Government homes in on £5bn cladding settlement with housebuilders

Business

Michael Gove, the levelling up secretary, is closing in on a multibillion pound deal with Britain’s biggest housebuilders to help resolve the national cladding crisis exposed by the 2017 Grenfell Tower disaster.

Sky News has learnt that major companies including Barratt Developments and Persimmon are preparing for the imminent signing of a legally binding contract with the government that could ultimately cost the industry £5bn or more.

One executive said they expected the final contract to be signed and unveiled as soon as next week, although they cautioned that the timing remained fluid.

Last year, dozens of developers signed a pledge to fix buildings constructed since the early 1990s, with revisions to the deal with government in recent weeks having focused on the scope of companies’ exposure.

The City watchdog is thought to have been involved in discussions with the industry about whether signing the contract would require the approval of shareholders in listed companies such as Barratt, Persimmon and Taylor Wimpey.

Sources have estimated the cost of the new Residential Property Developers Tax at up to £3bn and the bill for self-remediation at around £2bn.

A further tax on the industry could raise £3bn, industry executives have concluded, leading some companies and investors to warn that the sector risks seeing a flight of capital.

More on Grenfell Tower

Earlier this month, the Department for Levelling Up, Housing and Communities said it was “finalising the legally binding contracts that developers will sign to fix their unsafe buildings, and expect them to do so very soon.

“We will not accept any backsliding on their commitments.

“It is building owners’ legal responsibility to make sure that all buildings are safe.”

Albert House, Woolwich, London, which has cladding that since the Grenfell disaster has been deemed un-safe
Image:
Many buildings across the UK have been deemed to have unsafe cladding since the Grenfell Tower disaster in 2017

FTSE-100 housebuilders have already taken significant financial provisions in their accounts to prepare for the signing of the final government contract.

Some have flagged during recent earnings calls with analysts that they expected an imminent settlement.

“In signing the pledge, we’re saying that we essentially had a commitment that we wanted to sign up to the legal agreement,” David Thomas, Barratt’s chief executive, told analysts this month.

” There’s been a process of discussion regarding the legal agreement that has been ongoing since June last year, so we think we’re getting close to the government publishing the legal agreement, and we would expect in due course that we would sign up to that.”

Read more:
Grenfell inquiry finds shoddy workmanship and unsafe cladding

Homebuilders pledge to pay £5bn towards fire safety costs

Hanan says she still thinks of the tower as home
Image:
The cladding on Grenfell Tower was found to have caused the fire to spread so quickly

A spokesman for the Home Builders Federation (HBF) said: “The pledge [signed last year] demonstrated the industry’s commitment to play its part in ensuring leaseholders don’t pay for work needed to make buildings safe.

“We have been working constructively with government to ensure the detailed contract reflects the commitments of the pledge and we await a final version.

“UK housebuilders are taking responsibility and are well progressed with remediating their own buildings and are already paying another £3bn to fund work on buildings built by foreign companies and others.

“Government now needs to deliver on commitments to secure contributions from foreign builders and the material providers at the heart of this issue and avoid targeting UK housebuilders further for buildings built by others”.

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