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Written Statements

Volume 555: debated on Tuesday 11 December 2012

Written Ministerial Statements

Tuesday 11 December 2012

Treasury

Finance Bill 2013 and Tax Policy Update

The Government consulted on a number of tax policies, following their announcement in Budget 2012. Today the Government are publishing the response to these consultations alongside draft legislation to be included in Finance Bill 2013. This fulfils our objective to confirm the majority of intended tax changes at least three months ahead of publication. Draft legislation will be open for technical consultation until Wednesday 6 February 2013.

Details of the clauses published today are set out in the overview of legislation in draft document, which also includes tax information and impact notes for each measure. All publications will be available on both the HM Treasury and HM Revenue and Customs (HMRC) websites.

The Government are publishing draft legislation on policies announced at Budget 2012, including:

A general anti-abuse rule, to target abusive tax avoidance schemes;

Corporation tax reliefs to encourage investment in the production of animation, high-end television and video games;

An “above the line” R&D credit to encourage investment in research and development.

A package of property tax policies including a new annual residential property tax to be payable by certain non-natural persons that own interests in dwellings valued at more than £2 million, and an extension of the capital gains tax regime to non-residential non-natural persons disposing of interests in UK residential property valued at over £2 million. The capital gains tax (CGT) will be payable only on gains accruing on or after 6 April 2013. For consistency, the Government are considering extending the CGT regime to also apply to disposals of high-value residential property by UK NNPs. The Government would welcome views on the impact and implementation of this potential change by 18 January.

Introducing a statutory residence test, abolishing ordinary residence and eliminating the concept of “ordinary residence” for tax purposes as far as possible.

The Government will also publish draft legislation for policies announced in the 2012 autumn statement.

In addition the Government are also announcing a number of new measures for Finance Bill 2013. This includes draft legislation to:

Give HMRC the power to implement a special accounting scheme for air passenger duty that will allow eligible operators to submit annual returns.

Make changes to the carbon price floor legislation to clarify the tax point, taxable person and the treatment of auto-generators and combined heat and power stations.

Exempt universal credit from income tax.

To clarify the tax treatment of banks’ tier 2 regulatory capital instruments, as announced by the Financial Secretary to the Treasury on 26 October. This clarification will ensure that the coupon on tier 2 capital which is already in issue or yet to be issued will be deductible for the purposes of a bank computing its profits for corporation tax purposes. This will provide banks and investors with certainty.

Make amendments to allow the Finance Act 2003 inheritance tax measures on the treatment of open-ended investment companies (OEIC) and authorised unit trusts (AUT) to work in the way that was originally intended.

Amend the restrictions on when companies resident in the European economic area can surrender losses from their UK branches as group relief from corporation tax in the UK.

Introduce further minor simplifications to the remittance basis rules as they affect exempt property where such property is lost, stolen or destroyed and works of art on public display, and clarify the interaction between the time limits for the exempt property rules.

Ensuring that conditions imposed by a statutory body by which one company will leave a group at a pre-determined date will not prevent claims to corporation tax group relief. This targeted legislative amendment to the group loss relief rules will not remove the current loss-buying avoidance protection.

Ensure that a consistent time limit for repayment applies for all overpaid tax. This legislation will also correct an anomaly relating to time limits for loss relief.

In addition the Government are also introducing today draft secondary legislation to:

Clarify the tax treatment of new core tier one regulatory capital instruments which building societies have developed to ensure compliance with regulatory capital requirements under the forthcoming capital requirements directive IV. As building societies are mutual organisations their constitutions prevent them from issuing ordinary share capital in the same way as other companies. This change to secondary legislation will ensure that these new instruments, which will perform a similar function to ordinary share capital, will also be taxed in the same way as ordinary share capital.

The Government have also tabled one further related written statement today:

Draft legislation for Finance Bill 2013: Measures with effect on 11 December.

Finance Bill 2013

The Government are announcing today measures that will have effect from 11 December 2012 or shortly afterwards and will be included in Finance Bill 2013.

Further details have today been published on both the HM Treasury and on HM Revenues and Customs (HMRC) websites, together with the draft legislation and tax information and impact notes.

The following measures will take effect from today:

Debt cap: Group treasury company election

Legislation will be introduced to ensure that only the financing expenses and financing income-related to treasury activities are included in the election. If a company’s activities are all or substantially all treasury activities and its assets and liabilities relate to those treasury activities then its financing income and financing expenses can be included in the election. If a company’s treasury activities are not all of its activities then the election will only apply to its financing expenses and financing income that relate to the treasury activities.

The legislation amends section 316 Taxation (International and Other Provisions) Act 2010 and will take effect for periods of account of the worldwide group beginning on or after 11 December 2012.

