be managed by a new fund manager, Actis, which was itself spun out of CDC.

CDC’s role therefore is to make responsible investments in private businesses in poorer countries. It does this by investing through investment funds, which then provide capital and other assistance, such as improving governance, to build value in the companies in which they invest. The signalling power of investment that is both decent and profitable in these countries is significant, both in encouraging local businessmen to keep their money working locally and in attracting interest from international investors. At some point, the investment fund managers investing CDC’s capital judge that they have added sufficient value, and then sell their interests in the investee companies. The net sale proceeds are returned to CDC and so are available for reinvestment in other businesses.

In this way, the Government have created a self-perpetuating engine of development. The Government have committed no new money to CDC since the mid-1990s. Yet since then CDC has invested typically several hundred million pounds a year, at no additional cost to the UK taxpayer, into countries that are badly in need of investment.

During its 2003-04 reorganisation, CDC also produced a clear set of ethical, environmental and social business principles—its investment code—to which its investment fund managers and investee companies must also subscribe. With DFID input, the company has now updated its investment code. The investment code forms a core part of CDC’s new investment policy. I will place copies of both in the Library of the House.

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CDC’s results show that the 2003-04 reorganisation has been a success. Since then, CDC has:

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