Written Ministerial Statements
Wednesday 24 February 2010
Treasury
Capital Distributions
The Financial Secretary to the Treasury (Mr. Stephen Timms): There is, at the moment, considerable uncertainty in relation to the corporation tax treatment of distributions. This uncertainty is causing significant problems to UK business and this statement is intended to establish with certainty a result that will be consistent with established expectations of HMRC practice.
In the Finance Act 2009, the Government introduced a new distribution exemption regime. Since then most income distributions received by UK companies are exempt from corporation tax unless they are linked to tax avoidance. The rules ensure that the UK corporate tax regime remains competitive and represent a significant reduction in the compliance burden faced by UK companies.
As intended, the exemption regime excludes distributions of a capital nature, which are subject to the chargeable gains rules where other exemptions may apply. However, the introduction of the new legislation has prompted HMRC to look more closely at the issue of whether a distribution is of a capital nature.
Before 2005 it was possible to interpret the law as saying that all UK distributions were income in nature unless a specific rule said otherwise-for example, distributions in a winding up. In 2005 a Tax Law Rewrite Act, in clarifying the law, made that view impossible to sustain. Despite this, prevailing practice remained unaltered and so UK distributions have generally been regarded until recently as income in nature and potentially exempt from corporation tax.
In the absence of a rule treating distributions as income, companies in receipt of capital distributions may now face an unexpected tax charge. In some cases, it has become clear that commercial transactions have been put on hold until the tax consequences become clear, with a corresponding effect on the normal business of those companies.
In order to resolve the issue, the Government will introduce legislation in the Finance Bill with a view to restoring previous expectations about the way that distributions are taxed. The changes will apply retrospectively where appropriate and will be subject to an opt out to ensure that UK retrospective application of the new legislation does not increase tax liabilities. These new rules will give UK companies the clarity they need to carry on their normal business.
ECOFIN
The Chancellor of the Exchequer (Mr. Alistair Darling): The Economic and Financial Affairs Council was held in Brussels on 16 February 2010. The following items were discussed:
Implementation of the Stability and Growth Pact
ECOFIN issued new recommendations to Malta, Romania and Lithuania, extending the deadlines for correcting their excessive deficits on account of the worse than expected deterioration of their economies. The Council also established that Latvia, Hungary and Poland had taken effective action on their Council recommendations.
The Council also adopted an opinion on Greece's updated stability programme, which sets out plans to reduce its deficit to under 3 per cent. of GDP by 2012; a further decision which sets out budgetary consolidation measures with a timetable; a recommendation with a view to bringing Greece's economic policies in line with the EU's broad economic guidelines; and a decision to make this recommendation public.
The Government believe that Greece must act swiftly to implement these recommendations in line with the given timetable, and welcome the evaluation by the European Commission and ECB as well as the technical assistance being provided by the IMF, which has the experience to play an important supportive role. ECOFIN will return to this issue in March, where it will review progress made, including the further measures the Greek Government have agreed to take.
Single market-Services Directive
ECOFIN discussed and agreed a set of conclusions on the EU single market and the services directive, which called for comprehensive and ambitious implementation of the Directive. The Council also heard a presentation by Mario Monti ahead of his proposals in April for the re-launch of the single market. The Government support the conclusions and the work by Mario Monti, particularly his focus on open markets. It is important ECOFIN takes a view on strategic economic issues for the single market agenda.
Appointment of the Vice-President of the European Central Bank
The Council adopted a recommendation on the nomination of Vítor Constâncioas as Vice-President of the European Central Bank, to succeed Lucas Papademos, whose term of office expires on 31 May. This recommendation will now be submitted to the European Council for approval.
Discharge procedure in respect of the implementation of the budget for 2008
On the basis of a report from the Court of Auditors, the Council approved a recommendation to the European Parliament on the discharge to be given to the Commission for implementation of the EU's general budget for 2008.
Financial Stability Update
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): Following the successful legal and capital restructuring of Northern Rock, which took effect on 1 January 2010, the Government, in conjunction with the Financial Services Authority, have reviewed the guarantee arrangements applying to retail deposits held with Northern Rock.