Corporation Tax: Deferral of payment of exit charges

The Government are amending legislation to address the way in which HMRC collects corporation tax charges levied on unrealised profits or gains when a UK resident company that is registered in a European economic area (EEA) territory transfers its place of effective management to another EEA state (often described as an “exit charge”). This follows a decision by the Court of Justice of the European Union. The amendment will offer such companies the option to defer payment of the exit charge over a period of time provided that certain conditions are met. The change is intended to protect public finances, support businesses with cash-flow issues, and ensure UK law remains compatible with EU law.

The legislation will have effect to permit companies to submit claims for deferral of exit charges that fall due from 11 December onwards.

VAT forestalling road fuel

Draft legislation sets out the Government’s intention to impose an open market value (OMV) on supplies of road fuel made by taxpayers to employees and other connected persons where fuel is supplied at less than the OMV.

The draft legislation will apply from 11 December. However until the date of Royal Assent to Finance Bill 2013 affected taxpayers should declare output tax according to the invoiced value. After Royal Assent, to the extent that the amount charged is less than OMV and any part of the fuel has not yet been made available, these amounts will become incorrect and taxpayers will need to correct the under-declaration of output tax in the usual way. How to make corrections is explained in notice 700/45, which is available on the HMRC website.

In addition, the following measures will come into effect on 1 January 2013 and will be included in Finance Bill 2013:

Annual investment allowance (AIA)

To encourage investment and exports as a route to a more balanced economy, the Chancellor announced on 5 December 2012 a temporary increase to the AIA to support investment in the economy.

Legislation will be introduced to temporarily increase the AIA limit on qualifying expenditure that effectively receives 100% relief from £25,000 to £250,000. The AIA is available to most businesses, regardless of size. The increase in the AIA will apply to qualifying expenditure incurred between 1 January 2013 and 31 December 2014. This measure supports investment by accelerating the rate of relief on investment in qualifying assets.

Bank Levy

The Government have set out their intention that the bank levy should raise at least £2.5 billion each year. The full bank levy rate will increase from 0.105% to 0.130% from 1 January 2013 to restore expected yield for future years and to offset the benefit of corporation tax rate cuts to banks. The half-rate for chargeable equity and long-term chargeable liabilities will be increased from 0.0525% to 0.065%.

UK Swiss Remittance basis

Legislation will be introduced to ensure that, where levies are made under the terms of the Swiss UK tax cooperation agreement, those levies are not treated as remittances for UK tax purposes. To ensure that policy objectives behind the original agreement are delivered in full, this legislation will be effective from 1 January 2013, which is the date that the agreement is expected to come into force.

Amendments to Controlled Foreign Companies (CFC) rules

The Government are introducing legislation to prevent a potential loss of tax by amending the new CFC rules and limiting double taxation relief (DTR) in order to close avoidance and planning opportunities. In line with the new CFC rules the legislation will affect CFCs with accounting periods beginning on or after 1 January 2013.

Part 9A Taxation (International and Other Provisions) Act 2010 (TIOPA) will be amended to ensure that the new CFC rules apply to profits from all finance leases, including those made by way of a hire purchase or similar contract.

Part 9A TIOPA will also be amended to ensure that throughout the new CFC rules, questions of accounting treatment where accounts have not been prepared under either UK generally accepted accounting practice or international accounting standards are considered by reference to international accounting standards.

Part 2 TIOPA will be amended to limit the amount of DTR that can be claimed as a credit by a UK company or given by deduction to a UK company. The limitation will apply when one or more UK companies form part of an arrangement whereby a loan is made from one CFC to another CFC, where the latter is the ultimate debtor in relation to that loan. Where one or more UK companies form part of a conduit in such an arrangement the DTR will be limited to the corporation tax due in respect of the UK corporation tax profits that arise from that arrangement. The new limitation will apply to a UK company that derives profits from such an arrangement which involves CFCs with accounting periods beginning on or after 1 January 2013.

In addition the Government are introducing legislation to amend section 236(4) TIOPA with effect from 1 January 2013 to ensure the arbitrage rules do not apply merely as a result of the application of another territory’s CFC rules that are similar to those within part 9A TIOPA.

The Government have also tabled related written statement today:

Draft legislation for Finance Bill 2013 and tax policy update.

ECOFIN

A meeting of the Economic and Financial Affairs Council was held in Brussels on 4 December 2012. Ministers discussed the following items:

Banking Supervision Mechanism

Ministers discussed the latest proposal for a single supervisory mechanism (SSM). There will be a further ECOFIN Council on 12 December that will focus on the SSM ahead of the European Council meeting of 13 to 14 December.

Revised capital requirements rules (CRD IV)

The presidency updated Ministers on the current state of play of negotiations with the European Parliament on the proposals for revised capital requirements rules (CRD IV).

