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Finance (No. 2) Bill

Thank you, Madam Deputy Speaker. We have also discussed, in passing, real estate investment trusts, which we debated at length in Standing Committee and in the Committee of the whole House. I am pleased that there is cross-party support for our aims for the REITs regime. We believe that it will be successful when it is introduced next January, that it will remove inefficiencies that currently persist in the commercial and residential property investment markets, and that it will support our wider housing policy and the implementation of the Barker review. I will not go over all the points that were debated in Committee, but try to respond in detail to some of those raised today. I shall start by responding to the hon. Member for Rayleigh (Mr. Francois) on Government amendments Nos. 27 to 30. On 2 June, I made available to Committee members the draft excluded business regulations, which amended schedule 16. That followed a commitment made by my predecessor, my hon. Friend the Member for Bury, South (Mr. Lewis), which I was keen to honour not only in the spirit but the letter to give sufficient time for proper consideration. As the hon. Member for Rayleigh reminded us, we had a detailed discussion about car parks, phone masts and other matters. I hope that we provided clarity that will give the industry a basis on which to plan ahead. During that debate, I explained to hon. Members that a better way to effect these changes than the draft regulations would be by way of a Government amendment to the Bill as it passed through its parliamentary stages. As I explained to the Committee, the points that prompted the changes had been raised at a very late stage and it had not been possible fully to analyse the issues in time to table an amendment in Committee. Instead, we decided to expose the issues in draft regulations and to consult on the details, with the aim of making the necessary changes through amendments to be tabled on Report. Government amendments Nos. 27 to 30 are the outcome of that consultation. They deal with two sets of circumstances: owner-occupied property, and property held as trading stock. Amendment No. 28, which deals with trading stock, aligns the treatment of rental income from this kind of property with that already set out for rent incidental to a trade of property development. The amendment will keep trading stock property out of the ring fence, which will mean that the incidental rent will be taxable but the measure will remove the threat of double taxation that could otherwise follow from taxation of any increase in the value of the property at conversion and the levy of an entry charge on the same value. The industry was keen for us to clarify that position. Amendments Nos. 27, 29 and 30, which deal with owner-occupied property, address two issues. The first is to ensure that rental income from owner-occupied property is excluded from the tax-exempt business of a UK REIT, as was our original policy intention. The second is to allow into the ring fence some properties that, despite being let to unconnected third-party tenants, fall to being accounted for as owner occupied. Their exclusion was an unforeseen consequence of the international accounting standards definition of ““owner-occupied””—as the hon. Member for Rayleigh pointed out—and not in line with our original policy. These changes are the result of points being brought to our notice by the industry, and I am sure that it will welcome them. They are fully consistent with the statements that I made in Standing Committee. On the definition of owner-occupied property, I can assure the hon. Member for Rayleigh and the House that we will continue to work with the industry and to listen to any issues arising on the matter. I hope that that will give him the reassurance that he seeks. A number of issues have been raised today that pertain to the more general question of the balance between residential and commercial property. I will deal with the specific points first, and refer to the general issue at the end. I shall deal first with amendments Nos. 64 to 68, and then with amendment No. 130, which deals with the listing requirement. Amendments Nos. 64 to 68 have been tabled by the hon. Member for Banff and Buchan (Mr. Salmond) and his colleagues, and were spoken to today by the hon. Member for Dundee, East (Stewart Hosie). Taken together, they would remove altogether the requirement that a company should have its shares listed on a recognised stock exchange before it can become a UK REIT. That would allow any company to enter the regime. We have estimated that the cost of the amendments, if passed, would run not into tens or hundreds of millions of pounds but into billions of pounds. It would therefore be quite wrong to accept them. I hope, however, that in explaining why we believe that a requirement for listing is important I shall be able to give some reassurance to the hon. Member for Dundee, East. Amendment No. 130 also relates to the listing requirement. However, rather than removing it altogether, it seeks to extend the definition to include the alternative investment market—AIM—of the London stock exchange and its equivalent in the European Union. This issue was debated at length during the Committee of the whole House, as well as in the Standing Committee. Following those Standing Committee debates, I looked again in detail at our requirement for a full stock exchange listing. As I explained to hon. Members at the time, I had come late to those debates—my hon. Friend the Member for Bury, South was the Minister during the Committee of the whole House—and I wanted to understand the difference between a full listing on the London stock exchange and a listing on the AIM. In passing, I want to say that I completely associate myself with what the hon. Member for Rayleigh said about the success of the AIM, and its importance not only as a liquid market but a tax advantage market, compared with a full listing. Capital gains tax, inheritance tax and loss relief are all reasons why we tax advantage an AIM listing in order to bring new companies into listing. The success of London as a market that attracts listings from around the world has increased substantially over the past few years, and I am sure that the success of the AIM is part of the broader success of London as a centre for listing. Therefore, I fully support the continuance and strength of the AIM. We always aimed to ensure that the UK REIT regime would make property investment accessible to small investors in a way that was revenue neutral in tax terms while providing proper protection. The requirement for a listing on a recognised stock exchange assures investors, especially small investors, that their investments are covered by the full protection of direct regulation by the Financial Services Authority. That has a direct bearing on companies, through rules on dispersion of the share base and share approval for major transactions. An AIM listing has several tax advantages, while a full listing on the stock exchange has several more onerous requirements, ensuring proper protection for the smaller investor through direct FSA regulation, but also ensuring that the tax advantages that I set out are used for the intended purpose. We argued consistently that the right approach was to restrict the REIT regime to a full listing, partly to protect the revenue base and to ensure that it is revenue neutral, and partly to protect the small investor. We made that point consistently in consultation and in discussions with several interested parties, including the Investment Property Forum, the British Property Federation and the Royal Institution of Chartered Surveyors, and our objective has always been understood. Aside from the regulatory aspects, it is important to take account of suggested changes to the rules in the context of the regime as a whole. We are considering a package of legislation and conditions that combine substantial tax advantages with substantial restrictions and protections to ensure that we achieve our objective, but in a way that does not run to substantial cost. While the costs of the Scottish National party amendments would run into billions of pounds, there is no doubt that these amendments would cost hundreds of millions of pounds, not least because allowing such listings to qualify for other European markets would run not only a regulatory risk but a financial one. As I said to the hon. Member for Rayleigh, I have considered the matter again, as I wanted to understand exactly what was happening, and we still believe that we have the right balance of regulation and protection to achieve a revenue neutral package and encourage the establishment of a REIT regime.