Home builder faces comedown from ‘crack cocaine’ of help-to-buy
London Briefing: Persimmon could run into trouble after getting rich on back of scheme
A Persimmon development in Coventry. Photograph: Darren Staples/File photo/Reuters
Dave Jenkinson, the new boss of Britain’s biggest house-builder, is a very wealthy man. Not quite as wealthy as the old boss, it’s true, but his personal take of the notorious £500 million bonus bonanza lavished on Persimmon executives last year was a cool £40 million.
The former chief executive, Jeff Fairburn, grabbed most of the headlines with his incentive scheme winnings of £110 million, later reduced to £75 million after a huge public outcry.
But Fairburn’s move to hand millions back, along with a promise to donate an unspecified amount to charity, failed to save the Persimmon chief’s job and he was ousted last autumn.
Jenkinson, who has been with the group for two decades and on the board for the past five years, stepped up to replace him as interim chief executive and has now been confirmed in the role.
So the honour of being the first British house builder to report profits of more than £1 billion fell to Jenkinson on Tuesday.
But how much honour is there in reporting results that have been vastly inflated by a flawed government scheme designed to boost home ownership but that has instead boosted builders’ profits and executive bonuses – while pushing up house prices?
The help-to-buy scheme was brought in by the UK government in 2013, with the laudable aim of getting struggling first-time buyers on to the housing ladder. It has indeed helped thousands to do so, but by far the biggest beneficiary has been the construction industry.
Under the taxpayer-funded scheme, house purchasers put down a deposit of only 5 per cent of the property’s price. The government provides a loan for a further 20 per cent (or 40 per cent in London, reflecting higher prices), with a mortgage accounting for the rest.
Persimmon embraced the scheme with enthusiasm, so much so that almost half its sales are now made through it. Its profits have more than trebled since 2012, the year the board approved the controversial bonus scheme.
It revealed on Tuesday that profit margins had risen to more than 30 per cent last year. It is not hard to see how the group has become Britain’s first £1 billion builder.
Help-to-buy has been described as the “crack cocaine” of the housing industry and addiction to it could end particularly badly for Persimmon.
Perhaps if its remuneration committee, or even the executives themselves, had exercised some restraint instead of greedily banking their bonuses, they could have got away with it. But, given the widespread anger over their payouts, it looks as though the government might be moved to take action against Britain’s most profitable builder.
According to reports from Westminster, housing secretary James Brokenshire is considering stripping the group of its right to sell help-to-buy homes. As they account for half its sales, this would be a huge loss to the group.
It’s not just the greed of the Persimmon executives that has angered the group’s many critics; it has also been accused of producing poor-quality homes and of selling houses on leasehold terms, saddling purchasers with increasingly expensive ground rents.
Help-to-buy had been due to end in 2021, but was extended to 2023 by chancellor Philip Hammond in his last budget. Contracts for the extension of the scheme come up for review shortly and Persimmon is certain to come under particularly close scrutiny.
Whatever the government decides, it will fall to Persimmon’s new boss to deal with it. But is he the right man for the job? If Persimmon really wanted to draw a line under the bonus scandal, surely it would have been more sensible to recruit someone from outside, rather than a multimillionaire incumbent?
The group said yesterday it had engaged in a detailed search process for its new boss, “both within the house-building sector and more widely” and that Jenkinson was the best candidate for the job. But how many external candidates fancied working alongside executives already vastly more wealthy than they could ever hope to be?
Jenkinson, like many of his Persimmon colleagues, never needs to work again, but we have to assume he is fully committed to the job. Interestingly, one of the first things he did last year to celebrate his big pay day was to splash out on a pub in his hometown of Morpeth in Northumberland.
He bought the property for just under £800,000 and is apparently going to rename it “The Townhouse”, although it went by the name “Shambles” when he bought it. And that just about sums up the whole help-to-buy debacle.
Fiona Walsh is business editor of theguardian.com