Economic governance—Two pack

The presidency updated Ministers on negotiations with the European Parliament on two draft regulations aimed at improving economic governance in the euro area. The UK Government tabled a minute statement where:

“The UK reiterated its clear understanding that there would be no new commitments from the European Financial Stabilisation Mechanism (EFSM) following entry into force of the European Stability Mechanism (ESM) Treaty on 27 September 2012, recalling the commitment in the European Council Decision of 25 March 2011, which states that as the ESM is designed to safeguard the financial stability of the euro area as whole, Article 122(2) of the TFEU will no longer be needed for such purposes. The Heads of State or Government therefore agreed that it should not be used for such purposes”.

Financial Transaction Tax (FTT)

The presidency updated Council on the European Commission’s proposal for an authorising decision on the introduction of a FTT by some member states using the enhanced co-operation procedure. The UK will not participate in an enhanced co-operation FTT.

Credit Rating Agencies

The presidency updated Ministers on the political agreement reached with the European Parliament on the credit rating agencies 3 (CRA3) dossier.

Macro-economic Imbalance ProcedureCommission annual report

The European Commission presented its second alert mechanism report, which is the first stage in the macro-economic imbalance procedure.

Annual Growth Survey 2013

The European Commission presented the annual growth survey for 2013.

Issues related to the Economic and Monetary Union

The European Commission outlined its report on a “Blueprint” for economic and monetary union.

Implementation of the Stability and Growth Pact

ECOFIN Council considered that Greece has taken effective action to correct the situation of excessive deficit; and adopted a decision granting Greece an additional two years to correct its excessive budget deficit in recognition that:

“effective action has been taken and unexpected adverse economic events with major unfavourable consequences for government finances occur after the adoption of the recommendation”.

VAT Quick Reaction Mechanism

Ministers held an orientation debate on a proposed directive amending the common system of value added tax as regards a quick reaction mechanism against VAT fraud, in particular on the issue of whether implementing powers under the proposal should lie with the Commission or the Council. A number of member states, including the UK, reiterated the importance of decisions on tax matters being made by the Council and being subject to unanimity. The Council agreed that further work was needed on this issue.

Annual Report of the Court of Auditors on the implementation of the budget for the financial year 2011

The president of the European Court of Auditors, Mr Vitor Caldeira, presented to Council the annual report of the Court of Auditors on the implementation of the budget for the financial year 2011. The UK expressed its disappointment that the Court of Auditors were unable to give an unqualified assurance for the 18th consecutive year and that the error rate had increased to 3.9% from 3.7% in 2010.

Code of Conduct (Business Taxation)

ECOFIN adopted Council conclusions on a report in relation to the code of conduct (business taxation), summarising the work of the code group under the Cypriot presidency. Following a minute statement at Coreper by Spain, the UK tabled a statement to confirm that the Government of Gibraltar have already begun work to ensure an element of their Income Tax Act complies with the principles of the code.

Financial Services

UK Asset Resolution (UKAR) has identified certain Consumer Credit Act (CCA) regulated loans in the Northern Rock (Asset Management) (NRAM) portfolio where the loan documentation is not compliant with CCA requirements. In selected letters and customer account statements, certain paragraphs of mandatory wording were written incorrectly and compulsory information about the amount of credit was not included in the statements. The CCA provides that a lender is restricted in how it can enforce a debt and borrowers are not liable for interest, over the period during which the lender has not provided the specified information. The period of non-compliance originates from changes to the CCA implemented in 2008 before the separation of NRAM and Northern Rock plc.

UKAR has undertaken an internal investigation and has consulted with legal counsel, the Financial Services Authority (FSA), the Office of Fair Trading (OFT), UK Financial Investments (UKFI) and the Treasury. Following this, the UKAR board has recommended making proactive restitution to affected NRAM customers in receipt of non-compliant statements and default notices relating to CCA-regulated loans. Based on discussions with UKFI, the Treasury has no objections to UKAR’s proposed approach and UKAR will issue the corrected documentation and take steps to remediate interest and other charges to affected customers. Where redress is required, this will be made by correcting a customer’s account balance to reverse the consequences of them being charged any interest over the period in which the documentation is non-compliant. UKAR will contact potentially affected customers in writing with further information. NRAM will be writing to all existing customers in the next few days. There is no need for customers to take any action at this time.

Separately, the UKAR board has asked Deloitte to conduct an independent enquiry into the specific circumstances of the issue and to make recommendations on potential enhancements to the associated processes and controls.

The cost to NRAM of remediating the interest charges on affected accounts is estimated at £270 million. As a result of the reclassification of UKAR by the Office of National Statistics this year, UKAR was included within the OBR forecast for public sector net borrowing (PSNB) in 2012-13 in the autumn statement. The costs to UKAR from remediation were not included in this forecast. The impact of these costs on the public finances is a decision for the independent Office for National Statistics. This is likely to increase public sector net borrowing in 2012-13. However it remains the case that borrowing will continue to fall in that year.

UKAR has confirmed that NRA has the financial resources to make the remediation. NRAM’s interim financial results for the six months to June 2012 show a statutory profit before taxation of £305 million and NRAM is expected to remain profitable in 2012.

