Stop lin­ing house­builders’ pock­ets and tax them

The Guardian - Journal - - Front page - Aditya Chakrabortty,

When his­to­ri­ans seek to un­der­stand just how bla­tantly warped Bri­tish cap­i­tal­ism be­came in the early 21st cen­tury, they will turn to a re­cent edi­tion of BBC Look North and a man called Jeff. Per­haps you know the in­ter­view, for it has al­ready been fed to the so­cial-me­dia beast and pro­vided countless laughs. In it, Jeff Fair­burn, the boss of giant house­builder Per­sim­mon, is chat­ting away about bricks when the re­porter po­litely asks about the “furore” over his £75m bonus. Amaz­ingly Fair­burn and his press ad­viser have no an­swer, even though, as the in­ter­viewer points out, it was the big­gest bonus in the coun­try. Fi­nally Fair­burn lum­bers off, mut­ter­ing: “It’s re­ally un­for­tu­nate you’ve done that.”

Un­for­tu­nate, that is, for Fair­burn, who was asked this week by Per­sim­mon to go. As com­pen­sa­tion, he keeps the bonus and, by way of com­par­i­son, that one pay­out to a sin­gle in­di­vid­ual far ex­ceeds all the money re­ceived by the hous­ing char­ity Shel­ter in the last fi­nan­cial year.

For politi­cians and the press, Fair­burn’s fall is a moral­ity tale: a story of jaw-drop­ping greed unchecked by a supine board of di­rec­tors, who couldn’t even plumb in a proper in­cen­tive scheme. This is both true and be­side the point. As a col­lec­tor of big bo­nan­zas, Fair­burn is hardly alone. But the larger is­sue is that much of the money pock­eted by the house­build­ing bosses comes from you and me and ev­ery­one else who pays taxes.

This is no worka­day busi­ness scan­dal: it is loot­ing of the pub­lic purse. And it has been car­ried out with the en­cour­age­ment of Ge­orge Os­borne and his suc­ces­sor as chan­cel­lor, Philip Ham­mond.

In 2013, the year af­ter Fair­burn’s com­pany ap­proved his bonus scheme, Os­borne was un­der pres­sure. Per­haps you re­mem­ber: his cuts pro­gramme had failed to work its promised magic, the year be­fore had brought the “om­nisham­bles” bud­get and it was spec­u­lated that he would soon be out of No 11.

At which point Os­borne played his get-out-of-jail card: he chucked money at the Bri­tish hous­ing mar­ket. He launched the help-to-buy scheme, billed as aid to first­time buy­ers, giv­ing them govern­ment eq­uity loans of up to 20% of the pur­chase price of any new-build. The likely con­se­quences were ob­vi­ous from the out­set. Os­borne’s plan would chuck a can­is­ter of petrol on to house prices. The chan­cel­lor who slashed bil­lions from so­cial se­cu­rity for the work­ing poor had no prob­lem what­so­ever with hand­ing bil­lions to prop­erty de­vel­op­ers.

It was cyn­i­cal, it was costly; it was Os­borne all over. And for the prop­erty sec­tor – the mort­gage lenders, the es­tate agents and most of all the house­builders – it was what in­dus­try ex­pert Henry Pryor calls “crack co­caine”. It kept the mar­ket bub­bling over, un­der­pinned prices and brought in mas­sive prof­its. And like the ad­dicts of cliche, the prop­erty in­dus­try kept de­mand­ing more. House­builders have re­peat­edly lob­bied for the scheme to be ex­tended and ex­panded. Again and again, Os­borne and Ham­mond have obliged. What be­gan as a three-year pro­gramme worth £3.5bn will now run un­til 2023 and suck in more than £29bn of tax­payer money.

In Aus­ter­ity Bri­tain, this may be the sin­gle big­gest give­away to one small group of busi­ness­peo­ple – and it gets barely any at­ten­tion. The scheme may have helped some first-time buy­ers on to the lad­der, but by in­flat­ing prices, it has kept many oth­ers off. Add to it quan­ti­ta­tive eas­ing and the ero­sion of stamp duty, and the Bri­tish state has looked af­ter house­builders like no other.

What it cer­tainly has done is help Fair­burn and his com­pany, as a look at its lat­est an­nual re­port con­firms. Strip out Per­sim­mon’s com­par­a­tively small ex­ec­u­tive homes busi­ness, and two out of ev­ery three pri­vate houses it sold last year were bought with the as­sis­tance of the Tories’ help to buy. With­out that money from you and me, Per­sim­mon would sim­ply not have made that many sales, nor made that much profit – and its out­go­ing boss prob­a­bly wouldn’t have got such a large bonus.

To his credit, Fair­burn ac­knowl­edges the link. De­fend­ing his pay­out to the Fi­nan­cial Times at the start of the year, he said: “It’s sup­ply and de­mand, and the de­mand has been cre­ated through the help-to-buy scheme. Govern­ment has stim­u­lated de­mand, and we – par­tic­u­larly at Per­sim­mon – are look­ing to meet that de­mand.” His ri­val, Steve Mor­gan of house­builder Redrow, put it more sim­ply. Help to buy, he said, had been a “god­send”. That would be the same Steve Mor­gan who also re­cently took a £22m div­i­dend from the com­pany.

In­clud­ing Per­sim­mon, the five big­gest Bri­tish house­builders to­gether paid out £4.4bn in div­i­dends to share­hold­ers be­tween 2014 (the first full year of help to buy) and 2017, ac­cord­ing to cal­cu­la­tions by the stock­bro­ker Red­mayne Bent­ley.

This isn’t a busi­ness model: it is in­dus­tri­alised lar­ceny, and it has been fa­cil­i­tated by the prop­erty de­vel­op­ers’ friends in govern­ment. The ques­tion is what we do about it. The ul­ti­mate an­swer must be some form of land value tax but, as a pre­lim­i­nary step, we should halt help to buy and levy a wind­fall tax on the house­builders, linked to the sup­port they have en­joyed from the scheme. That idea comes from for­mer City min­is­ter Paul Myn­ers, who points out that Mar­garet Thatcher and Tony Blair both tar­geted one-off levies on bank­ing and util­i­ties. A wind­fall tax now would al­low us to re­claim money that is rightly ours and draw a line un­der a sec­tor that has got too fat on un­earned in­come.

PHO­TO­GRAPH: NEIL HALL/REUTERS

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