Finance Bill

Cathy Jamieson Excerpts

Tuesday 2nd July 2013 Commons Chamber

Real estate investment trusts: UK REITs which invest in other UK REITs

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I beg to move amendment 57, page 15, line 16, at end insert—

‘(2) Notwithstanding the provisions of paragraph 13 of Schedule 18, that Schedule shall come into force after the Chancellor has conducted, and placed in the House of Commons Library, a review of the operation of the interaction of REITs with the Housing Market. The Review shall consider—

(a) tax measures in place to support house building; and

(b) what steps HM Government have taken to support house building.’.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss Government amendments 30 to 34.

[Cathy Jamieson]

I am tempted to start by saying that I am sure this is the part of this afternoon’s proceedings that everyone has been waiting for, and that there is much excitement about the prospect of talking about real estate investment trusts, and that many Members will want to contribute on this very important issue.

Amendment 57 is another amendment that I have regularly described as very mild-mannered. It proposes that the Government must ensure that the impact of their policy is examined and reported on, and that all Members are subsequently able to access information on its impact from the House of Commons Library. In this amendment, we are asking for that information to be examined and made available before schedule 18 is implemented.

The amendment also asks that the Government conduct a review of the interaction of real estate investment trusts with the housing market and that the Government consider in particular measures that are in place to support house building and what measures they have taken to support house building. I suspect that the Minister may well say this is not necessary because everything is always kept under review so far as the Government are concerned, but he will be aware—because he has heard me say this before both in Committee and on the Floor of the House—that I think Governments always tend to say things are under review, but there is a great difference between something that sits on a shelf that may be dusted down and had a look at if someone asks a parliamentary question or writes to a Minister, and something that is a proactive review, whereby policy is examined and modelling work is done and different facts and figures are placed in the House of Commons Library so that we can all benefit from that information. That is really why we have tabled this amendment now. I keep making this plea to the Minister to take up, at least once, the opportunity to look more favourably on such reviews.

In last year’s Finance Bill Committee and once again this year, we have had important discussions about real estate investment trusts, or REITS. For hon. Members who have not followed the Committee musings over the two years or had the opportunity to read in Hansard the record of the excellent contribution from my hon. Friend the Member for Nottingham East (Chris Leslie), who said just a few words about REITs during those deliberations, I shall outline briefly what this is about and why our amendment is so important.

REITs are securities that sell like a share on stock exchanges and invest in real estate directly, either through properties or mortgages. As of September 2012, 34 nations had REIT-like regimes in place. REITs are tax-advantaged vehicles set up to encourage investment in the property sector. I will, of course, be developing that theme, and people may wish to consider my comments in the light of the need for the review. REITs are exempt from corporation tax on profits and gains arising from their property rental business as long as profits are distributed. In that way, taxation of income from property is moved from the corporate level to the investor level. REITs have been given tax advantages to encourage diverse investment in the property sector, where fellow investors can have a different tax status.

We seek to amend a simple, one-line clause introducing schedule 18, which of course contains considerable detail. I am sure the Minister will speak to the Government amendments in some detail in due course, but these provisions would allow UK REIT income derived from investing in other UK REITs to be treated as income of its tax-exempt property rental business. Until now, REITs have predominantly invested in commercial properties—for example, office and retail properties. We had lengthy discussions about that when debating a previous financial Bill. According to Treasury consultation documents published in April 2012, there are more than 20 UK REITs, with a market capitalisation of more than £20 billion, so this is obviously an important issue.

As I said, the Committee discussed in detail why it is important to reform the REIT regime. We did not oppose clause 38 in Committee and we are not seeking to do so now; we are simply seeking this review and reporting back. My hon. Friend the Member for Nottingham East recognised that REITs are important investment vehicles that have changed the investment scene relating to property and those financial instruments. He spoke about that in Committee, also acknowledging that the Government appeared to be proposing relatively sensible pieces of housekeeping on the cash flow and investment profiles of the REITs. He further acknowledged the argument that REITs could make better returns on such cash if they were allowed to invest short term in other REITs. That was seen as promoting greater liquidity in the property market and potentially attracting additional investment income, particularly into the built environment. However, at that time my hon. Friend also raised a number of specific points with the Minister. For example, he asked what the policy’s effect would be on revenues to the Exchequer. He probed further the broader impact on tax treatments and also sought to discover whether HMRC had done any modelling on how the arrangement might affect yields.