The remediation is not expected to delay materially the ultimate timing of the repayment of the NRAM Government funding, which stands at £19.6 billion as at June 2012. The Treasury continues to estimate that it will fully recover all the taxpayer support provided to NRAM.

Communities and Local Government

East of England Regional Strategy (Revocation)

The coalition Government have today laid in Parliament an order to revoke the regional strategy for the East of England. All directions preserving policies contained in structure plans in the area to which the East of England regional strategy relates are also revoked.

Following the passage of the Localism Act, the abolition of the regional strategy for the East of England is a major milestone for localism.

This Government have been clear from the outset that planning works best when the people it affects are placed at the heart of the system. The abolition of regional planning across this region will give local councils and local people right across the former East of England government region more control of shaping the places in which they live. It reinforces our policy to enshrine the local plan, produced with the involvement of local people, as the keystone of the planning system.

The regional strategy imposed development upon communities. Such a top-down process just built resentment. Its removal means the issues that matter to local communities in the region can take centre stage. Only local people understand the unique priorities, aspirations and heritage of an area. Local empowerment brings development by consensus; development that is more sensitive to local characteristics, including to habitats and the environment, and development that is good for growth. Matched with the duty to co-operate, a statutory requirement upon local councils to work together to plan for cross-boundary development, we believe that a locally-led planning system can better deliver the homes, jobs and infrastructure the country needs.

As outlined in the written ministerial statement of 25 July 2012, Official Report, House of Lords, column WS66-68, the decision to revoke the East of England regional strategy has been made after a strategic environmental assessment and comprehensive consultation on the environmental impacts of abolition. The reasons for the decision to revoke the regional strategy rather than retain all or part of the strategy are set out in a post-adoption statement, which has been placed in the Library of the House and is available online at:

https://www.gov.uk/government/consultations/strategic-environmental-assessment-of-revoking-the-east-of-england-regional-strategy.

The order is laid under the negative resolution procedure and will take effect on 3 January.

Culture, Media and Sport

Education, Youth, Culture and Sport Council

A meeting of the Education, Youth, Culture and Sport Council was held in Brussels on 26 to 27 November. The UK was represented at the culture and audiovisual and sport sections of the Council by the deputy permanent representative to the EU, Shan Morgan.

Culture and Audiovisual

The Council adopted a revised partial general approach on the proposal for a regulation establishing the creative Europe programme for 2014-20. This programme will follow on from the current Culture, Media and Media Mundus programmes. The revised partial general approach incorporated the text relating to the proposed new loan guarantee facility into the partial general approach which was agreed at the Council meeting in May. It did not include the programme budget.

The UK did not support the revised partial general approach. We cannot consider supporting the loan guarantee facility until we are able to consider it in the context of the overall programme budget and in relation to the amount of funding allocated to grant expenditure. These will not become clear until the negotiations on the multiannual financial framework for 2014-20 have been completed. In addition, the revised partial general approach—like the previous partial general approach, which the UK did not support—does not provide for selection decisions, i.e. decisions about which projects will be awarded EU funding under the programme, to be subject to member state scrutiny through the formal comitology arrangements. However, we are able to support other elements of the revised partial general approach.

The Cypriot presidency presented a progress report on the proposal for a decision establishing the European capitals of culture action for 2020-33. This action will follow on from the current European capitals of culture action which ends in 2019. It envisages a further round in which each member state will have the opportunity to host a European capital of culture, with a selection and monitoring procedure similar to the current procedures but with some changes and improvements. In discussions in the Council working group, Member states have broadly welcomed the proposal but have identified a number of aspects which require further consideration. The UK has contributed some ideas and suggestions for amendments.

The Council adopted conclusions on cultural governance. These conclusions note the importance of research and statistics in cultural governance and in developing policies and strategies for the cultural and creative sectors; and they identify some key issues for future work and propose some actions for the Commission and member states to maximise the use and benefits of current work in these areas. The UK supported the adoption of these conclusions.

The Council also adopted conclusions on a European strategy for a better internet for children and held a policy debate on the internet: a better and safer place for children as a result of a successful interplay between Government and industry. The UK supported the adoption of the conclusions. In the debate member states agreed that co-operation between public and private players was essential to deal with rapid technological change and ensure that children were protected online, and most also supported the Commission’s emphasis on self-regulation. In this context, the UK reported on the work of the UK Council for Child Internet Safety and argued that more effective discussion and co-ordination of member state initiatives was needed. The Commission welcomed the UK’s initiative to appoint a UK digital champion.

Sport

The Council adopted, without debate, conclusions on strengthening the evidence base for sport policy-making and on promoting health-enhancing physical activity. The Council also formally designated the three EU representatives to the World Anti-Doping Agency (WADA) foundation board.

The Council did not adopt draft conclusions on establishing a strategy to combat the manipulation of sporting results, because of a disagreement which could not be resolved over a paragraph encouraging member states to put in place adequate measures to fight illegal gambling offers, notably those from third countries. The text was instead adopted as presidency conclusions.

