I shall be brief because it is clear that the hon. Gentleman does not intend to raise detailed issues about the amendments. It is for you to make a judgment, Mr. Illsley, but from my point of view it would be fine if we range widely.
The clause that we have just agreed to introduces schedule 17, which amends provisions in part 4 of the Finance Act 2006. As the hon. Gentleman reminded us, we debated that set of clauses in great detail a year ago in a spirit of co-operation, and we made progress in mutual understanding of some of the issues.
The regime came into force on 1 January after some years of detailed and constructive consultation and engagement with the industry. By allowing indirect investment in property to enjoy the same tax treatment as direct investment, the UK REIT regime will improve the quality and quantity of finance for investment in property, promoting a wider range of savings products for individual investors and supporting structural change in property markets
I am pleased to say that the UK REIT regime is already proving a success with 13 companies converting to the regime from a wide variety of sectors, and now a 14th company setting up with the express purpose of being a UK REIT. The total market capitalisation of the UK REIT sector is now £35 billion, and two of the UK REITs include both commercial and residential property in their portfolios.
Since last year’s Finance Bill, we have continued our consultation with the industry to ensure that the regime works as effectively as possible. The changes in the schedule are the result of that consultation and were announced at the time of the pre-Budget report. As the hon. Gentleman suggested, they are minor changes clarifying some of the definitions and powers in the existing legislation.
We also announced at the time of the pre-Budget report that we would introduce changes to the regulations to extend the regime to make it easier for companies to become UK REITs, and the Chief Secretary circulated draft regulations for that purpose to Committee members on 9 May.
Since publication of the draft clause and schedule at the end of March, the Law Society has come forward with a further representation on the technical detail of the regime as it relates to demergers from UK REITs. Continuing that spirit of consultation, we are keen to accommodate those points, hence the amendments.
I am happy to respond to questions or requests for clarification, although I have the impression from remarks by the hon. Gentleman on the previous clause that he accepts that these are minor, technical drafting amendments.
It is entirely up to the Economic Secretary to decide how to play this, but I prefer briefly to debate the amendments first, and then to move on to schedule stand part, but I am in your hands, Mr. Illsley.
Given that the hon. Gentleman made some introductory remarks about the REIT regime, I was making some introductory remarks about it, too, and the changes that we are making in the schedule. It is for him to decide how he frames the debate, but I thought it would be helpful for me to put on the record for hon. Members the context within which his detailed points occur.
As I understand it, his detailed points do not concern the amendments, but given that the amendments are to the schedule and that they and the wider context cannot be understood without understanding the schedule, I thought it would be helpful to make a few remarks about the schedule. However, I shall be guided by you, Mr. Illsley.
We are discussing the amendments, and if the hon. Member for Rayleigh then wants a stand part debate on the schedule, the whole aspect of it can be debated then. He can speak just to the amendments at this stage.
We got there in the end. As I said in my remarks on clause 51, these amendments are essentially drafting in nature. They modify the elements of the schedules specifically relating to demergers. As such we have no quarrel with them and I have only one specific question to put to the Minister about them. However, there is a procedural point which I do not want to let pass without comment. I raise it more in sorrow than in anger because last year we debated REITs in a rather consensual manner and managed to cover a lot of the detail as a result.
We have already had one occasion in Committee when Ministers were taken to task because details of draft Government regulations had been circulated in advance to selected members of the Committee but unfortunately not to others. After that, as I recall, Ministers, including the Chief Secretary, apologised to the Committee and said that they would do their best to prevent that sort of thing from happening again. However, when I returned to my office this lunchtime, newly arrived in my e-mail inbox was an electronic copy of a letter dated 16 May from the Economic Secretary to my hon. Friend the Member for Chipping Barnet. According to the electronic copy, there was a hard copy for the hon. Member for Falmouth and Camborne, the Chairman and Clerk of the Committee, but to no one else. Among other amendments, it refers to the REITs amendments, which we are debating this afternoon, and it was the first time that I had seen or heard of that letter.
