The perils of Persimmon and how easy monetary policy helped create excess profits

One of the main themes of my work is that  the monetary easing by central banks has boosted asset prices, but the catch is that for example rises in house prices are inflation for the first-time buyer as well as those trading up. So the theme that it is all wealth effects is untrue. But we find that the effort to pump up house prices has also involved governments and in the UK much of this has been focused on the Help To Buy scheme. There are two main problems with this of which the opening one is simply that if you give people “help” in this form it is only brief because house prices rise to the new amount that can be afforded rather quickly. This creates windfall gains for existing home owners and the companies that build the houses. It is the latter we will focus on as there is a candidate in number one position for earning what in my days as a student were called “excess profits”. So one bit of economics 101 exists even if it is only good news for the shareholders and managers of in this instance Persimmon Homes.


From Reuters earlier.

Britain’s Persimmon Plc, which is under scrutiny from the government for its practices under the “Help to Buy” scheme, on Tuesday named interim Chief Executive Officer Dave Jenkinson to the role on a permanent basis.

The company, whose former CEO Jeff Fairburn stepped down last year amid backlash surrounding his bonus package, reported a 13 percent rise in full-year pretax profit to 1.09 billion pounds ($1.43 billion)

So profits are now over a billion pounds and we can remind ourselves that at Persimmon profits were at an excess level on an individual basis as we go back to the 22nd of October last year.

The boss of house building firm Persimmon has walked off in the middle of a BBC interview after being asked about his £75m bonus.

“I’d rather not talk about that,” Jeff Fairburn said, when asked if he had regrets about last year’s payout.

The £75m, which was reduced from £100m after a public outcry, is believed to be the largest by a listed UK firm.

In this instance we can spell excess profits with one word, greed. Returning to the company itself I explained back then how the excess profits were built up.

But the real problem is that Help To Buy provided what is called in economic theory excess profits for housebuilders. We have looked before at how it helped them to make high profits on the sale of each house and it also boosted volumes in a double whammy effect.

This morning we have been provided with some numbers to that effect. From the BBC.

Almost half the homes it built (7,970 out of 16,449) sold through the Help-to-Buy scheme Average selling price of all its homes: £215,563…….Mike Amey, managing director of global investment management firm Pimco, told the BBC that profit per household at Persimmon had trebled since Help To Buy was introduced.

I think he means per house built but we get the idea. So we see that Help To Buy has allowed Persimmon to build more houses at treble the previous profit. This has led to this.

The Persimmon money machine rolls on, profits past the £1bn mark and £2.2bn returned to shareholders in the past seven years, with the promise of more – much more – to come. ( BBC)

When Help To Buy started back in April 2013 the share price was around £9 as opposed to the current £24 and of course as noted above money has also been returned to shareholders. I guess that avoids the rise in the share price becoming even higher. As the current market capitalisation is £7.6 billion according to the extra dividends have been both significant and material.

Shoddy Work

This is a section my late father would be more than happy for me to emphasise. His work as a plastering subcontractor saw him work on one estate which was built so badly it was easier in the end to knock it all down. Another was where the architect was proud of his inward sloping balconies and ignored warnings of the dangers, well until it rained anyway. So let me note that the excess profits have not been accompanied by high quality work.

Persimmon has been dogged by complaints about poor build quality among Help to Buy customers – with satisfaction rates remaining below its 4-star target of 80%. ( SkyNews )

Reuters have suggested the housing minister James Brokenshire is now on the case.

However the company – along with some others in the sector – has attracted criticism for practices such as selling houses with rising leasehold charges which make them hard or impossible to sell on, and for poor quality workmanship.

“Leasehold, build quality, their leadership seemingly not getting they’re accountable to their customers, are all points that have been raised by (the minister) privately,” the source said, echoing a report in The Times newspaper.

The issue with leasehold charges is a national disgrace. The issues concerning leasehold and freehold ownership were supposed to have been settled years and indeed decades ago. Yet the scandal goes on and nothing has been done about it.


The environment remains extremely favourable for the likes of Persimmon and it continues to receive a bit more than a helping hand from the Help To Buy scheme. This is because whilst we have seen some house price falls these are mostly around central London where prices are too high for Help To Buy anyway. We are left to observe a scheme that has enriched one group of people the shareholders and massively enriched the managers and directors. It is not as if the quality of the work has been high and in fact the reverse seems to be the case.

There is a clear issue in the way that these things have been allowed to persist as we all make mistakes but even if we give the government a free pass on the first year or two we cannot give it a free pass on the way it has allowed this to persist. I do hope that government ministers will not in the future be joining housebuilders boards of directors.

If we move to monetary policy there may be further relief for house builders if the evidence of Sir David Ramsden to Parliament earlier is any guide.

I agree with the MPC’s collective view
that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could
be in either direction.

Also Governor Mark Carney points out this.

Although the principles guiding the MPC’s choice of threshold still hold, the creation of the
Term Funding Scheme had reduced the effective lower bound on Bank Rate from ½% to 0%.

Also the Governor has got himself into something of a mess with this statement.

The MPC now views that the level from which Bank Rate can be cut materially is now
around 1½%.

So the cut from 0.5% to 0.25% was not “material”? Odd because I recall him claiming that it has saved around 250,000 jobs……


21 thoughts on “The perils of Persimmon and how easy monetary policy helped create excess profits

  1. For me this article provides more than enough evidence to reform taxes around Land Value Tax and a Windfall Profit Tax. It was Milton Friedman who decreed that companies had only a duty towards maximising shareholder profits, or as we call it today, crony capitalism. That statement was not an epoch defining slogan for capitalism it was it’s epitaph.