My hon. Friend was interested in what the REIT vehicles are investing in and in how they are linked to commercial property arrangements and the circumstances in which residential property REITs exist. In Committee, he also sought further information from the Minister on the impact of REIT arrangements on the residential property market and its prices, given that there has been some concern in various quarters about the Government perhaps looking more at the demand side of the housing market equation than at the supply side.

I shall say a little more about the housing market later, but in Committee my hon. Friend specifically pressed the Minister on whether the Treasury had analysed the general impact of REITs on property prices in the residential sector and whether there was any overlap between the Help to Buy arrangements and investment in REITs.

The Committee also heard during that debate that although the Government originally consulted on the idea of using REITs as a vehicle to support social housing investment, they decided not to take that forward. There was no REIT vehicle arrangement to help with what the Opposition believe to be the priority—that is, of course, dealing with the need for social housing and affordable housing. I shall say something further about that in due course.

To be fair to the Minister, he advised the Committee that only 15 written responses to the Government’s consultation were received and that there was consensus that amending the tax treatment of REITs would generate positive benefits for the industry and his Government’s wider objectives, as he saw them.

In response to the questions from my hon. Friend, the Minister referred to the tax information and impact note that, as he pointed out, states that

“the provision will have a negligible impact on the Exchequer”.

He went on to explain:

“It removes a barrier that has prevented REITs from investing in REITs, which has generally not happened because it has been an inefficient structure. As a result, the cost of the change to the Exchequer will be negligible.”

That is all fair and proper, but his response to the question on the impact on house prices was perhaps less definitive. At that stage, the Minister suggested that the Government could not

“yet assess the impact on house prices as there are not yet any substantial residential REITs on the market, so the answer is that they have not had an impact on house prices.” ––[Official Report, Finance Public Bill Committee, 4 June 2013; c. 318-19.]

Although I can see the logic in that argument—it comes from a factual perspective—my hon. Friend was probing a question on which I invite the Minister to say more today. Has the Minister considered whether he would use some of the extensive resources at his disposal to do some further modelling work, not just to consider what is happening now but to make projections for the future? That would give us some idea of the advantages and disadvantages of the proposal, particularly as regards the impact on house prices, and would allow us to identify the concerns and, if any were identified, to see how they could be mitigated. That was what my hon. Friend was seeking and is part of the reason why we have tabled the amendment once again.

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[Stephen McPartland (Stevenage) (Con)]

Does the hon. Lady accept that there are some success stories? In my constituency, for example, the Government are giving almost £2 million for a purpose-built homeless shelter, which will serve a large part of Hertfordshire, and we have provided the funds to build the first council houses in Stevenage in 30 years. As for infrastructure, my local hospital redevelopment is part of a £150 million hospital rebuilding scheme, and a section of the A1M is being widened. It is not all as bad as the hon. Lady makes out.

[Cathy Jamieson]

I appreciate what the hon. Gentleman says, and I am sure his constituents will appreciate the fact that he has raised the matter in the Chamber today. The people who make use of that homeless shelter no doubt welcome the fact that it is there for them but, with respect, that does not get away from the wider need to ensure that we have good quality, affordable housing right across the country. Although his constituents may be benefiting at present, sadly I see in the places that I visit and right across the country that there are areas where that level of investment is not happening. People are finding their living standards squeezed and they are finding it extremely difficult not only to balance their own household budgets, but to plan for the future.

The hon. Gentleman’s intervention leads me neatly on to the subject of house building, although I suspect that that is not what he intended to do. None the less, it gives me the opportunity to move seamlessly into that part of my speech. The Government have had four major housing launches in three years and they have made more than 300 announcements on housing. Some areas would have welcomed 300 houses, never mind 300 announcements. We know, notwithstanding the hon. Gentleman’s comments, that house building is at its lowest level since the 1920s, and research by the House of Commons Library confirms that no peacetime Government since the 1920s have presided over fewer housing completions than this Government have in the past two years. So for all the launches and all the statements, are things going to get any better on this Government’s watch? That is a question that the Minister has to answer.