The Council debated a proposal from the Commission to establish a European week of sport and measures to get people “from the sofa to the playing field”. The UK argued that the Commission’s proposal should present something “conceptually different” and also explained how virtual media is being used to drive physical activity and engage people, especially young people.

Any Other Business

The French and Slovak delegations presented information on Marseille-Provence and Kosice respectively, which will be the European capitals of culture in 2013.

The French Minister raised concerns about the revised draft cinema communication on state aid for films and other audiovisual work. He argued that the Commission’s proposed new rules on territorialisation could jeopardise the diversity of the European film industry and called for further discussion before any decisions were taken. This was supported by a number of other member states. The UK intervened to support the latest Commission text and call for a speedy resolution of the issue. The Commission acknowledged that member states have different measures to support the film industry but agreed with the UK that the uncertainty should not be prolonged. The Commission agreed that a new round of discussions was required, but hoped that the text of the communication would be finalised in January.

Education

EU Education and Youth Council

I represented the UK at the 26 November Education Council. The Council adopted two sets of non-binding political conclusions, on literacy, and the role of education in Europe 2020; and a recommendation on the validation of non-formal learning. Ministers also discussed how the quality of teachers can be improved at a time of scarce financial resources.

Literacy

Non-binding conclusions on action to improve literacy were adopted. I intervened to acknowledge the importance of literacy but expressed doubt about the added value of EU-level action. Specifically, I questioned whether a proposed “Europe loves reading week” would be a good use of scarce resources, and whether Ministers really knew enough about the costs and benefits of such an initiative.

Education and training in Europe 2020

Non- binding conclusions on the role of education and training in Europe 2020 were also agreed. While accepting that education has an important role in promoting growth, I intervened to urge the Commission to move away from a prescriptive approach in the education field that is characterised by target-setting. As an alternative, I cited the OECD’s approach to putting high quality analysis and data into the public domain, challenging policymakers with evidence from around the world, but leaving it to individual countries to draw their own conclusions for policy design.

Validation of non-formal and informal learning

The Council adopted a non-binding recommendation calling upon member states to commit to the recognition of non-formal and informal learning within national qualification systems. The UK already has such systems in place at present.

None of these items will have any direct impact on the UK, and there are no follow up actions.

Improving teacher quality and status

Ministers had a useful discussion on how the quality of teachers can be improved at a time of scarce financial resources.

The Irish Minister opened the debate, highlighting the “inconvenient fact” that Europe is no longer the best place to get a good education and that we are now in a period of technological change which demands better, more effective training and support for teachers. I cited key UK reforms to improve teacher quality, including our ambitious “Teach First” programme, and initiatives aimed at making it easier for head teachers to tackle underperformance.

Energy and Climate Change

Doha Climate Change Conference

The annual conference of the parties (COP) to the United Nations framework convention on climate change took place in Doha, Qatar, from 26 November to 8 December. The United Kingdom was represented by the Secretary of State for Energy and Climate Change, the right hon. Member for Kingston and Surbiton (Mr Davey), and the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker).

What we agreed

After the success of last year’s Durban conference in agreeing to negotiate by 2015 a new global legally binding agreement to come into force from 2020, while focusing renewed efforts before 2020 on raising ambition in reducing greenhouse gas emissions, this year’s conference needed to make progress on both. It was never going to be a major breakthrough meeting, but I am pleased to say that, following two weeks of intense negotiations, the UK’s objectives this year were largely achieved. We agreed a high-level work plan for negotiating the new agreement by 2015 and for enhancing the political space for and breadth of recognition of efforts to raise ambition. In doing so, it was important to ensure the current regime would not fragment and that the rules and mechanisms within it can be developed further ahead of the new regime from 2020. To this end, we, with our European partners, Australia and some others agreed to bind our existing actions on reducing greenhouse gas emissions into international law by entering a second commitment period of the Kyoto protocol (KP2). We also secured agreement to further work on developing the rules base around accounting, measurement, reporting and verification of effort by countries not in the KP2, while also streamlining the three negotiating tracks working in parallel at Doha into one negotiation focused on the new agreement and the need to raise ambition. This was a step forward on the way towards getting back on track towards addressing the growing gap between current greenhouse gas emissions and a cost-effective trajectory of reducing such emissions that would be consistent with limiting average global temperature increases to below 2°C above pre-industrial levels.

Climate finance

The EU is the world’s leading provider of official development assistance and climate finance to developing countries. In Doha the EU demonstrated that it is on track to provide the full €7.2 billion it has pledged in “fast start” finance for the period 2010-12 and assured its developing country partners that climate finance will continue after this year. A package of decisions on finance encourages developed countries to keep climate finance in 2013-15 to at least the average level of their fast start finance. The decisions also extend a work programme on long-term finance for a year, with the aim of helping developed countries identify pathways for scaling up climate finance to $100 billion per year by 2020 from public, private and alternative sources in return for continued meaningful action by developing countries. I used the UK’s commitments on climate finance, agreed and first announced in 2010 as part of the current spending period, to add momentum to the negotiations at a key point during the second week. This helpfully also secured public announcements by many other donors of the climate finance they were also delivering, demonstrating that showing leadership draws others.

