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, either within his company (his interim replacement, David Jenkinson, scooped a bonus of more than £40m) or his industry. 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.
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 first-time 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. The same group, by the way, routinely ducks its obligations to build affordable housing. In a case documented by the New Economics Foundation, Persimmon backed out of an agreement with Wakefield council to build 30% affordable homes on a disused hospital site, claiming it was “financially unviable” before eventually agreeing to build just 6%. (Such behaviour is endemic in the property industry, as reported by Finance Uncovered and others.)
This poor cash-strapped enterprise would be the same Persimmon that in the past four years has raked in £2.8bn in pre-tax profits.
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.
•Aditya Chakrabortty is a Guardian columnist and senior economics commentator