If Ministers are going to write to members of the Committee explaining the reasoning behind their amendments, which is a laudable aim and quite often the right thing to do, could they please try harder to ensure that they circulate the information to everyone on the Committee—Back Benchers and Front Benchers—as simple courtesy would suggest? As this has already happened once on this Committee, I hope that we will not get a hat trick. I make a plea through you, Mr. Illsley, that Ministers do their best to take this point on board. If the Minister wishes to intervene, I will sit down, but I still have a question for him.
I conducted the Finance Bill on the REITs clauses. I remember us having a substantive consensual discussion, with some areas on which there was disagreement. As I understand it, we have operated this year in exactly the same way as in previous years in ensuring the circulation of letters and amendments to members of the Committee. I am happy to be corrected by the hon. Gentleman if there has been a change in our procedure. As I understand it, we have done things in the same way as in previous years when no difficulty arose at all.
I do not know whether there is a problem because once again the circulation has not been carried out by the Committee Clerks or the hon. Member for Chipping Barnet has not circulated it to her colleagues. The hon. Gentleman said that he was making his point more in sorrow than in anger. If he suggests that there has been a procedural mistake, it would be helpful to us if he specified what we have done differently this year from last year so that we can rectify it.
Order. To clarify matters for the Committee, as far as the Chair and the Clerks are concerned, any correspondence from a Minister to members of the Committee should go to every member of the Committee. That is the limit of the Chair’s involvement. It is a matter for the Government and members of the Committee.
I am grateful for that clarification, Mr. Illsley. I do not think that we want to do this to death, but as I understand it, it is not the responsibility of the Clerks to ensure that members of the Committee get correspondence from the Minister; it is the Minister’s responsibility. I hope that this will not happen again and that we can move on.
As the hon. Gentleman said, last year we went about these matters in a very different way from the way that he is choosing to go about them this year. I should like to understand what accusation he is making. Is he suggesting that we have changed the way we do things this year compared with last year? If so, is he saying that it was done in order to prevent him from having sight of the regulations? If that is the accusation, I refute it entirely, and am upset by the insinuation that he is making.
I am not accusing the Minister of not letting me see the regulations—they are amendments, not regulations. I am saying that he wrote to some Committee members explaining the rationale behind those amendments, but not to others. My understanding is that, normally, when a Minister does that, he should write to all Committee members. He cannot just e-mail one or two and expect them to circulate it on his behalf. That is my understanding; I think that you have confirmed from the Chair, Mr. Illsley, that, as a rule of thumb, if a Minister writes to one Committee member with information relevant to a debate, he should write to everybody.
So that the Minister understands me, let me say that I behaved as I did simply because this has happened once already in the Committee and we were told, in essence, that it would not happen again. It has happened a second time, so I did what I did. I hope that he understands that and that it will not happen a third time. I hope that the lesson can be learned. With that, I would like to ask the Minister about the amendments, which I believe, he is here to answer. Amendment No. 138 replaces the word “transfers” with the words “disposes of” an asset—others make similar provisions. For clarity, will the Minister explain the technical reasoning behind that change in drafting?
I am happy to explain the thinking behind all the amendments. As I said, we put the amendments out to consultation, and since their publication, the Law Society has made further representations on the technical details of the regime for demergers from UK REITs. The Government amendments will ensure that schedule 17 provisions relating to demergers within UK REITs apply where a demerged property or subsidiary is transferred to a new company that then becomes a UK REIT itself.
The amendments will ensure also that the terminology used to describe the demergers is consistent with that used elsewhere in UK REITs legislation by using the word “disposal” rather than “transfers”. Amendment Nos. 138 to 148 will mean that the provisions in paragraph 11 of schedule 17 will apply to a company that acquires a subsidiary company to which the ring-fenced assets have been transferred. The amendments allow also the company time to satisfy the conditions for entry to the UK REITs regime. That extends the same flexibility to disposals of ring-fenced assets by a single company UK REIT, as paragraph 16 proposes already for demergers from group UK REITs. That accords with our policy of aligning the treatment of single company and group UK REITs.
