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Written Ministerial Statements

Thursday 12 January 2012



The Exchequer Secretary to the Treasury (Mr David Gauke): The Government are committed to tackling tax avoidance to ensure the Exchequer is protected and fairness is maintained for the taxpayer.

HMRC has recently become aware of a contrived and aggressive avoidance scheme that seeks to generate post-cessation trade relief for set-off by users of the scheme against their other income or capital gains. This scheme relies on arrangements that have a tax avoidance purpose. The Government do not accept that these arrangements have the effect that is sought, but to remove any doubt, and to prevent scheme providers continuing to devise and operate even more contrived schemes, prompt and decisive action is being taken to protect the Exchequer.

I am today announcing that legislation will be introduced in Finance Bill 2012 to prevent post-cessation trade relief being given where a qualifying payment or qualifying event arises from arrangements entered into in which the main purpose, or one of the main purposes, is to obtain a tax reduction. The legislation will have effect from today and will protect significant amounts of revenue.

We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other schemes representing a significant risk to the Exchequer as we become aware of them.

Draft legislation and further details of this measure are being published on HMRC’s website today.

Business, Innovation and Skills

Further Education Skills Funding

The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes): Following publication of the annual skills investment statement for the 2012-13 academic year by the Department of Business, Innovation and Skills on 1 December 2011, the Skills Funding Agency issued 1,030 initial funding allocation statements, announcing recurrent funding allocations to FE colleges and other skills providers in England, on 16 December.

The allocations in question total £2.3 billion, which includes the largest ever allocation of funding to support apprenticeships.

Some providers will be able to access additional funds not included in the initial funding statement.

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These include initial additional learner support and discretionary learner support allocations, which will be issued on 27 January 2012. Initial 16 to 18 apprenticeships programme allocations and adult safeguarded allocations have also still to be issued.

Final funding statements for all budget lines for 2012-13 will be issued on 30 March 2012.

The Skills Funding Agency and the Young People’s Learning Agency will monitor the impact of funding allocations.

Capital funding allocations for the £100 million two-year FE college capital investment programme, which I announced in August 2011, were confirmed by the Skills Funding Agency on 21 December.

All FE colleges in England were eligible to apply for capital renewal grant funding, which they could spend on urgent capital works, or on the fees associated with developing enhanced renewal grant applications.

A total of 244 FE colleges across England were each successful in securing up to £100,000 in renewal grant funding. In addition, 46 of these were also successful in securing enhanced renewal grant funding of around £1.9 million, taking their total grant funding up to £2 million.

A further 19 colleges met the required quality thresholds but could not be funded on this occasion. I have asked officials of the Skills Funding Agency to continue to work with the colleges concerned to consider how these projects might be helped to proceed.

This latest programme builds upon the Government’s previous FE capital investments, including the £50 million college capital investment programme which provided 154 eligible colleges with a renewal grant of up to £225,000 each. Of these, 21 also secured enhanced renewal grant funding of up to £775,000 taking their total funding to £1 million.

The programme also builds upon the additional £25 million that we made available to 239 eligible FE colleges through the capital works grant.

The grand total of Government’s capital investment through these programmes of £175 million is expected to leverage over £525 million in total project funding.

Communities and Local Government

Red Tape Challenge

The Minister for Housing and Local Government (Grant Shapps): My hon. Friend the Parliamentary Under-Secretary of State, Baroness Hanham, has made the following written ministerial statement:

I would like to inform the House that the Government are launching the housing and construction theme on the Cabinet Office’s red tape challenge website. The theme will include housing and construction related regulations and consider whether excessive or complicated legislation is a barrier to reinvigorating housing and construction in this country.

This review should be taken in context of the policies and measures announced in November’s housing strategy. That strategy outlines how the Government are committed to better environmental standards; more affordable housing; security of tenure; legal protection for tenants and leaseholders; and support for the elderly, vulnerable households and those on low incomes.

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We have already taken a series of steps to cut unnecessary red tape, including abolishing home information packs, reducing burdens on short-term holiday lets, removing blanket regulation on houses of multiple occupation that would have reduced choice for tenants, and introduced new freedoms and flexibilities for social landlords via the Localism Act. This review will help inform the scope for farther reductions of such unnecessary and disproportionate red tape.

Foreign and Commonwealth Office

Taxation in Gibraltar (European Court Judgment)

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): On 15 November 2011 the Court of Justice of the European Union (ECJ) published its judgment in appeal cases brought by the European Commission and Spain against the United Kingdom and the Government of Gibraltar on the issue of whether corporation tax changes proposed by the Government of Gibraltar in 2002 breached EU rules on state aid. In this judgment the ECJ has set aside the earlier judgment of the General Court of the European Union (General Court) dated 18 December 2008 and has found that the proposed tax regime, which was abandoned some time ago and was never implemented in Gibraltar, constituted state aid on grounds of material selectivity.