[John Mann (Bassetlaw) (Lab)]

Is my hon. Friend aware that of even that paltry number of housing finishes, the Labour Government were responsible for many of them? For example, the Strata Homes development in Retford in my constituency was started under the Labour Government only because of a capital grant given to get it going, and given as a present to this lousy coalition.

[Cathy Jamieson]

I could not have put it better myself. My hon. Friend speaks with great passion and I know that he always seeks to do the best for his area, but he makes important points that the Government would do well to take into account.

Is the situation going to get better? From what we know already, it is getting worse rather than better. Housing starts fell by 11% in 2012 to below 100,000. The construction sector has been hit particularly hard by the Government’s policies, which are hurting rather than helping. An estimated 80,000 construction workers are out of work and there has been an estimated 8.2% fall in construction output, despite recent signs of the beginning of change. Even in respect of home ownership, which one imagines this Government of all Governments would advocate, there are 136,000 fewer home owners than when the Government came to power. Home ownership has fallen from 67.4% to 65.3%. Crucially, on affordable homes, the official figures from the Homes and Communities Agency show that the number of affordable housing starts collapsed in 2011-12 by 68%.

I referred earlier to my own experiences when I worked on a homelessness project while I was a student in London back in 1979, which was one of the reasons that I got involved in politics in the first place. It is appalling that homelessness and rough sleeping are up by a third since the election. The Government must take responsibility for some of these awful situations.

The number of families with children and pregnant women being housed in bed-and-breakfast accommodation for six weeks or more has risen by more than 800% since the coalition Government came to power. A staggering 125 councils have had to house families in B and Bs for six weeks or more. [Interruption.] My hon. Friend the Member for Bassetlaw (John Mann) is right: it is a waste of taxpayers’ money. It is not only a waste of money, which is important, but a human tragedy for the families living in those conditions. I ask hon. Members to pause for a moment and reflect on how they would cope if life events meant they had to live like that. What if they were uprooted from somewhere they had been staying and had to pack up their belongings? What if they found themselves, perhaps with children, having to live for an extended period in one room in bed-and-breakfast accommodation, with nowhere to keep their belongings, nowhere to call home, and nowhere to do all the things that we take for granted with our own families?

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[Graham Jones (Hyndburn) (Lab)]

Does my hon. Friend also accept that the heat map for the new homes bonus is completely unfair, because it affects the ability of local authorities to spend on other projects such as house renovations, rather than new build? It is a Treasury policy that is not working.

[Cathy Jamieson]

My hon. Friend makes an important point. New build is of course important, but so too is bringing existing dwellings up to modern standards and ensuring that families have decent accommodation. That is a useful point to which I hope the Minister can respond.

Given that the National Audit Office report was so damning, by no stretch of the imagination could the new homes bonus be called a success. If we couple that with the rest of the record I have described, we might even call it unforgiveable.

Then there is the Help to Buy scheme, which the Treasury Committee dubbed a “work in progress”. It took us some time to get any real answers from the Minister when we probed how the scheme would work in practice. The Opposition desperately want to help first-time buyers, but the Government are making the crisis worse. As I have said, affordable house building is down. Indeed, many commentators, including those the Government might well have assumed would be on their side, are concerned that the scheme is pricing people out of the market. The Government need to take action on the supply side by building more affordable homes, just as the International Monetary Fund has been arguing. I wonder whether the Minister agreed with the IMF when it said:

“There is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.”