Amendments Nos. 149 to 158 will mean that the provision in paragraph 16 of schedule 17 will apply where a demerged company becomes a member of a new group UK REIT, rather than, as originally provided for, a parent of such a group. In summary, the amendments ensure that schedule 17 provisions relating to demergers from UK REITs have their intended scope and include additional flexibility. Just to be clear, amendments Nos. 138, 142, 146 and 147 substitute “disposal” for “transfer”, which will mean that the terminology in that part of the Bill is consistent with other sections of UK REITs legislation—for instance, section 125(2) of the Finance Act 2006, which deals with the movement of assets outside the ring fence, as well as chargeable gains legislation.
Amendments made: No. 139, in schedule 17, page 214, line 13, after ‘S’ insert ‘to another company (“P”),’.
No. 140, in schedule 17, page 214, line 14, leave out ‘on the date of the transfer of the asset, S’ and insert
‘on the date when it acquires the interest in S, P’.
No. 141, in schedule 17, page 214, line 15, after ‘109’ insert
‘(as modified by paragraph 8 of Schedule 17)’.
No. 142, in schedule 17, page 214, line 17, leave out ‘transfer’and insert ‘disposal of the asset’.
No. 143, in schedule 17, page 214, line 18, leave out ‘S’ and insert
‘the group of which S is a member’.
No. 144, in schedule 17, page 214, line 19, at end insert—
‘( ) P may give a notice under section 109 (as modified by paragraph 8 of Schedule 17) in accordance with subsection (1)(c) even if it does not expect to satisfy Conditions 3 to 6 of Section 106 throughout the accounting period specified in the notice.’.
No. 145, in schedule 17, page 214, line 21, leave out ‘S’ and insert
‘the group of which S is a member’.
No. 146, in schedule 17, page 214, line 22, leave out ‘transferred’ and insert ‘disposed of’.
No. 147, in schedule 17, page 214, line 24, leave out ‘transfer’ and insert ‘disposal’.
No. 148, in schedule 17, page 214, line 25, at end insert—
‘( ) But if, at the end of the period of six months mentioned in subsection (1)(c), Conditions 3 to 6 in section 106 are not satisfied in relation to P, subsection (2) shall be treated as not having had effect.’.
No. 149, in schedule 17, page 215, line 13, after ‘group’ insert ‘(“Group 1”)’.
No. 150, in schedule 17, page 215, line 16, leave out ‘the group,’ and insert ‘Group 1,’.
No. 151, in schedule 17, page 215, line 19, leave out ‘the principal company of a group’ and insert
‘a member of another group (“Group 2”)’.
No. 152, in schedule 17, page 215, line 22, leave out ‘it’ and insert
‘the company (or the principal company of Group 2)’.
No. 153, in schedule 17, page 215, line 24, leave out ‘the group,’ and insert ‘Group 1,’.
No. 154, in schedule 17, page 215, line 27, leave out ‘the group.’ and insert ‘Group 1.’.
No. 155, in schedule 17, page 215, line 34, leave out ‘the principal company’ and insert ‘a member’.
No. 156, in schedule 17, page 215, line 36, leave out ‘the group.’ and insert ‘Group 1.’.
No. 157, in schedule 17, page 216, line 3, leave out ‘the principal company’ and insert ‘a member’.
No. 158, in schedule 17, page 216, line 5, leave out ‘the group.’ and insert ‘Group 1.’.—[Ed Balls.]