The background to this case is that in August 2002 the UK notified the Commission, pursuant to article 88(3) of the then EC treaty (now article 108(3) TfEU), that Gibraltar proposed to make changes to its tax system that would involve the introduction of a payroll tax and a business property occupation tax (BPOT). The Commission’s decision of March 2004 found that the payroll tax and BPOT were materially selective because they would inherently favour offshore companies that had no physical presence in Gibraltar and which, as a consequence, would not incur corporation tax. The Commission also found that the proposed changes to Gibraltar’s tax system were regionally selective on the grounds that they provided for a system under which companies in Gibraltar would be taxed, in general, at a lower rate than those in the UK.

The UK and the Government of Gibraltar both contested the Commission’s decision in respect of both material and regional selectivity. On 18 December 2008 the Court of First Instance (now the General Court) annulled the Commission’s decision. The General Court found that Gibraltar’s tax proposals did not breach EU rules on state aid on grounds of material selectivity. Moreover the General Court ruled that the frame of reference for assessing whether Gibraltar’s proposals were regionally selective corresponded exclusively to Gibraltar’s territorial limits. The General Court therefore upheld, under EU law, Gibraltar’s freedom to set tax rates that are different from those in the UK.

The Commission and Spain both brought appeal actions asking the ECJ to set aside the General Court’s judgment. The Commission’s single ground of appeal was on the question of material selectivity. Spain appealed on both regional and material selectivity. The ECJ’s judgment of 15 November 2011 is the final ruling in these proceedings. The ECJ found that Gibraltar’s tax proposals were materially selective in that they granted

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selective advantages to offshore companies. It held that in view of its finding on material selectivity it was not relevant to examine whether Gibraltar’s proposals were regionally selective.

The ECJ’s decision not to examine the issue of regional selectivity means that there has been no change in the principles established by the Court in the Azores case (ECJ case C-88/03 Portugal v Commission). According to those principles autonomous regional bodies within an EU member state may set lower levels of tax than in the rest of the member state without giving rise to state aid provided that certain criteria for determining the autonomous status of the regional body are met. In accordance with its constitutional arrangements, Gibraltar is a fiscally autonomous entity with responsibility for the management of its economy, including taxation, vested in the Government of Gibraltar. The UK is committed to upholding the Gibraltar constitution. The ECJ’s judgment of 15 November 2011 does not change Gibraltar’s constitutional relationship with the UK or Gibraltar’s freedom to set a tax regime that differs from the UK’s.

It is for the Government of Gibraltar, as the authority responsible for the tax system in Gibraltar, to consider the implications for Gibraltar of the ECJ’s ruling on material selectivity.

On 15 November 2011 the then Government of Gibraltar issued a statement which stated that the judgment would have no adverse impact on Gibraltar since the proposed tax scheme that was examined by the ECJ had never been implemented and the proposal had since been abandoned in favour of an income tax of 10% for all companies. The new Government of Gibraltar takes the same view.

The Government will keep the House informed of any further significant developments.

Sri Lankan Lessons Learnt and Reconciliation Commission Report

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt): I would like to inform the House of the Government’s views on the Sri Lankan Lessons Learnt and Reconciliation Commission’s (LLRC) report, which was published on 16 December 2011. The LLRC was established in May 2010 to look into the conflict between the Sri Lankan Government and the Liberation Tigers of Tamil Eelam (LTTE).

The British Government welcome the fact that the LLRC report has been published in full. We have read the report closely and have considered in particular its findings relating to: reconciliation and an enduring political solution in the north and east; accountability for alleged war crimes committed during the conflict; and ongoing human rights issues in Sri Lanka.

We have noted the Sri Lankan Government’s initial response to the report. We have also seen statements from political parties in Sri Lanka, from respected human rights organisations and from other Governments.

The British Government believe that the report contains many constructive recommendations for action on post-conflict reconciliation and a political settlement. Implementation of these recommendations, however, is the real test of Sri Lanka’s progress.

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We note the commission’s conclusion that the root cause of the ethnic conflict in Sri Lanka lies in the failure of successive Governments to address the genuine grievances of the Tamil people and the recommendation that the Sri Lankan Government should take the lead in delivering a devolution package. We urge the Sri Lankan Government to implement quickly this recommendation and the LLRC’s call for the Northern Province to be returned to civilian administration. We note the Sri Lankan Government’s recent assurance that they will ensure the withdrawal of security forces from all aspects of community life and restrict their role exclusively to security matters.

We agree with the recommendation that more action be taken to help internally displaced persons rebuild their lives. We also agree that the Government should make available to relatives a list of all detainees in custody since the end of the conflict; publicly declare all detention sites; and allow family, judicial and International Committee of the Red Cross access. We support the call for anyone responsible for unlawful detentions to be prosecuted.

