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Chris Huhne (Eastleigh) (LD): There is a problem with both the amendment and the clause, and I should like to give the Economic Secretary an opportunity to address it. The Treasury's long-standing position is that there should be tax neutrality between different investment vehicles. The provisions apply only to OEICs and authorised unit trusts. I mentioned on Second Reading that they do not apply to the main competition to those vehicles, namely closed-end funds or investment trusts. One result will be to widen further the tax advantages enjoyed by OEICs and AUTs compared with ITCs, particularly when investing in bonds. I should like the Economic Secretary to take this opportunity to explain why the Treasury has not addressed that issue in making these changes. Perhaps it is due to the lack of consideration that the hon. Member for Cities of London and Westminster has just described.
6.45 pm
Mr. Lewis: The hon. Member for Cities of London and Westminster asked: why now? Why are we rewriting the regime in this Finance Bill? It is important that we do because we must respond to recent regulatory changes for authorised investment funds. In the circumstances, it makes sense to rationalise the existing regime at the same time.
The Financial Services Authority updated the rules governing authorised investment funds in April 2004. In subsequent consultations to ensure that tax does not hinder the wider investment strategies now permitted by the FSA, a number of respondents mentioned the difficulties of dealing with two separate bodies of legislation—one in primary and the other in secondary legislation. In response to those concerns, the details of the rules applicable to both AUTs and OEICs will in future be in regulations. That will also allow a quicker and easier response to any future changes introduced by the regulator.
It is important not to go over old ground in the REIT debate. We had a long debate on the Floor of the House about REITs. We made clear our intention, if we are able to resolve the technical problems, to introduce proposals in the Finance Bill of 2006. It would be entirely wrong to bring forward now proposals on REITs that we were not happy with and that might lead to an unsatisfactory outcome. We are actively working with stakeholders and specialists to ensure that the proposals that we make on REITs are appropriate. If we introduced measures that ended in unintended and undesirable consequences, we would be subjecting ourselves to considerable and justified criticism.
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I accept that it is important that we get the REIT issues resolved, but it is also important that we recognise that serious outstanding obstacles have to be tacked. That is accepted by the experts in the field.
Mr. Richard Spring (West Suffolk) (Con): The Minister should examine the experience of other countries. The huge obstacles that Ministers keep referring to have been dealt with by other countries, including other European Union countries and others. Business is being lost to this country. Here we are dealing with legislation to prevent the Exchequer losing money through avoidance, which is one thing, but a problem has been created through delay, which is impossible to understand. As has been publicly stated, business has been taken abroad, because of the Government's unwillingness or incapability to act.
Mr. Lewis: It is extraordinary to hear the hon. Gentleman referring to the EU and other EU countries as though we should follow their model. That has not been the position of the Conservative party on any issue that I can recall.
It is important that we get the reforms to the REIT regime right and that they are consistent with our objectives, which are that the reform must be at no overall cost to the Exchequer and that we continue to collect a fair share of tax from the property sector. We cannot apologise for those objectives. They are entirely proper. I accept the importance of making progress, but we must ensure that we get the provisions right.
The hon. Member for Eastleigh (Chris Huhne) asked specifically why the reforms are not being extended at this time to investment trust companies; I think that that was the specific example he gave. He will acknowledge that they are not authorised investment funds and, although they offer an alternative to investors wishing to obtain a wider exposure to the market than just investing in a single share, they are not regulated by the FSA for consumer protection or for eligible investment strategies, as retail collective investment schemes are. The difference between investment trust companies and authorised investment funds therefore consists of more than just the ability to make an interest distribution. Wider issues need to be considered before contemplating any change to the tax rules concerning distributions to investors.
We have put out a consultation document relatively recently on the way that investment trust companies are regulated. We want to study the results of that consultation carefully before we make any final decisions. The Chancellor made it clear in the last Budget that the Government recognise the potential benefits of simplifying and modernising the taxation of pooled investment; that includes investment trust companies. We continue to invite views on whether radical reform, similar to what is happening in relation to pensions, is viable.