Schedule 17 contains a number of detailed changes to the REITs regime, which began operation on 1 January 2007. For instance, paragraph 2 of the schedule alters the definition of the types of loans that REITs may undertake without breaching the regime, and paragraph 3 modifies the restriction on income from owner-occupied property that REITs are allowed to generate. We debated that last subject in considerable detail last year, under what is now part 4 of the Finance Act 2006.
Paragraph 5 amends section 109 of the Finance Act 2006, effectively allowing certain previously non-listed companies to benefit from the REITs regime. That relates specifically to close companies which technically have difficulty in satisfying the requirements of the REITs regime on their first day as listed companies. It is a modest relaxation of the section 109 requirements, about which the British Property Federation said:
“There is currently a problem for new REITs at the time of listing and converting to REIT status because there could be a very short period during the first day of converting, when they were not actually listed.”
The Opposition welcome the changes so far as they go. However, even when revised by the 20 Government amendments that have been tabled, the changes proposed by the schedule still do not address two key issues on the REITs regime that were highlighted to the Economic Secretary by the Opposition a year ago.
The first issue is the continuing denial of REITs status to those companies listed on the alternative investment market of the London stock exchange—AIM, as it is more popularly known. According to recent figures from the British Property Federation, some 14 companies with a total market capitalisation of some £36 billion have converted to UK REITs status since 1 January 2007. That figure looks impressive at first glance, but it is important to note that approximately £30.1 billion of that value—more than three quarters—is represented by just five companies: Land Securities, with £9.4 billion, British Land, with £7.8 billion, Hammerson with £4.8 billion, Liberty International at £4.5 billion, and SEGRO at £3.6 billion. In other words, the regime has been dominated to date by the larger property companies, which were always likely to convert to REIT status.
The British Property Federation argued in its May 2007 briefing, which lists the 14 REITs that have converted so far, that:
“Whilst this represents an encouraging start it should be noted that the above list is almost entirely represented by those existing, listed property companies that have always been viewed as best placed to convert to REITs.”
The federation goes on to say:
“We have concerns that, under the current legislative framework for UK-REITs the medium/long-term growth of the UK-REIT market will be limited and that actions need to be taken in the short term in order to address these concerns.”
That brings me to the issue of allowing REITs to be listed on AIM as well as on the principal stock exchange. As the Economic Secretary will recall, we debated that issue as well in considerable detail last year, including on Report. So that it is not said that I have misquoted him, let me say that he did not commit to launching a formal review—he was clear about that, and I remember what he said. He did, however, say that he would keep the issue broadly under review. I hope that I have not misrepresented him. In light of that, is it still Government policy that REIT status should be denied to property companies that are listed on AIM, even at the risk of inhibiting the potential growth of the UK REITs market? In other words, has the Government’s position moved since last year?
The second important issue that the changes to schedule 17 fail to address, and which the Economic Secretary should likewise recall from last year’s debates, is the lack of establishment of residential property REITs. Those established so far have been almost entirely commercial property REITs. On that point, the British Property Federation said:
“It is noticeable that there is no material residential property within the existing REIT regime. This is despite the fact that the development of a tax efficient listed residential property market and the wider benefits that this could bring to the UK economy was one of the key policy objectives for introducing UK REITs.
The UK Government should actively seek to use the REIT structure as a tool to encourage the growth of a listed residential sector. This will be achieved by working with the industry to develop the REIT regime so that it is more suitable for a residential business model.”
When I raised that issue with the Economic Secretary last year in Committee, in advance of the launch of the new regime, he said:
“Over the course of this year and not just when the regime begins, we will be monitoring closely whether residential companies enter the regime. I explained that I was not surprised that early indications had come from the commercial sector, because of its larger scale and sophistication, but I also said that there had been private and public indications that residential property companies would come forward.”—[Official Report, Standing Committee A, 8 June 2006; c. 507.]
He then committed to keep that matter as well under review during the year ahead.