The British Government are, on the whole, disappointed by the report’s findings and recommendations on accountability. Like many others, we feel that these leave many gaps and unanswered questions. We welcome the acknowledgement that “considerable civilian casualties” occurred during the final stages of the conflict and the recommendation that specific incidents require further investigation. But we note that many credible allegations of violations of international humanitarian law and human rights law, including from the UN panel of experts report, are either not addressed or only partially answered. We believe that video footage, authenticated by UN special rapporteurs, should inform substantive, not just technical, investigations into apparent grave abuses.

The British Government believe that the report’s recommendations on ongoing human rights issues in Sri Lanka are well founded. We hope they will be implemented vigorously. We welcome especially the focus on tackling attacks on media freedom and disappearances —including thousands of outstanding cases.

We encourage the Sri Lankan Government to move quickly to implement the LLRC report’s recommendations. Some recommendations could be completed in a matter of months. Others may take time to implement fully, but initial steps can be taken now. Ultimately, the success or failure of the LLRC will be judged on the Sri Lankan Government’s implementation of its recommendations.

On accountability, implementing the report’s recommendations would represent a useful first step. But we continue to believe it is important that an independent, credible and thorough mechanism is put in place to investigate all allegations of grave abuses.

The British Government have consistently condemned terrorism in all its forms. The LTTE is a brutal and ruthless organisation which remains proscribed in the UK. Our long-term interest is in a stable, peaceful Sri Lanka, free from the scourge of terrorism, and as a fellow member of the Commonwealth, conforming to the standards and values which Commonwealth membership requires.

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Sri Lanka’s aim of achieving reconciliation amongst its people is one we value. It can be achieved through an honest acknowledgement of the past and processes, in which all parties take part, to ensure justice, reconciliation and political progress.

We remain committed to helping Sri Lanka achieve lasting peace and reconciliation and will work with international partners to this end, including with the assistance of relevant international organisations.


Health and Criminal Justice Liaison and Diversion Programme

The Minister of State, Department of Health (Paul Burstow): In March 2011, I announced investment in the development of health and criminal justice liaison and diversion services of £5 million over the course of the year (2011-12). I am pleased to announce that investment in these services will be further increased to £19.4 million for 2012-13.

Liaison and diversion services aim to ensure that wherever offenders are in the criminal justice system, their health needs or vulnerabilities are identified and assessed and they are linked to appropriate treatment services. Information about their needs can then be provided to the police and courts to enable them to make informed decisions about charging and sentencing. Addressing their needs is also expected to contribute to a reduction in the likelihood of their reoffending. Liaison and diversion services will be accessible to all offenders—whether adult men or women, children and young people, and whether they have a mental health or substance misuse problem, learning disability or personality disorder.

Work over the past year has allowed us to set up a liaison and diversion network, consisting of 94 adult and youth pathfinder sites, alongside 10 police forces who are exploring the transfer of commissioning responsibility for health services in police custody suites to the NHS. These pathfinder sites are leading the way in developing how diversion services will work in the future, as well as understanding the costs and benefits they generate, to inform a decision about rolling out new services across the country.

Over the next three years, this network of sites will focus on developing an implementation plan which will include:

guidance on good practice;

quality standards and outcomes; and

work force development and training plan.

Increased investment will also allow selected pathfinder sites to test different elements of service provision, and will include looking at treatment-based options for sentencers as an alternative to custody for those with health needs or vulnerabilities. This testing work will be particularly important for developing a consistent service model and informing the set-up of the remainder of diversion services during roll-out.

The pathfinder sites are already providing information on their services which will contribute to the development of the business case (due for completion in early 2013),

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which will inform a ministerial decision on full roll out. We will also undertake a fuller evaluation to capture the best of local learning and explore options for making schemes available nationally by 2014. An evaluation of six existing youth justice liaison and diversion pilots has already taken place and the report from this work is due to be published early this year.

These services are integral to the delivery of the Government’s vision for the rehabilitation of offenders, as well as the cross-Government strategy on improving mental health outcomes, both of which were published last year. Both the Department of Health and Ministry of Justice are committed to this work, as reflected in both departmental business plans, and are working together to deliver liaison and diversion services across the country by 2014.


Compensation Act 2006

The Lord Chancellor and Secretary of State for Justice (Mr Kenneth Clarke): I am today laying before the House the Government’s memorandum to the Justice Committee on post-legislative scrutiny of the Compensation Act 2006. Copies have been placed in the Libraries of both Houses.

The Compensation Act 2006 contains provisions relating to two separate and distinct areas: part 1 contains provisions restating and clarifying the law of negligence and breach of statutory duty, and provisions addressing a practical difficulty that had arisen in relation to proving liability for the asbestos-related disease of mesothelioma; and part 2 provides the framework for the regulation of claims management services.