Loss and damage associated with climate change

A key concern of many developing countries was the issue of “loss and damage”. By agreeing to establish an institutional process under the regime to address more structurally loss and damage associated with the impacts of climate change in particularly vulnerable developing countries we headed off calls for an unbounded process towards compensation. The arrangements will be established at the UN climate conference to be held at the end of next year in Warsaw.

What does the second commitment period of the Kyoto protocol mean?

The second commitment period of the Kyoto protocol will start on 1 January 2013. It is a ratifiable amendment to the Kyoto protocol setting out the rules governing the second period. It will run for eight years, thus ensuring no gap occurs between its end and the entry into force of the new global agreement in 2020. The EU will apply the amendment from 1 January 2013 even though formal ratification by the European institutions and member states is likely to take over a year. I shall bring forward the process of ratification to the House in 2013.

For the second period the EU has taken on an emissions reduction commitment in line with its existing target of cutting emissions by 20% by 2020 compared to 1990, but has left the door open to stepping up this reduction to 30% if the conditions are right—an important provision given the coalition Government’s commitment to work towards this step up of climate ambition in the EU. The reduction commitment will be fulfilled jointly by the EU and its member states, Croatia and Iceland. The targets of all countries participating in the second period will be revisited by 2014 with a view to considering raising ambition.

The EU and other countries taking on targets under the second period will have continued access to the Kyoto mechanisms from the start of the period, an important element for businesses and market certainty across Europe. A limit on purchases of surplus emission budgets (“AAUs”) from the first commitment period and rules narrowing the potential for using such AAUs at all in the second commitment period will apply. Moreover, the decision includes political declarations by the EU and its member states and almost every other potential buyer—Australia, Japan, Liechtenstein, Monaco, Norway and Switzerland—stating that they will not purchase AAUs carried over from the first period.

The second period forms part of the transition to the global agreement taking effect in 2020. Including the EU, the countries taking part in the second Kyoto period account only for around 14% of world emissions—by 2020 this could be less than 10% of global emissions. This underscores the need for the future climate regime from 2020 to involve action by all.

Overall, the Doha conference represents a useful step forward. It has reaffirmed the commitment to a 2015 global agreement, given space and a process for focus on raising shorter-term ambition, and preserved the Kyoto protocol and a wider rules-based system that will help form the foundations of the new agreement.

Lastly, I wish to pay tribute to the UK delegation to the talks who worked tirelessly, including several times through the night, professionally and expertly across the range of issues, ensuring the UK played a leading role in delivering the outcome.

We continue to have much to do. Doha has kept the forward momentum that has been a feature of this process since the difficulties at Copenhagen in 2009. But we need to take significant further action globally, and urgently, if we are to stand any chance of limiting global warming to 2°C above pre-industrial levels.

Environment, Food and Rural Affairs

Dairy Industry

This has been a difficult year for domestic dairying and parts of the industry have struggled. However, there is now a positive way forward following the groundbreaking code of practice on contractual relationships that the industry has put in place. Dairy farmers, processors and their customers are now making use of the code to support better contracts and clear and transparent pricing.

The Government are also taking further steps to support the dairy industry so that dairy farmers can have a stronger position in the marketplace.

From today a new £5 million dairy fund will be open for business through the rural development programme for England. To help business growth, the fund will allow farmers to apply for £25,000 minimum grants to support groups of dairy farmers. The grants could cover costs to establish new co-operation structures, such as producer groups and co-operatives, or to invest in technology to take advantage of new market opportunities.

DEFRA is also consulting on new rules that will allow English dairy farmers to come together and form producer organisations to sell their combined milk to processing companies rather than negotiate as individuals. We are launching today a six-week consultation on how to implement the European Union’s dairy package in England. Scotland, Wales and Northern Ireland will hold their own consultations. Currently farmers negotiate with processors as individuals, but under the new EU rules, producer organisations, which are already widespread in other European countries, could cover up to a third of UK production and would negotiate on behalf of members.

Dairy is our largest agricultural sector and there are real opportunities for UK dairying with growing global demand for dairy products. Because of its strong natural dairying advantages, the UK is well placed to exploit domestic added value and export markets. The Government will continue to support the development of a profitable, thriving and competitive dairy industry.

Foreign and Commonwealth Office

Turks and Caicos Islands

My right hon. Friend, the Minister of State for International Development, and I wish to update the House about developments in the Turks and Caicos Islands (TCI), a British overseas territory.