Almost a year on, and now that the regime has been operating since January, will the Economic Secretary explain to the Committee why, despite his encouraging prediction a year ago, the REIT regime remains overwhelmingly dominated by commercial property and hardly any residential property companies have converted to REIT status? He attempted to fudge it by saying that two REITs had both a commercial and a residential property element, but a REIT can have a very small residential property element and still meet that description. Have any out-and-out residential REITs entered the regime? I ask because, if part of the Government’s aim was to create a REIT regime to foster the development of new residential housing, particularly affordable housing, they appear to have failed thus far in that important objective. I should like to press the Economic Secretary to reply to those points.
I mirror some of those questions. Debate on Report last year was particularly heated about allowing REITs to be created not simply with full stock exchange listings but by other means of funding. I recall perfectly well that throughout the process, the Economic Secretary said—I think that it was in good faith—that he would monitor the situation and keep it under review. I mirror the questions asked, particularly in relation to small REITs providing social housing. Many of us saw a great deal of potential in the tax benefits of REITs that do not require the massive start-up costs of a full stock exchange listing.
I also have a question about schedule 17. Paragraph 7(b) deals with section 116, “Minor or inadvertent breach”. Proposed new subsection 3A(b) states:
“The regulations may make provision about, or by reference to, anything done by or in relation to a company or any sum arising or treated as arising...in the calendar year during which the regulations are made”,
rather than the financial year, tax year or accounting year. Why is the calendar year specified?
I shall investigate the matter brought before the Committee earlier about the circulation of proposed amendments and I shall happily give a full report in writing to you, Mr. Illsley, and to all Committee members. If the Treasury, my office or I have failed in any way to follow the proper and normal procedure for circulating amendments to all Committee members, I will wholeheartedly and unreservedly apologise. I am unclear about whether we have made such an error, and because of how the hon. Member for Rayleigh chose to raise the issue, I have not been able to find out—
Perhaps I can help to clear up the point absolutely so that the Economic Secretary can apologise now to Committee members. As a Back-Bench member, I did not receive that communication as I expected to. I found that disrespectful to all Committee members.
As the hon. Member for Rayleigh said, I have served on only two previous Finance Bills, so I am still a novice compared with him in the procedures and courtesies. That is why I said that I shall look into the matter. If I find that we have made a mistake, I shall apologise unreservedly. I fear that, like me—perhaps more than me—the hon. Member for Rochford and Southend, East is a novice in such matters. He would do better to wait for me to look into the issue before he reaches a judgment.
I made my point in that way because the problem appeared to have occurred twice in the Committee. If the Minister will listen, I will say that I will take him at his word. Last year, he dealt with the issue courteously. If he agrees to look into the matter, I hope that he will discover exactly what happened. I genuinely think that there has been a mistake, and that is why I raised it. I understand that the Minister will look into it. We shall try to establish exactly what did and did not transpire.
Can we make it the norm that everything should be circulated to Committee members? That is normally what happens and it would avoid problems in the future. I hope that the Minister will take my comments at face value and that he will go back and double check.
As I said, I am very happy to do so; indeed, I said that I would. I have always endeavoured to conduct myself with Opposition Committee members in a courteous and proper manner when it comes to how we go about these proceedings. It seems entirely appropriate that we should disagree on the politics; however, in my previous debates with the hon. Member for Rayleigh, I have always conducted myself in that courteous manner. Indeed, when the issue arose last week—I had had no knowledge of it until the Committee started—I said not only that if we had made a mistake we would apologise, but that I would shift us from negative to affirmative procedure to clear up the matter if that could be done in consultation with the business managers.
Obviously, like the hon. Gentleman, I am annoyed—to put it mildly—at the possibility that normal past procedures have not been followed. I shall look into that.
I am happy to take your guidance, Mr. Illsley.
I turn to the schedule and the two questions raised by the hon. Gentleman. As I said, the schedule makes some minor changes to the existing legislation. The definitions of profits, financing costs and owner-occupation now work in the same way for group and single-company UK REITs. The definition of derivative contracts has been extended to make it clear that such contracts that hedge risk in relation to liabilities in the property rental business, as well as assets, are covered.