Let us take a look at how well the affordable rent programme has worked. Labour invested £8.4 billion in the three years from 2008 to 2011, while the Tories will invest just £4.5 billion in the four years from 2011 to 2015. The Government have cut the budget for new affordable homes by 60%. No doubt they will try to argue that they are getting more for less and that this is all about lean Government, but that is not borne out in reality. Affordable housing starts have collapsed—not stalled, not flatlined, but collapsed. The Government like to claim that they are going to deliver 170,000 affordable homes by 2015, but the NAO report confirms that despite the relentless spin, over 70,000 of those were commissioned by the previous Labour Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

If it is about getting more for less, the result will be to push up rents, so these so-called affordable homes will not be affordable. That, in turn, will push up the cost of housing benefit, which will undermine many of the other claims the Government are making on reducing the housing benefit bill.

[Cathy Jamieson]

My hon. Friend makes an important point. She spent a long period working on housing issues in Scotland and taking forward a number of very positive policies in her previous life at Edinburgh city council, so I always listen carefully to what she has to say, and I hope that the Minister does the same. We have to ensure that policies have no unintended consequences. That is why, in this very mild-mannered amendment, we are suggesting a review to look more broadly at the impact of these policies as regards taxation and the Government’s record on housing, to produce information, and to put it in the House of Commons Library so that we can all be aware of it in looking to the future.

This Government appear to care more about spin than substance. Even with a record that shows they have failed on issue after issue, there is more, because their failure to deliver also extends to the NewBuy scheme. So far, 12 months in, the scheme has delivered fewer than 2.5% of the promised 100,000 mortgages. At this rate, they will not meet their target until 2058. In September last year, the Government announced £10 billion-worth of housing guarantees that were due to open for bids in April 2013. However, as the Financial Times reported recently, the plans are in disarray because no financial group has come forward to run the scheme.

On right to buy, the Government extended the discounts, promising one-for-one replacement. Notwithstanding the rhetoric, the reality is that since the extension of right to buy, 3,495 homes have been sold but just 384 homes have started to be built or have been acquired as replacement stock.

[Graham Jones]

My hon. Friend raises an important point. People were promised that there would be one-for-one replacement in social housing. The fact that it was not like-for-like replacement was another folly in the Government’s policy. It should be put on the record that it is not one for one but one for nine, and that is a tragedy.

[Cathy Jamieson]

My hon. Friend puts his point powerfully on the record. His phrase, one for nine, will perhaps hit home more vividly than my expressing it as 3,495 homes sold but just 384 starting to be built. It is also right to say that those houses that are being built should meet the needs of people who are seeking either to get their first home or to move.

I do not want to spend too much time on the bedroom tax, but it is sad that the Government constantly say that people are living in homes that are far too big for their needs. I know from my own area and the work I did before coming to this place that many people who live in such housing are rooted in their local community. They do not want to move to another town, village or even another street. If homes of a decent standard that met their needs were available in their area, perhaps they would be prepared to move in order to free up some of the larger family houses.

[John Mann]

Does my hon. Friend agree that if we built environmentally friendly, small, local authority bungalows with a little bit of garden, like we used to, many people would queue up to move into them? If only the Government would get their act together and provide the funding to build them.

[Cathy Jamieson]

My hon. Friend makes another very good point. I know of areas where elderly people would welcome such an opportunity. Indeed, I know of some elderly people who have been persuaded, because they felt it was the right thing to do, to move into good-quality housing where everything is on the flat and they have a small garden, a common area and locally provided services. It is also important that such housing is environmentally friendly and has affordable heating and rent.

[Graham Jones]

Elderly accommodation is a chronic problem in my constituency and other areas. Does my hon. Friend know whether the Government, as part of their housing strategy, have undertaken any assessment that has identified the need for accommodation for the elderly?

[Cathy Jamieson]

I cannot answer for the Government, but I would have thought that any Government reflecting on the needs of citizens throughout the country—particularly given the number of elderly people in our communities and the fact that people are living longer—would want to undertake a proper and thorough assessment of future needs and that its projections would be translated into a comprehensive housing plan for the future. If such a plan is in place, I am sure the Minister will enlighten us on it before the end of this debate.

This is about people’s homes, but Government Members seem to think that it is about the number of bedrooms and do not really understand the emotional link that people have to the home that they may have been born and brought up in, that they may have raised their family in, or that they may be set to retire in in their later years. Surely any compassionate society should take that into consideration. We should also take every possible step to ensure that people do not become homeless; we must not let that become another scandal.

