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Finance (No. 2) Bill

It is not so much a pleasure as a relief to follow the hon. Member for Wolverhampton, South-West (Rob Marris). The beginning of his speech was very moving, when he spoke about green issues and the environment, and he carried the House with him in his remarks at the inception of his speech. With respect, he began to lose the House, as he plodded through a rather tedious lists of regulations, but as he and I are both members of Friends of the Earth, I will spare my criticism of him. I was going to say that, as he exhibited some independence of thought, I wish that he might serve with me on the Standing Committee, but having listened to him speak for an hour, I am not quite so sure that I want to spend the next two months closeted in a Standing Committee with him. My remarks will last a small fraction of the time of the hon. Gentleman’s. It is some 10 years since I last spoke on a Finance Bill. As I was the then Financial Secretary to the Treasury, the Finance Act 1996 has my fingerprints all over it. I think that the Paymaster General served on that Standing Committee. It was the only Finance Bill that I had anything to do with. I was appalled by the complexity and the length of the Bill. For three months, I had a good understanding of what it was all about. That information has now sadly decayed. However, I recall some gentle banter from Labour Members about the size and complexity of the Bill. I revisited it: it had 408 pages. In the intervening 10 years, matters have deteriorated: the current Bill has 475 pages and the language is even less comprehensible than it was 10 years ago. I was relieved to find one clause that I could understand without turning to the explanatory notes. It was the last clause—clause 181—which states:"““This Act may be cited as the Finance Act 2006.””" I want to focus my brief remarks on an area of the Bill that no one else—apart from, very briefly, the Chief Secretary—has touched on: clauses 103 to 146, which set up the real estate investment trusts or REITs. I refer to my interest in the register as a director of McCarthy and Stone, which builds retirement flats, which could end up within a REIT. The first question that I want to ask the Government is: why has this modest reform taken so long? When we left office some 10 years ago, most of the spadework for REITs had been done. We consulted the Council of Mortgage Lenders, the British Property Federation and the City and the response was positive. There was all-party support for that sensible fiscal reform. There were models for it in other parts of the world. Indeed, this country had pioneered investment trusts and a REIT is, in effect, an investment trust for property. The transplant should have been straightforward and yet it will be nearly 10 years—1 January 2007—before we get the first REIT. I hope that whichever Minister makes the winding-up speech will have a plausible story to explain to the House why the reform has taken so long. The second issue that I want to raise about REITs is more fundamental. There is a shortage of good housing in this country. Every constituency MP must know that there are people who need decent homes. The original thinking behind REITs was to promote investment in residential property. I remember because I was Housing Minister at the time the debate got under way in the mid-1990s. What we wanted was a vehicle to enable institutions and private investors to invest in property for rent, in the same way in which they could invest in shares through an investment trust. At that stage, the vehicle was not called a REIT; it was called a HIT—a housing investment trust. HITs were envisaged as the last stage of a series of reforms to promote the increased supply of good quality rented housing. We introduced assured shortholds to put tenancies on a viable basis. Once we had that underpinning the private rented sector, there was going to be a new fiscal framework to get serious, respectable, long-term institutional funds into property for rent. If quoted companies invested in rented property, that would bring institutional funds into a market that needed—and still needs—more supply, and private investors could buy shares in those companies. Also, institutions that find it difficult to get exposure to residential property in their portfolio would be able to do that through REITs. The clauses contain the necessary changes to introduce that measure and I welcome that—it avoids double taxation. However, something has happened in the intervening period that I find very worrying. Instead of housing investment trusts, they are now real estate investment trusts. As I will show in a moment, the emphasis is very much on commercial property and the original idea, if not abandoned, is certainly no longer centre stage. There was never an equivalent argument for REITs for commercial property, compared with residential property. If one wants to invest in commercial property, there are listed property companies and one can do that with great ease. There is no shortage of institutional capital to invest in shops and offices, whereas in many parts of the country, as I said, we need more good quality new accommodation for rent.