The condition prohibiting profit-linked loans has been relaxed so that companies can use ratchet loans, in which the interest rate for borrowing money reduces as profits increase. The proposed legislation also clarifies the powers of the special commissioners in respect of appeals and ensures that charities are exempt from tax on distribution from UK REITs.
I turn to the extension of the regime. The changes will make it easier for companies, particularly new listed ones, to become UK REITs. Companies will no longer need to be listed on a recognised stock exchange before they give notice to join the regime but will be able to join on the first day on which they are listed. The changes also allow companies to join the regime if they cannot meet the asset test on the first day on which they enter it. That will make it easier for newly established or newly listed companies to join, by allowing them time to acquire rental properties.
As announced at the PBR, there will be a tax charge if the company breaches the asset test on day one of entry to the regime, the detail of which is contained in the Real Estate Investment Trusts (Breach of Conditions) (Amendment) Regulations 2007. A draft copy of the regulations has been made available. Following consultation on them, we propose a further relaxation so that failure to meet the asset test at the beginning of day one of the regime will not count as a breach of conditions, as it would under current regulations. That will make the relaxation on listing more effective for potential entrants to the regime.
The final change allows extensions to the Real Estate Investment Trusts (Joint Ventures) Regulations 2006 to be effective from 1 January. A copy of the draft joint venture group regulations has been made available. The revised regulations extend the rules for single-company joint ventures to cover joint ventures carried on by groups. Again, following consultation, we propose a further relaxation to the draft regulations. That is to allow companies 60 days after the regulations come into force to give joint venture notices for accounting periods beginning on or after 1 January 2007. The relaxation will allow companies to wait until the regulations come into force before giving a joint venture notice, and will still enable them to take advantage of the retrospection offered by paragraph 14 of the schedule.
The hon. Member for Rayleigh asked whether we were minded to change the qualification rule that there should be a full listing, rather than an AIM listing, to the stock exchange. He repeated my commitment of last year to keep the matter under review, although I did not announce on Report a formal review. Since then, I have actively championed—in the UK and in other parts of the world—the benefits of the AIM regime and its lighter regulatory approach.
As the hon. Gentleman knows, we judged last year that it was important, particularly when the REITs regime was becoming established, that investors could have confidence that they would have the regulatory protection of a full stock exchange listing, especially given that we were trying to encourage retail investors to see the attractions of such collective investments. Our judgment on that matter has not changed; we have not decided to change the AIM requirement, but I am happy to say to him that I will continue to keep the matter under review. Furthermore, at the time of the pre-Budget report, we will set out in detail our thinking on the matter, following nine months’ operation of the regime. It is too early at this stage, however, to reach a judgment different from that of a year ago.
I thank the Minister for that comprehensive answer. We look forward to hearing what he comes up with in the 2007 pre-Budget report. In connection with that, I shall briefly offer him the thought that allowing REITs to list on the AIM would be a good way of boosting residential REITs, because residential property companies often have a much smaller market capitalisation, as many are not listed on the full London stock exchange. Perhaps he will bear that in mind ahead of the pre-Budget report.
I understand the hon. Gentleman’s point. A year ago, we discussed in detail our judgment that that was not the right road to go down at this stage, but I am happy to set out more fully our thinking in the light of 9 months’ operation of the REITs regime. It is too early to reach a different judgment at this stage.
The hon. Gentleman also asked about residential REITs, and I did not seek to fudge the answer. There are no residential REITs; there are 14 REITs, of which two have a residential element but are not fully residential. In the past year, we have consulted widely with the residential sector. Indeed, at the instigation of the right hon. Member for North-West Hampshire (Sir George Young), who took a particular interest in such matters, I met him following our consideration of what became the Finance Act 2006. I then met a group of experts, whom he had put in touch with Treasury officials, to discuss the issues. We have not been inactive on that score.
