If the major banks – rather than housebuilders – were the chief beneficiaries of the government’s help-to-buy scheme, the financial regulator would probably list it as a scam. Ministers would be up in arms and bankers would again be the pariahs they were in 2008.
Help to buy is a government scheme that supports the purchase of a newbuild home. It was launched in 2013 and given a reboot last year that will now allow it to run until 2023.
The brainchild of the former chancellor George Osborne, it has proved to be, according to its supporters, a lifeline for an important element of British infrastructure – namely private housebuilding. Without the rescue scheme, which commits the state to stumping up 20% of a home’s purchase price up to a limit of £600,000 (and, with the same cap in place, 40% of the price in London), the industry would have found itself on its knees, the argument goes. Instead, private housebuilding recovered and an industry that was building barely 100,000 units a year in 2013 pushed that output to 180,000 by 2017.
It is no coincidence that the nine biggest housebuilders listed on the London Stock Exchange declared dividends worth £2.3bn in their last full financial year – up from just £57.7m in 2013.
And shareholders are not the only winners: the bosses have received huge windfalls as well. Persimmon’s former boss Jeff Fairburn might have accepted a cut last year in his £110m bonus to £75m following a public outcry, but the sum of money he went home with still ranks as one of the largest payouts in corporate history. His deputy, Dave Jenkinson, who has since taken over the helm, was paid £40m. This is money that was generated using a state subsidy which was helpfully coordinated by the Bank of England and facilitated by the commercial banking sector.
Builders are quick to spot a moneymaking wheeze and they jacked up the price of homes sold through help to buy by between 5% and 10%. A look at Persimmon’s results shows that about half of all its sales were under help to buy.
That amounts to an abuse, and the builders’ windfall profits – Persimmon made more than £1bn, equal to £66,000 on each of its £215,000 homes (average price) – should be taxed as such.
In the mid-1990s, Gordon Brown, then the shadow chancellor, began making plans to tax the privatised utilities, which he argued had made extraordinary profits at consumers’ expense. In his 1997 budget, a windfall tax raised £2.1bn from the electricity sector, about £1.6bn from the water companies and another £1.45bn from the remaining companies. About £5bn in all.
Labour now could justifiably make the same argument about the housebuilders.
The next government should also pull the plug on the scheme, which is adding to the cost of buying a home for first-time buyers and putting the government on the hook for £10bn of loans.
Eight in every 10 of help-to-buy scheme users are first-time buyers and there are now more of them than there have been in 12 years. Not only must they pay a higher mortgage interest rate to cover the “risk” taken on by the Treasury, they must pay back the same proportion of the property the loan covers when they sell. This means that someone who borrowed £40,000 under help to buy to purchase a £200,000 home must pay back £80,000 if the property has doubled in value to £400,000.
That might seem fair – but it denies the owner equity when there are other transaction taxes to pay, and makes the next home unaffordable.
Ocado deal could pay off for M&S
There’s an old City rule: when a chief executive rolls out the word “transformational”, investors should head for the hills.
They did at Marks & Spencer last week, where its boss, Steve Rowe, unveiled the tie-up with Ocado with a blast of the dreaded hyperbole. The new arrangement, which will see Waitrose booted off the Ocado platform, wasn’t merely “a transformational step forward in shaping the future of M&S”, he said. The new combination would also “transform UK online grocery shopping”.
M&S’s shares promptly fell sharply, for understandable reasons. Before the new 50/50 venture even launches next year, M&S shareholders will have to digest a £600m rights issue and a 40% dividend cut.
Yet there was a better, and less inflated, way to pitch this adventure. It’s an interesting punt. M&S, previously in danger of snoozing its way into retailing irrelevance, needs to make a few bets of this type. And the downside is limited.
Nobody could say M&S is getting a bargain, of course. The retailer is paying up to £750m for a 50% share of an Ocado UK business making top-line profits of £34m – a princely 44 times earnings. But the terms are less severe than they look because of two important details. First, £187m of the top figure is only payable if the venture hits financial targets. Second, M&S reckons it can scoop £70m of savings for itself via sourcing efficiencies in its food business.
Some Waitrose-obsessed Ocado customers will inevitably disappear, but M&S will try to replace them with a few of its 7 million Sparks loyalty-card members. Unlike the Waitrose arrangement, which was a supply deal, Ocado and M&S will be running a proper joint venture with shared data and suchlike.
Let’s not call it transformational – well, not yet. But it’s a long overdue sign of imagination at M&S. More is needed.
Oscars are costly for Netflix
If it was a shock that Alfonso Cuarón’s drama Roma failed to win the best picture Oscar last week, it was not just because of the film’s undoubted quality compared with that of the maligned winner, Green Book. It was also because the streaming giant Netflix spent a reported $30m (£23m) on the Oscar-marketing campaign for the film – double the movie’s budget.
Revelations of the spin expenditure prompted dismay, largely due to the fact that it underlined that Oscars can be bought as much as they can be won (even if, admittedly, Roma’s campaign was not as successful as it might have been).
But there was also a disquieting subtext for investors: profligacy. Netflix is spending towering sums of money on content, including $8bn this year alone, and the failed best picture tilt is another example of the company frittering away millions in its pursuit of subscriber growth. In the hazy logic of Hollywood economics, spending $15m on chasing a gold statuette, putting a $90m budget behind a Will Smith film about orcs (Bright) or giving Baz Luhrmann a rumoured $200m to make a flop series about the 70s (The Get Down) are risks worth taking.
The end result is an unrivalled 140 million subscribers worldwide – and long-term liabilities of more than $30bn. Netflix, and its shareholders, are assuming that such expenditure is a necessary cost of business in the pursuit of customers – especially when its nearest streaming competitor, Amazon Prime, is miles behind with a mere 75 million subscribers.
There is a cost for viewers, though. Netflix is raising the subscription cost of its standard plan in the US from $10.99 to $12.99 a month, and while those increases could stick for now – and they have to, given the scale of Netflix’s liabilities – Disney and Apple are going to make it more difficult when their streaming services get under way.
So there is no guarantee that Netflix will be in the running for Oscar ceremonies to come.