Yahoo Finance Over-indulged housebuilding sector does not need more help
Demand is “very strong”, prices are rising and the order book is a fifth fatter than a year ago, but a chairman of a housebuilder can always find something to grumble about. John Allan of Barratt Developments frets that many lenders aren’t offering 95% loan-to-value mortgages these days.
Most observers might regard the banks’ relative restraint as sensible. After all, house prices are being pumped up in a recession – to record levels, the Nationwide tells us – by stamp duty holidays and the approach of restrictions from next spring on the Help to Buy scheme.
Allan, however, has a different take: “It is important that lenders and the government consider what further options are available to help potential first-time buyers who want to purchase their own home,” he says.
Is it really important, though? Maybe for housebuilders, who would prefer lovely trading conditions to continue indefinitely. But “further options” sounds suspiciously like the sector’s usual bleat for more subsidies.
Allan didn’t offer ideas, but elsewhere one can hear calls for the temporary stamp duty holiday on house purchases worth less than £500,000 in England and Northern Ireland to be made permanent. Or perhaps next spring’s trim for Help to Buy, which will place regional caps on eligibility, could be delayed?
On both scores, Rishi Sunak, the chancellor, would be silly to listen. The greatest chunk of the Treasury’s subsidies always sticks to the housebuilders, who really don’t need a leg-up. Yes, Barratt’s pre-tax profits in the 12 months to June fell 46% to £492m, but look at the financial ratios: operating profit margins of 14.4% and a return of capital employed of 15.6%.
Most companies in most other sectors would love those figures in good times. Barratt got them despite “unprecedented disruption” when sites were closed during lockdown. And its “cautious optimism” for the current year translates as confidence that returns will soon be back to plumper pre-lockdown levels.
The best way to help first-time buyers, one could say, would be for house prices to drift lower and for Barratt et al to accept healthy, as opposed to exceptional, margins. An over-indulged sector does not need more help.
BA bonus ‘doubly insensitive’
British Airways is “fighting for its survival”, Willie Walsh has said many times in recent months, and he clearly feels his bonus must also be saved. The chief executive of parent IAG will take the £883,000, thanks very much, because, as the company argues, it relates to 2019 and his £850,000 basic salary was lopped by 20% for pandemic times.
This defence of the bonus is laughable. The award, part of a £3.2m package, was made by the remuneration committee in March, so a matter of days before IAG cancelled shareholders’ final dividend for 2019 on account of Covid. It’s a case of one rule for investors’ discretionary income, and another for executives’.
Given the dire state of industrial relations at BA as the company seeks 12,000 redundancies, the bonus is doubly insensitive. The airline is indeed fighting a crisis, but a board’s best tactic is to lead by example. Walsh will retire immediately after next Tuesday’s annual meeting, where a few shareholders are expected to register protest votes over the bonus. It’s a shabby way to leave.
Back to work
The futility of the government’s attempt to coerce office workers back to their desks was well described by Alex Brazier, one of the Bank of England’s executive directors, on Wednesday. First, though many of us would happily return, not everyone feels safe. Second, it’s hard to make densely-used offices comply with Covid guidelines.
Ministers, one suspects, know the truth of both statements, which makes their pantomime “return to work” performances of last week so ridiculous.
Mind you, Carolyn Fairbairn, director-general of the CBI, ran them close. Having endorsed the “ghost town” warnings, she revealed on the Today programme that she’d only be going back to the office two days a week herself. Fair enough, but accept that others may choose similarly.