These reforms have been implemented, in line with the stated objectives of the Act, as detailed in the memorandum.


Electrically Assisted Pedal Cycles

The Parliamentary Under-Secretary of State for Transport (Mike Penning): I am today publishing the responses to a public consultation which sought views on proposals to provide closer alignment of GB regulations with European rules.

The consultation was launched on 5 January 2010 in conjunction with a related consultation on electric personal vehicles (EPVs) and ran until 30 March 2010. The EAPC regulations were also included within the “Retail” and “Road Transportation” themes of the “Red Tape Challenge” which ran from 7 April to 17 June 2011.

The Department has considered the responses and supports recommendations to harmonise power limits (from 200 watts to 250 watts) with similar provisions in place across the EU—allowing consumers access to a wider range of electrically assisted cycles.

Regulatory proposals will be developed to update power limits and consider other amendments, for example on weight limits, once EU discussions on a much wider group of two, three and light four-wheeled vehicles conclude. The outcome of EU discussions could have

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implications for the regulation of EAPCs, and it would therefore be unhelpful to make amendments at this time which might need to be subsequently repealed.

A detailed summary of the responses to the consultation will be available in the Libraries of both Houses and will be available on the Department’s website at:


Work and Pensions

Welfare Reform Bill

The Minister of State, Department for Work and Pensions (Chris Grayling): The Department for Work and Pensions has obtained approval for a second advance from the Contingencies Fund of £3.737 million to allow for the continuance of work related to the introduction of employment and support allowance (ESA) time-limiting and the abolition of ESA youth, including the development of IT, before Royal Assent. This is a second advance, required as there is now greater clarity around the date for Royal Assent now that the Welfare Reform Bill has reached Report stage in the Lords. In September 2011, I informed Parliament of a £2.705 million advance for the same purpose.

This second advance will allow the ESA time-limiting and abolition of youth project to continue to work to its current design and development timetable and enable continuity of third-party supplier engagement. Subject to Royal Assent, this will enable the change to be introduced from 30 April 2012. This will bring ESA more in line with other contributory benefit regimes. It will also simplify the rules governing ESA, making it easier to administer and preparing the way for the introduction of universal credit.

Parliamentary approval for resources of £3,737,000 for this new service has been sought in the main estimate 2011-12, but is subject to the approval of the Welfare Reform Bill. Pending that approval, urgent expenditure of £3,737,000 will be met by repayable cash advances from the Contingencies Fund.

Welfare Reform Bill

The Minister of State, Department for Work and Pensions (Chris Grayling): The Department for Work and Pensions has obtained approval for an advance, prior to Royal Assent, from the Contingency Fund of £1,000,000 . The funding will allow for the development of the IT changes required to introduce new benefit fraud and claimant error sanctions.

A tougher fraud and error regime was set out in the “Tackling fraud and error in the benefit and tax credit systems” strategy published in October 2010 and changes to sanctions and penalties are included in the Welfare Reform Bill. They provide for the introduction of a civil penalty for claimant error and strengthen sanctions for benefit fraudsters. To enable their introduction changes to the Departments’ IT systems will be required. The contingency advance will enable the IT provider to begin work in January 2012 giving them sufficient lead in time to commence changes in 2012.

The advance from the Contingency Fund will allow essential work to commence on the detailed process design and IT changes.

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Parliamentary approval for resources and capital off 1,000,000 for this new service has already been sought in the main estimate for the Department for Work and Pensions, subject to the passage of the Welfare Reform Bill. Pending approval of that Bill, urgent expenditure estimated at off 1,000,000 will be met by a repayable cash advance from the Contingencies Fund.

Welfare Reform Bill

The Minister of State, Department for Work and Pensions (Chris Grayling): On 22 December 2011 the Scottish Parliament voted on a legislative consent motion to the Welfare Reform Bill which is currently at Report stage in the House of Lords. Although social security is a reserved matter, legislative consent is required from the devolved Administrations for a number of aspects of the Bill.

Legislative consent was given, where required, in respect of the provisions in the Bill relating to data sharing, industrial injuries disablement benefit and the

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Social Mobility and Child Poverty Commission. However, it did not provide consent in respect of the provisions in the Bill which give Scottish Ministers the power to make consequential, supplementary, incidental or transitional provisions, by regulations, in relation to the introduction of universal credit and personal independence payment. The Scottish Government have opted to bring forward legislation in their own Parliament in due course to make the required changes.

Therefore, in order to ensure the UK Government adhere to the principles of the Sewel convention, they will bring forward amendments at Third Reading of the Welfare Reform Bill to remove the relevant provisions from the Bill.

These amendments will not affect the implementation of either universal credit or personal independence payment.

Noble Lords will be given an opportunity to consider these amendments further at Third Reading.