    I wouldn’t mind but as you observe Shaun it doesn’t work as a model. It does nothing to solve the problems of affordability or the chronic lack of social housing and brings a whole new meaning to the words ‘jerry built’. As it helps a certain demographic (at least in the short term) I expect no government action.

    Slow, slow, quick, quick, quick,
    It’s wall to wall and brick to brick,
    They work so fast it makes you sick,
    It’s build.

    • ‘jerry built’

      Frankly as a purchaser of a new house back in the early nineties ( never again) I think you have
      promoted British House builders above their normal standard ….

      there really should be much tighter consumer controls on the standards of build quality to remove endemic shoddyness

      me: I have a list of at least ten different faults and problems with the state of this so called new home

      forman: so? if you don’t want it we have 10 others waiting , and the price has gone up £5000 since you put your deposit down two weeks ago…

      competition in the housing market , yah , my elbow !


      • Now that rings true, I had a couple of friends buy a house built on flood plains and guess what? It first subsided then flooded. I swallowed my tongue, teeth and both lungs to avoid saying I told you so.

  2. HTB was brought in just after Funding for Lending, sothey worked hand in hand.

    It is blatant corruption and was intended to help the Gidiot and Cameron the 2015 election.

    These people along with Hammond and Carney should be put up against a wall and shot, they are treasonous filth.

    Sad thing is even Labour want to continue it until 2027 so it looks as if its hear to stay. Well until the UK economy implodes because of it.

    • ” should be put up against a wall and shot.”

      And don’t forget to send the bill for the bullet to the family , like one of our “democratic” trading partners do … 🙂


  3. Great article as always Shaun.

    Arthur has beaten me to the punch with Labour supporting the scheme until 2027. So where is the opposition party to this? There is none as 1/3 of mp’s have BTL portfolios and most have 2nd homes.

    LVT @ 0.5% instead of council tax. Rising for shell company/foreign owners and empty properties. All offset against inheritance (to help out those old pensioners living in£1m flats). Labour have flirted with the idea, but it would be political suicide..

    • I’m hoping Steve Baker and JRM who when they get promoted upon Hammonds departure will end this corruption.

      Noticed the TIGS havent spoken out against it today.

      Now apologies for making it political but this policy is pure politics.

  4. Loving Sir Ramsden’s quote, agrreing that the bank might or might not act and if it did act, it might tighten or it might loosen policy. I think we can all get behind that suggestion.

    As for HTB, what is the Gov’t for? Gordon would have levied a one-off tax; how I miss his gentle touch.

    • Hi DoubtingDick

      The idea that the Bank of England might raise interest-rates only really raises a laugh. They would have to be really forced to and we know that even with the post EU Leave vote fall in the UK £ they in fact cut them. I wonder who they think they are fooling?

      I guess a one-off tax on the likes of Persimmon would come with a strong hint that the HTB policy was a mistake. So it has been steered clear off at all costs.

  5. Hi Shaun

    Persimmon is the poster boy for the spiv economy.

    Any company that pays its CEO (an employee and not a founder of the firm) £110 million on the basis that that is the result of free enterprise whilst at the same time benefiting hugely from flawed, public largesse deserves a great deal more than “red carding” by the government; it deserves oblivion.

    It typifies what we’ve become: rent seeking; shoddy; venal; notionally private but living off the public and utterly hypocritical.

    On a public board like this one is constrained.

  6. Yet another ill conceived policy that has done the opposite to what it was designed for. When will these politicians and bureaucrat stop meddling in peoples lives and damage the people they say they are trying to help?
    I wonder if Persimmon and other house builders advise the government on this scheme, before it was introduced?

    • “When will these politicians and bureaucrat stop meddling in peoples lives and damage the people they say they are trying to help?”

      indeed , who did they help ?

      that will tell you why this sort of thing will not end…..


  7. It is difficult to think of any intervention in the housing market by government over the last sixty years that has not produced exactly the opposite result to the stated aim. Nor is that confined to the housing market. I have long thought that ministerial desks should engraved with a warning that the likely result of a given action will be the opposite of that which was intended.

    • They think they are superior and have all the answers – they don’t. One failed initiative after another, can anyone think of one that really worked? In Health, Education, Law and Order, Defence, Social Security, Transport etc. etc.

      • They’ve worked to make the ruling class and their corporate sponsors immensely richer in a relatively short period of time.

        As someone who used to live in Thailand i prefer their kind of corruption as its far more honest, in that they dont claim to be helping you whilst robbing you blind.

  8. Hello Shaun

    Persimmon needs help ….. was their fist name Penelope ?

    Obviously the Hooded Claw is the free market ……….


    • Hi Forbin

      From my knowledge of Wacky Races I would have expected Peter Perfect to have been her protector although later on Frankie Goes To Hollywood were on the case.

      “I’ll protect you from the hooded claw
      Keep the vampires from your door
      When the chips are down
      I’ll be around with my undying
      Death defying love for you
      Envy will hurt itself
      Let yourself be beautiful”

      Cheers for the reminder of the Ant Hill Mob although it was always the tank for me.

  9. There’s an elegant solution to everything out there.
    Beginners guide to new British squatters movement:
    1. Buy a brownfield site in a £1 dummy corporation (the land taxes are so stifling the suits are desparate to unload the responsibility).
    2. Set up you’re traveler’s camp.
    3. Never make any payments or taxes.
    4. You will be hauled into courts and fined continously. Don’t bother to show up. You will never be foreclosed on because they don’t want the environmental liability on their plate.
    5. The suits will go along with it because they got stiffed and weren’t informed of the legacy contamination.
    6. Learn to lie and weasel dance and get the press on your side.
    7. Repeat steps 1-6 when it’s time to move on.
    Back to siesta with the cat. My work is done here.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.