Should we tax housebuilders more heavily than other companies?

published 18 December 2017

171218-housebuilders-b — Much of housebuilders' success is the result of state policy.

I've never been a fan of windfall taxes, but I am feeling a bit more of one this week.

We have written in the magazine frequently about how much we hate the government's Help to Buy scheme because of the way it exacerbates the original problem high house prices. It's A bad fiscal policy piled on a bad monetary policy.

More recently, we have raged about the effect of this on the housebuilders: for years they have been making verging on obscene amounts of money out of exploiting the scheme. They have also been paying much of that money out to their executives, thanks to badly constructed compensation schemes.

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You can try and explain or justify this as much as you like but the truth is that one of the worst effects of Help to Buy has been a whopping transfer of wealth from the taxpayer to the top men at house building firms. There is evidence aplenty of this .

Look to the news this weekend that the chairman of one of the UK's biggest building firms, Persimmon, has resigned over his role in creating one of the most repulsive bonus schemes of all time, one which is set to pay its top three executives £200m and another 137 managers around another £600m. None of these people started the business. None of them risked their own capital.

Half of Persimmon sales are backed by Help to Buy. When Help to Buy was launched, Persimmon's market capitalisation was £2.5bn; now it is over £8bn.

There's a lot to say here about bonus structures and executive pay (see many blogposts past). But there is something else to say about companies whose success is the result of state policy. If the government has been the main driver behind a firm's profits, is the Treasury perhaps entitled to more than the standard rate of tax on those profits?

Or, to look at it from another direction, does the firm in question have a higher level of social obligation than other companies in this case, perhaps, to be obliged to build more social housing than usual or, given the dismal quality of UK new-build housing, to just build better housing than usual?

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.