I will finish soon because others wish to speak on this important issue. Ministers promised last summer that the Government were on course to smash their ambition to release enough land for 102,000 homes, but they have now conceded that they are only a third of the way towards that target. I will not give into the temptation to go back over every Government failure, but they have missed target after target. After all the warm words, hot air and relaunches, it is clear that this Government are making the housing crisis worse, not better.

People who are out in the cold looking for their first home, looking to move, or looking for somewhere to live out their later years in comfort without having to worry whether it is affordable might look back at Labour’s record. There were 2 million more homes under Labour and we built 500,000 affordable homes. A million more families were able to buy their own homes, housing standards improved and homelessness fell by 70%.

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[Graham Jones]

Will my hon. Friend give way?

[Cathy Jamieson]

I will, but only briefly because I am on my last words.

[Graham Jones]

My hon. Friend has made some valuable points in what is an excellent speech. Does she agree that the Government and certainly the Treasury ought to consider in the review what impact a VAT cut would have on the construction industry and on the renovation and refurbishment of properties? That should be part of the review because half the country is being left behind.

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[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I do not think that we need to worry about that. We should stick to the amendment.

[Cathy Jamieson]

Thank you for that guidance, Mr Deputy Speaker. I had feared that the Exchequer Secretary would jump up and ask a supplementary question about the Opposition’s position on cutting VAT.

[Mr Newmark]

Will the hon. Lady give way?

[Cathy Jamieson]

I suspect that the hon. Gentleman wants to stray into the territory where Mr Deputy Speaker has suggested we do not go. Suffice it to say that my hon. Friend the Member for Hyndburn (Graham Jones) makes yet another suggestion that the Minister would do well to consider as part of the wider review. I look forward to hearing his response.

[Jack Dromey (Birmingham, Erdington) (Lab)]

My hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), in her powerful speech, pointed to the biggest housing crisis in a generation that is gripping our country. House building is down to the lowest level since the 1920s. Homelessness is up by 30% since the general election, after it fell by 70% under the Labour Government. We have a mortgage market in which millions struggle to get mortgages and a private rented sector with 8.6 million tenants, or 1.1 million families. There are many good landlords, but many bad ones too. There are chronic problems of security, stability, affordability and quality. One in three homes in the private rented sector does not meet the decent homes standard.

Like my hon. Friend, my interest in housing goes back a long way. When I was a lay trade union activist, I was also secretary of the Tenants and Residents Federation. I was a founding member of the Housing Action campaign. For older Members of the House who remember the occupation of Centre Point, I was proud to be one of those who organised what was an effective demonstration against office block speculation, against the background of rapidly rising homelessness and bad housing. I never thought that we would be back here 30 years later debating a crisis worse than that one.

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[Mr Gauke]

It is a pleasure to return this debate to the amendments to clause 38 and schedule 18 to the Finance Bill before us. Before I discuss Opposition amendment 57, I shall say a few words about amendments 30 to 34, which are designed to ensure that clause 38 and schedule 18 work as intended. The clause and the schedule make improvements to the REITs regime. This year’s Finance Bill improves the REITs regime by allowing a UK REIT to treat income from another UK REIT as income of its tax-exempt property rental business. Therefore these amendments do not affect the policy, but rather ensure that it works as intended. The change would generate positive benefits for the REIT industry, and also meets the Government’s wider objectives.

Let me provide some background. During the technical consultation in February, stakeholders told us that the changes as drafted might not work quite as intended. HMRC has consulted further with interested parties, and we agree that minor changes are necessary to achieve the desired policy aims. The problem, as presented by interested parties, concerned the balance of business test, which requires that at least 75% of the REIT’s profits must come from a property business. Interested parties were concerned that in certain circumstances, a REIT that invests in another REIT might fail that test even though the lower-tier REIT derives all of its income from a property business. Consideration of the issue has revealed that minor amendments are required both to the new and the pre-existing legislation. These amendments together will ensure that the Bill’s changes correctly implement the intended policy, which is that profits of a property rental business comprising the new type of tax-exempt income do not include amounts attributable to capital allowances and other tax adjustments.