On 9 November 2012 elections were held in TCI that brought back a democratic Government to the territory. There was an impressive 84% turnout of voters. The Progressive National Party (PNP) won eight seats and the People’s Democratic Movement (PDM) seven seats. Dr Rufus Ewing, the leader of the PNP, was sworn in as Premier on 14 November.

The Commonwealth Parliamentary Association organised an election observer mission with participation from Gibraltar, countries from the Caribbean region and the hon. Member for Dunfermline and West Fife (Thomas Docherty) and my hon. Friend the Member for Rochford and Southend East (James Duddridge). The mission’s full report will be issued shortly, but I note their initial statement that

“the voters had a genuine choice from among the candidates. The process was transparent and accountable and the results reflect the will of the people”.

This election opens a new chapter for TCI. In August 2009, the ministerial Government and the House of Assembly were suspended after Sir Robin Auld’s Commission of Inquiry identified a high probability of systemic corruption in Government and the legislature and among public officers in TCI. Since then there has been much progress. In a written ministerial statement on 9 December 2010, Official Report, columns 20-41WS, UK Ministers agreed milestones for progress towards elections. Over the last three years an interim Administration led by the Governor and supported by the UK Government has implemented a wide-ranging reform programme to meet the milestones, including putting the public finances on the road to recovery, establishing a robust framework for good governance, and strengthening the public service. The Foreign and Commonwealth Office and the Department for International Development Ministers last updated the House on progress against the milestones on 12 June 2012, Official Report, columns 20-23WS.

I have just returned from a visit to the Turks and Caicos Islands and in this statement today, I wish to inform the House on the progress made by the interim Government under each milestone in the run-up to the elections;

Implementation of a new TCI Constitution Order, in support of recommendations of the Commission of Inquiry, which underpins good governance and sound public financial management.

The new constitution was brought into force by the Governor on 15 October, and elections held on 9 November within the prescribed 30-day limit. Preparations for the elections were made in line with the revised elections ordinance. A new register of electors was compiled on the basis of a registration exercise for all islanders. An Electoral Boundaries Commission defined 10 new electoral districts with broadly similar numbers of electors. Practical preparations were made for elections at 17 polling stations across TCI’s main islands. The interim Administration adopted a statement of governance principles on 15 June. Under the new constitution, all organs of Government in the islands have a duty to give effect to the statement of governance principles established under the constitution and the Governor has certain powers to ensure compliance with the principles.

An equality ordinance became law in October to clarify the rights of all members of the community, in line with the non-discrimination provisions in the new constitution.

Introduction of a number of new ordinances, including those making provision for: i) the electoral process and regulation of political parties: ii) integrity and accountability in public life: Hi) public financial management

The political activities ordinance was introduced in August to define acceptable political financing and oversight. Work in this area was assisted by a visit in July by UK political party members, organised by the Westminster Foundation for Democracy, led by my hon. Friend the Member for Brigg and Goole (Andrew Percy).

The chief financial officer (CFO) ordinance was introduced in June 2012 to define this role within the restructured TCI Government, and as provided for in the 2012 Constitution Order and under the arrangements for the $260 million UK loan guarantee.

Establishment of robust and transparent public financial management processes to provide a stable economic environment and a strengthening of the TCI Governments capacity to manage its public finances

Financial management regulations for the public sector were amended in line with the public financial management (PFM) ordinance and international good practice. A public financial management framework document was agreed that sets out the key principles of good financial management and the debt threshold targets agreed by the Secretary of State. Key requirements are that net debt is less than 110% of revenue by end of 2015-16 and less than 80% of revenue by the end of 2018-19, and that debt service is less than 10% of annual operating revenue and liquid assets at least 25% of annual operating revenue.

The public procurement ordinance was introduced in October creating a central public contracts unit, and defining the framework for future tenders and contracts.

Reforms to the Audit Department in the TCI Government split it into two distinct bodies: the National Audit Office, to operate outside ministerial control; and the Internal Audit Department to focus on internal Government controls, risk management and governance processes.

Implementation of budget measures to put the TCI Government on track to achieve a fiscal surplus in the financial year ending March 2013

The TCI Government are working towards achieving a budget surplus for the full year at the end of March 2013. The interim Government made good progress in stabilising the public finances. A recent mid-year forecast indicated that the expected surplus remains in line with the budget.

Implementation of a transparent and fair process for acquisition of Turks and Caicos Islander status

A revised immigration ordinance and immigration regulations were introduced in July. There is now no discretionary provision in law for the granting of Belonger status. The newly elected Government will need to bring forward an ordinance defining Turks and Caicos islander status in line with the new constitution.

Significant progress with the civil and criminal process recommended by the Commission of Inquiry, and implementation of measures to enable these to continue unimpeded

Thirteen people, including four former Ministers, have been charged with corruption and other serious criminal offences. These cases are now before the courts. The plea and directions hearing has been delayed at the request of the defence and is now expected to be held in April 2013. International arrest warrants and Interpol red notices were issued in respect of the former Premier Michael Misick and the developer Cem Kinay, and Michael Misick was subsequently arrested in Rio de Janeiro in Brazil on 7 December. His extradition to the Turks and Caicos Islands is being sought. The civil recovery team continued to recover property and redress loses arising from corruption. Some 52 separate recoveries of Crown land totalling 2,447 acres have now been made, and financial settlements totalling US$16 million have been reached.