Chris Huhne: The Minister seems to be getting into a byway that is not relevant to the Finance Bill. The issue is not whether investment trust companies are regulated in the same way as authorised investment funds, but whether, as an alternative to those funds, they benefit from tax neutrality. I invite the Minister to
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state whether he regards it as sensible to apply to those competing vehicles the principle that there should be tax neutrality as between investment in an investment trust and investment in an authorised investment fund. Will he make a commitment to bring forward proposals, if not this year, then in a future Finance Bill, to put those alternative investment vehicles on a level playing field?
Mr. Ivan Lewis: I have made it clear that there are reforms that we want to make at an appropriate time, but they must be consistent with the objectives that we have set out. We do not feel that it would be right at this stage, when we have just begun a consultation process, to include relevant proposals in the Bill. However, if, as a consequence of the consultation and of studying the implications of measures in the Bill, it becomes apparent that it would be right, in order to achieve a level playing field, to legislate in that context, of course we would take a sympathetic view. However, we need to be persuaded that that is appropriate.
Mr. Field: The Economic Secretary has referred several times to the consultation process. Has he any idea how long it is likely to continue and when it is likely to end? As my hon. Friend the Member for West Suffolk (Mr. Spring) has pointed out, much of our business is floating out of the door, away from the UK. It is therefore all the more urgent that we make progress.
Mr. Lewis: I simply do not accept that there is empirical evidence for the suggestion that investment is flowing out of the country. The consultation that I referred to has recently concluded. We are now analysing the responses. Having done that we shall consider the appropriate reforms. We shall do that in the next few months, and if appropriate—if, having discussed the matter with the relevant stakeholders, we come to a sensible conclusion that is consistent with our objectives—I imagine that we shall consider including in the next Finance Bill appropriate clauses to answer the concerns of hon. Members. With that, I hope that the Opposition will withdraw the amendment.
Rob Marris: Perhaps I have misunderstood the amendment. I am not a financial expert, but, as I understand matters, authorised unit trusts currently pay tax in the lower band for income tax, which is 20 per cent. Open-ended investment companies, as companies, would pay corporation tax at 30 per cent., but under the legislation they will in fact be paying it at 20 per cent. Amendment No. 13 says that if such
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companies were property funds, the rate of tax could be nil—not only for this tax year, but potentially for ever. That strikes me as absolutely extraordinary. Open-ended investment companies get a tax break from 30 per cent. down to 20 per cent., but if they invest mainly in property, the hon. Member for Cities of London and Westminster—perhaps because of his surname—wants to make it nil. I urge Committee members to vote against the amendment.
Mr. Field: It is rather ironic that the Conservative Member of Parliament with the most urban seat should have the most rural surname. If the good burghers of Wolverhampton, South-West ever regain their senses at a future general election, the hon. Member for Wolverhampton, South-West will have a sure-fire employment opportunity as a drafter of explanatory notes, if nothing else.
Mr. David Ruffley (Bury St. Edmunds) (Con): And nothing else.
Mr. Field: The explanatory notes are good anyway; we cannot complain too much. I will be happy to withdraw the amendment, although there is some concern that there is a complacency, which I know has been debated at length on the Floor of the House.
Mr. Newmark: Does my hon. Friend not agree with John Gellatly of Merrill Lynch Investment Managers? He is quoted on the company's website as saying that there is now more than £3 billion of listed property trusts in Guernsey. Is that not potentially a loss of revenue to the UK Exchequer?
Mr. Field: I entirely endorse the gospel according to Mr. Gellatly of Merrill Lynch.
There is scope, although obviously not now, for a much wider debate about property taxes. I hope that we will have a chance to have it during our consideration of this Bill because there are grave concerns that we run the risk of disadvantaging much of the UK if we move ahead with the Europeanisation of our property taxes, although that may well be a desire of the Exchequer. However, three minutes to 7 this evening is not the time for that debate. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 ordered to stand part of the Bill.
Clauses 17 and 19 to 23 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. Watson.]
Adjourned accordingly at Seven o'clock till Thursday 23 June at fifteen minutes past Nine o'clock.
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