The restructuring has resulted in the formation of a strong, well-capitalised, highly liquid bank that remains in Government ownership. The bank is authorised and
regulated by the FSA and customers' deposits are secure. The Government, in consultation with the FSA, have therefore assessed that it is now appropriate to give notice to remove the guarantee covering retail deposits in Northern Rock plc.
Accordingly, HM Treasury has today given three months' notice that the Government's retail savings guarantee for Northern Rock plc will no longer apply from 5 pm on 24 May 2010. This excludes guarantee arrangements for fixed-term deposits in existing accounts, which will terminate on maturity on the relevant fixed term. For fixed-term products, renewed or extended after today's announcement, the guarantee arrangements in respect of that deposit, will terminate on the date of maturity existing prior to its renewal or extension. The guarantee for wholesale borrowings of Northern Rock plc, to the extent it relates to sums which are attributable to retail deposits made with Northern Rock (Guernsey) Limited, will be also lifted at the same time.
Following lifting of the guarantee, every Northern Rock retail customer will continue to have the first £50,000 of their total deposit protected by the Financial Services Compensation Scheme, whether their deposit is fixed term, non-fixed term or a combination of both. This is the same level of protection that is provided for retail customers of all banks and building societies in the UK. Customers of Northern Rock (Guernsey) will continue to benefit from the Guernsey banking deposit compensation scheme.
The guarantee applying to Northern Rock's retail deposits was put in place as a temporary measure during a period of unprecedented instability in the financial markets. It was never intended to be permanent. Today's announcement affirms the strength of the new Northern Rock plc, and is a positive step in the bank's progression towards independence. Removal of the specific Northern Rock plc retail guarantee more closely aligns Northern Rock's retail depositor protection arrangements with those of all other UK banks, an important step in the normalisation of the UK retail banking market.
Counter-terrorism Act 2008 (Schedule 7)
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): As outlined in schedule 7 to the Counter-terrorism Act 2008, the Treasury has undertaken to report to Parliament following the end of each calendar year in which a direction under the powers has been issued. This is the first of these reports, and covers the 2009 calendar year.
Schedule 7 provides the Treasury with powers to implement a graduated range of financial restrictions in response to certain risks to the UK's national interests. The risks it addresses are those posed by money laundering, terrorist financing, and the proliferation of chemical, biological, radiological and nuclear (CBRN) weapons.
Direction issued under the powers in Schedule 7
The Treasury issued a direction under schedule 7 powers on 12 October 2009, designating two Iranian companies: Bank Mellat and the Islamic Republic of Iran Shipping Lines (IRISL). The direction was issued on the basis that activity in Iran that facilitates the development or production of nuclear weapons poses a
significant risk to the national interests of the UK. Vessels of IRISL have transported goods for both Iran's ballistic missile and nuclear programmes. Bank Mellat has provided banking services to a UN listed organisation connected to Iran's proliferation sensitive activities, and been involved in transactions related to financing Iran's nuclear and ballistic missile programmes.
The direction requires all UK financial and credit institutions to cease business relationships and transactions with Bank Mellat and IRISL.
The direction was approved by the House of Commons on 28 October 2009 and by the House of Lords on 2 November 2009.
Bank Mellat challenged the direction in 2009, and the judicial review will be heard in 2010. IRISL also challenged the direction in early 2010.
Licensing is the means by which the Treasury can exempt business relationships or transactions between designated entities and UK financial and credit institutions from the requirements of the direction. The licensing regime in place for the direction against Bank Mellat and IRISL allows the Treasury to minimise the impact of the restrictions upon innocent third parties, without compromising the objective of the direction. Licences are considered on a case-by-case basis.
Between 12 October and 31 December 2009, 120 licence applications were received. Of these, 90 had been processed by 31 December 2009, 87 licences had been issued, and three licences rejected.
Children, Schools and Families
Special Educational Needs
The Secretary of State for Children, Schools and Families (Ed Balls): I am publishing today the Government's implementation plan in response to the Lamb inquiry on parental confidence in the special educational needs-SEN-system.
The inquiry, under the chairmanship of Brian Lamb, the chair of the Special Educational Consortium, was tasked with investigating a range of ways in which parental confidence in the SEN assessment process might be improved. The inquiry's final report was published on 16 December 2009.