Implementation of a new Crown land policy

The Crown land ordinance came into force in March 2012. The Lands Commissioner has continued to implement the reforms for land transactions, and assisted with the appointment of a new Lands Registrar.

Substantial progress in the reform of the public service

Progress has continued. The public service has focused on raising the standard of policy development in preparation for transition to an elected Government and providing support to new Ministers. The public service ordinance was introduced in October and defines the roles of Ministers and permanent secretaries, describes new discipline procedures and expects all staff to be subject to measurable performance management. The general orders regulating the work of the public service were updated and a new public service handbook issued to public servants.

Conclusion

A solid foundation has been built for the return to elected Government. Over the last three years an interim Administration, supported by the UK Government, has implemented a wide-ranging reform programme to meet the milestones, including putting the public finances on the road to recovery, establishing a robust framework for good governance, and strengthening the public service. The interim Administration has also modernised the management and delivery of public services, attracted substantial inward investment and restored economic growth. This programme of reforms has been a significant achievement.

The hard work is far from over. The TCI Government benefit from a $260 million UK loan guarantee. We will keep vigilant to help ensure they meet their fiscal objectives and can finance their borrowing independently and on an affordable and sustainable basis from the end of 2015-16 without a UK guarantee.

A robust framework for the management of public finances has been put in place. The constitution requires the new Turks and Caicos Islands Government to formulate and conduct macro-economic and fiscal policy for the sustained long-term prosperity of the people of the islands, and to manage public funds according to established principles of value for money, affordability and regularity and in the interests of long-term financial stability. The constitution provides the Governor with reserve powers to ensure compliance with the principles of good governance. It establishes a number of institutions to protect good governance including an Auditor-General and a National Audit Office.

A framework document has also been put in place that sets out the key principles of good financial management as well as the debt targets agreed by the Secretary of State. Key requirements are that net debt is less than 110% of revenue by the end of 2015-16 and less than 80% of revenue by the end of 2018-19, and that debt service is less than 10% of annual operating revenue and liquid assets at least 25% of annual operating revenue. The incoming Government will need to meet the provisions of the framework document including agreeing with the Secretary of State a fiscal and strategic policy statement (FSPS) which is a medium-term plan that includes revenue and expenditure forecasts for at least the next three financial years. The Turks and Caicos Island Government must seek agreement to the FSPS before proposing a budget.

It is important that the new Government maintain a credible and sustainable fiscal policy, including reducing their net debt levels, so that they can refinance themselves independently by the time the debt guaranteed by the UK Government is due to be repaid in March 2016. UK approval to the budget and fiscal plans will be contingent on TCIG formulating credible policies to meet these key objectives. DFID are providing a chief financial officer whose authority and responsibilities are set out in TCI law and who is expected to ensure that fiscal plans are delivered.

We are confident that the above arrangements will ensure sufficient financial controls over the public finances are maintained, including with the objective that a UK loan guarantee is no longer required after March 2016. Achievement of this objective will depend on many factors including the conduct of the Government of TCI and the performance of the TCI economy. Lenders will expect a record of sound fiscal policy as a necessary pre-requisite for the TCI Government to refinance independently.

In line with the overseas territories White Paper published in June 2012, the UK Government look forward to working with the newly elected TCI Government to promote good governance in order to help them attract new investment, maintain economic growth and so deliver sustained long-term prosperity for the people of the islands.

The UK will continue to support TCI to develop its democracy and in its efforts to build on recent reforms, particularly prudent financial management, economic growth and sustainable prosperity.

Justice

Whiplash Claims

I am today announcing the publication of the Government’s consultation “Reducing the Number and Costs of Whiplash Claims”.

Between 2006-07 and 2011-12 claims for personal injury caused by road traffic accidents increased by around 60%. Over the same period the number of reported road traffic accidents fell by around 20%.

The Government share the widespread concerns about such a disproportionate growth in whiplash claims and its cost to motor insurance policy holders, and is already taking forward work to tackle the issue.

The consultation considers two particular areas. The first is whether independent medical panels should be created and, if so, what model should be adopted.

The second is whether in respect of road traffic accident personal injury claims, the current small claims threshold for pain, suffering and loss of amenity should be increased from £1,000 to £5,000, either for all personal injuries or for whiplash injuries only.

The Government accept that the growth in claims for whiplash injuries is complex, and the consultation considers what more can and should be done by all with an interest in the personal injury sector.

Copies of this Government consultation are available in the Vote Office and the Printed Paper Office. The document is also available online at:

http://www.justice.gov.uk.