The nature of the residential and rental markets in the past year has complicated potential residential REITs. We said—it was debated fully—that it was more complex for residential REITs and registered social landlords to take such a step and that it was therefore no surprise to us that the lead came from the commercial sector. Proposals involving wider tax changes, which go beyond the residential REITs regime, have been put to us and we are studying them. If there are barriers to the operation of residential REITs that we can deal with, we will do so. The regime is not set in stone, but at the same time, we set out clearly our objective of a revenue-neutral shift to a REITs regime. Issues on the tax side were proposed to us which, to say the least, would have required close and careful attention before we made any decision to move forward.
It is worth noting that Lend Lease has been public about the potential for floating a residential REIT around their development in the Olympic area and we are watching that with interest. However, at this stage a residential REIT has not come forward, although after only five months it is not possible to conclude that none will do so. As I said, if we can, we will address the relevant issues and we continue to keep a close eye on developments in the residential sector.
I am heartened by my hon. Friend’s comments, particularly what he said on the wider changes being proposed to him and his colleagues in respect of residential REITs. I still have a fear, which I expressed in the Committee last year, that if residential REITs simply buy up existing property, it could lead to an increase in house prices, which are already overblown. Most people are keen that there should be much more house building in the United Kingdom and I hope that REITs will have a role to play in that respect. Paragraph 3.121 on page 69 of the Red Book refers to a
“target to raise the number of new houses being built to at least 200,000 net additions a year by 2016. Substantial progress towards this target is being made with over 180,000 net additions in the year to March 2006.”
I make two comments on that paragraph. It ties into the residential aspect of the REITs regime if we can encourage new house building, but 200,000 net additions a year in housing stock in the UK is woefully inadequate. There are approximately 150,000 divorces each year and probably almost as many partners who are not married who break up, many of whom have children, and that is likely to lead to the formation of many more households. There is also considerable migration into the United Kingdom, which has brought much benefit to the economy but put pressure on the housing stock.
The figures that have been published since the Red Book itself was published show that housing starts in the United Kingdom fell in the year to March 2007. They went below 180,000 by several thousand; we actually went in the wrong direction in that financial year. The Government must consider whether the REIT regime could be used or whether the wider tax changes referred to by my hon. Friend are needed markedly to increase the number of houses and flats—residential units, if I may put it that way—being built in the United Kingdom each year. The figure in France, which has a similar population, is 300,000 units a year and it still has markedly increasing house prices, although not to the same extent as in the United Kingdom in recent years. It causes great social pressure in our country and great distress to people who cannot afford to buy a house because supply is too limited, meaning that prices go up very considerably.
I am not a housing expert, but I believe we need to build more than 300,000 units a year and the market is not doing that. There is clear market failure in that regard, perhaps occasioned by land companies holding on to their land banks and not developing them. I urge the Treasury to consider the wider issue of what tax changes could be brought about, perhaps by means of penalties for those sitting on land banks, tax encouragement for those who wish to create new housing stock, or a combination of the two. That may or may not fit into the residential aspect of the REITs regime. In terms of the AIM issue, which might suit residential REITs better, I understand why my hon. Friend is keeping the matter under review, as REITs have been in operation only since January. The Treasury and the Government need to look at the tax regime to encourage a step change upwards in the number of housing units being built in the United Kingdom each year.
I take my hon. Friend’s comments very seriously. We had a long discussion last year about the way in which the REITs regime could contribute to our wider objectives on housing supply. I explained then that the real issue was whether we could reach a consensus in the country about building more houses, but that consensus is proving elusive.
I owe the hon. Member for Dundee, East an apology. To answer his question, the calendar year was specified so that the regulations could apply from the start of the UK REIT regime on 1 January. We will, as I said, keep the AIM issue under review in the coming months as well as any changes that are proposed or considered to encourage residential REITs.