The inquiry found that, while the SEN framework functions well for the majority of parents, within the same legislative framework there are parents who have been poorly served and have had to battle to get the needs of their child identified and met. This varied picture must be redrawn so that it is common practice to have access to skilled professionals who understand the needs of children and who have high expectations of what children can achieve.
The implementation plan builds on the significant progress that the Government have already made in improving work force skills, and services for children with special educational needs and disabilities-SEND-and their families:
The Lamb inquiry report was clear that parental confidence depended on seeing that the needs of their children with SEND were being met by skilled professionals. The Government have already strengthened the status and
role of the SEN co-ordinator-SENCO-in schools. All SENCOs are required to be qualified teachers and those new to the role must undertake nationally accredited training and gain a national award. We are investing £10 million per annum to deliver this. We are also investing £12 million over 2008-11 to improve the skills and confidence of trainee and existing teachers, which includes new SEN and disability units in initial teacher training and the inclusion development programme for serving teachers. Our response to Sir Jim Rose's review into teaching children with dyslexia included funding course places for an additional 4,000 specialist dyslexia teachers. The implementation plan builds on this existing investment with up to £4 million for the Training and Development Agency for Schools, including for starting to deliver on the Lamb inquiry recommendation for advanced-level training around the five main SEN areas-learning difficulties; behavioural, emotional and social difficulties; dyslexia; autism spectrum disorders; and speech, language and communication needs.
In addition to improved achievement for children with SEND, parents want to be assured that children are safe from bullying. The Government's pupil and parent guarantees make a commitment to all pupils and their parents, including those with SEND, that their schools will have effective policies in place to prevent and tackle all forms of bullying. We have started work with the Anti-Bullying Alliance to review the most effective approaches to anti-bullying.
Strengthening the voice of parents
The implementation plan explains how we will enhance the service offered to parents through parent partnership services with better trained advisors, and launch a dedicated national helpline in April to provide information and advice to parents of children with SEND.
Establishing a local system in tune with children's needs
The inquiry concluded that the system works best where schools, local authorities and parents operate in a true partnership. We want to build on this good practice through incorporating SEN and disability in the training that leaders of children's services receive. The plan also details the training for local authority SEN officers in how to work well with parents, which will start in March, and guidance and training for those drawing up statements of SEN will be issued this July.
Building accountability around children's progress
The inquiry's final report placed a great deal of emphasis on effective accountability, throughout the system, to ensure parental confidence. We will strengthen training on SEND for school governors, with improved legal resources available for all governors in December and the national training programme for new governors will reflect the conclusions of the inquiry. School improvement partners-SIP-play an increasingly important role in providing high-quality challenge and support to school leaders and, this summer, the national strategies will roll out SEND training to all local authority SIP managers.
My Department has already implemented the inquiry recommendation to route parental complaints to the local government ombudsman. The first-tier tribunal-SEN and Disability- also has already launched enhanced training for tribunal chairs; will issue guidelines on the provision of professional and expert evidence in March and launch revised information for parents, including online materials and a DVD, in May.
A number of recommendations in the inquiry were for Ofsted to take forward and it will be publishing its implementation plan in March. The Children, Schools and Families Bill, currently before Parliament, places an explicit duty on Ofsted to report on how well schools are meeting the needs of children with SEND as part of school inspections.
A responsive national framework
My Department has invited local authorities, working with parents and voluntary organisations, to undertake innovative projects to improve parental confidence. These will be launched in April, one in each region, and will include testing greater independence in assessment.
The inquiry recommended remedying the exclusion of schools from the duty in the Disability Discrimination Act to provide auxiliary aids and services. The Government have already acted on this through an amendment to the Equality Bill, currently before Parliament.
I have asked Brian Lamb to report on progress against the actions in the implementation plan in the summer, rather than in April as originally planned. This will provide him with sufficient time to see the impact of the actions already undertaken and those set out in the plan before reporting.
The implementation plan responds fully to the challenge set in the inquiry report and takes action in those areas that will make a lasting impact on parental confidence: a higher-skilled work force able to respond to children's needs; more accessible information and advice for parents; training for those in key positions throughout the system, and enhanced accountability and redress mechanisms.
I am placing a copy of the implementation plan in the Libraries of both Houses.
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