Turning to Opposition amendment 57, we have had a very broad debate this afternoon. Indeed, it has felt more like an Opposition day debate on housing than a debate on the clause and the schedule. The amendment proposes that the schedule shall come into force after the Chancellor has conducted a review of the interaction of REITs with the housing market, and I hope to address the issue of REITS and the housing market in my remarks.

[Cathy Jamieson]

I hoped the Minister would understand that the nature of the debate reflected Opposition Members’ genuine concerns about the Government’s record on housing. But specifically on REITs, when he responds to the arguments in favour of the review, will he be able to say something more about the future of REITs and social housing?

[Mr Gauke]

The hon. Lady can rest assured that I will address that very point, if not necessarily every point made in the wide-ranging debate.

The proposal set out in amendment 57 is that

“The Review shall consider…tax measures in place to support house building; and…what steps HM Government have taken to support house building”

but the Government’s view is that there is no need to postpone the changes to the REIT regime, as the proposed review would add little value at this time. There is something of a routine here of the hon. Lady requesting a review and me turning it down, and she asks so nicely that I feel almost pained in doing so, but the reason we believe in this case that a review would add very little is that there are not yet any REITs with substantial housing assets on the market, so it is too early to assess any interaction of REITs with the housing market. We do not accept the amendment and I urge her not to press it to a vote.

The new changes to the REIT regime are an example of tax measures to support house building. As REITs represent the supply side of the property market, any improvements to the REIT regime are expected to have a positive impact on the market.

The hon. Lady made a couple of points on how the REIT regime works: the first, which I believe we touched on in Committee, was whether the regime could support people who want to own their own home. It is worth pointing out that residential REITs can provide accommodation only in the private rented sector, so they are not designed, nor could they be used, for the purpose of home ownership.

The second point, on which the hon. Lady intervened, was on the relationship with social housing and what role REITS could play in that sector. There was full consultation in summer 2012 involving a number of one-to-one and group meetings with interested parties in the social housing sector. The reality is that yields on, for example, affordable rents do not appear to be high enough to attract investors into that sector, but I assure her that discussions are ongoing with non-social housing entities and other interested parties to explore the possibility of residential REITs. If a workable residential model can be found, it might be possible to use it to further a move into social housing, and we certainly would not rule that out. At the moment there appears to be no interest in using REITs for those purposes, but we are entirely pragmatic about that.

We believe that REITs have a valuable role to play and we do not want to delay the implementation of the schedule while we conduct a review from which there is little to be gained. For those reasons, I urge the hon. Lady to withdraw the amendment.

We discussed wider housing policy, but I do not intend to be drawn into a lengthy, general debate on housing. I just point out that we announced £5.4 billion of additional support for housing in the last Budget, building on the £11 billion this Government have already committed to investment in housing over the spending review period. Last week’s spending round announcement confirmed a total of £5.1 billion-worth of investment to support housing in England from 2015-16 to 2017-18; £3.3 billion of that new funding is for affordable housing over those years and will support the delivery of 165,000 new affordable homes in England over the next three years. I can also point out some of the recent housing numbers. Housing building starts in England rose by 4% in Q1 2013, seasonally adjusted. Housing starts are 15% higher than in the same quarter last year. Starts are now 62% above the 2009 trough.

[Mr Gauke]

No, I want to give the hon. Lady a moment or two at the end of the debate to respond to the points that I make.

The amendments before us, alongside the changes that already form part of the Bill, show the Government’s continued support for REITs and the UK property sector. I believe the Government amendments will be welcomed by interested parties. The delay that would result from Opposition amendment 57 would be unfortunate and I urge the hon. Lady to withdraw it.

[Cathy Jamieson]

I find myself in the same slightly pained position that the Minister described. He said no so nicely, as he normally does, that I hesitate to come back with extremely critical comments. I am disappointed once again that he has not heeded our arguments, especially the argument for a review and a look at how the wider tax regime deals with housing issues.