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Finance (No. 2) Bill

There is fundamentally a great deal of consensus on this issue. All parties want REITs to come in and they want the idea to succeed. The Government have set out in their regulatory impact assessment some of the reasons for REITs and it specifically focused on the weaknesses within the property market and the areas where they could be improvement. In particular, it highlights the lack of choice for small investors, poor liquidity, the potential for more efficient use of commercial property, variable standards of provision in the private rented sector, high levels of debt financing and tax distortions. The Government’s intention is to address those problems through the use of REITs. Paragraph 2.8 of the RIA states:"““The Government believes that the proposed vehicle addresses all of the above points by introducing more choice for small investors, allowing more liquidity in the market, giving potential for more efficiently and professionally managed property, reducing dependency on debt for financing and removing tax distortions.””" I do not think that anyone would particularly disagree with that. We can also add the other factors that are favourable for REITs. There is a growing appetite for such products and their introduction should be good for the City of London and make it the leading REIT centre in Europe. We would all welcome that. As my right hon. Friend the Member for North-West Hampshire (Sir George Young) pointed out, however, it has taken a great deal of time for us to get where we are. The idea of REITs has been around for a long time. In recent history, the industry made a great push to introduce them in 2000. That was unsuccessful, but the move was revived in 2003. Since then, there have been various discussion papers, culminating in this year’s Budget with a view to the first REITs being available in January 2007. I used to work as a lawyer in a City firm and I know from personal experience that there was a great deal of expectation a couple of years ago that REITs were about to take off. Everyone was gearing up to prepare for that. However, the move slowed down, and nothing very much happened. There are one or two concerns about the delay. In that period, a lot of money has gone offshore. In particular, a number of Jersey property funds have been created that catered for something that perhaps could have been catered for by REITs. That is a concern for the City and a worry for us all. We are, to some extent, playing catch-up. In the past couple of years, Jersey has been able to develop as a market in this sector and it has gained reputational benefits perhaps at the expense of ourselves, because we are slightly behind the game. It is important that we get the legislation absolutely right, because there is also the concern that the delay may in some way indicate the Government’s half-heartedness. I hope that, by scrutinising the Government’s position in this debate and upstairs, they will be able to make it absolutely clear that they are committed to REITs and see them as a long-term prospect. Yesterday, we discussed issues such as the home computing initiative, in which something comes in with a tax incentive that is then taken away. That leads to a degree of uncertainty that is bad for investors and the industry. When there is uncertainty and changes, we do not attract the same level of investment. It is important for businesses to look long term and Governments—particularly this Government—move in a short-term fashion. I hope that we will in the debate obtain reassurance from the Government on their attitude to REITs. It has to be said that there are positive aspects to the proposals. There is no doubt that the 2 per cent. conversion charge is what the British Property Federation was looking for. There is no criticism of the Government for introducing that. It is encouraging, and I hope that the Economic Secretary will continue in that vein later in the debate. It is important that we get this right and that we have close scrutiny of the proposals to ensure that there is a long-term commitment and that we do not have to change things in a couple of years. That would lead to the stability that would enable the REIT market to develop. Turning to the amendments, I will address the issue of the alternative investment market. With a number of colleagues, I had a meeting with representatives of the London stock exchange just a week or so ago. The message is that AIM is a great success story. It has really taken off. The number of companies listed on AIM has expanded very rapidly in recent years and it has been a very useful attribute to the London stock exchange. We have, in the City institutions, something that we can be proud of and that is hugely important to the economy of this country. I hope that no hon. Member will suggest, in the course of the debate, that AIM is in some way dodgy or disreputable, or in any way something that we should be slightly embarrassed about. There may well be good arguments as to why REITs should not be listed on AIM, although, on the face of it, many REITs will be quite small entities and one would think that perhaps it might be appropriate to list them on AIM. I would be grateful to hear the views of the Economic Secretary on that point.