Barratt Developments Urges Tax Cuts Amid Share Buyback Plan

Barratt Developments has called on the incoming Prime Minister to implement tax cuts to stimulate the housing market, announcing a £400 million share buyback program aimed at improving its share price. The FTSE 100-listed company is also urging the government to address what it describes as "increasing regulatory and tax burdens that are constraining viability" to encourage greater housing delivery, including affordable homes.

Calls for Reform

In a statement on Wednesday, Barratt Developments emphasized the need for urgent reforms to tax and red tape to combat the housing crisis, stimulate job creation, and foster economic growth. Last week, the housebuilder joined forces with Rightmove in a joint appeal for the government to abolish stamp duty for first-time buyers.

The company noted that higher construction costs have impacted housebuilders since a tentative market recovery earlier this year. Barratt Developments had previously announced plans in April to reduce its land acquisitions for the year due to a "less certain backdrop" and soaring building cost inflation, exacerbated by geopolitical events.

The group warned that renewed tensions between the US and Iran could further increase building cost inflation in the coming year due to volatility in energy prices and supply chains. The cost of building materials has risen by three percent following the outbreak of the conflict, pushing the average cost inflation for the year up to two percent.

Shareholder Returns and Market Context

Barratt Developments' shares have fallen to their lowest level in over a decade, having lost nearly 60 percent of their value in the last five years. The company stated that, given its current share price and balance sheet strength, it will return £400 million to shareholders in the next fiscal year. The majority of this, £386 million, will be distributed through share buybacks, with the remainder paid as an ordinary dividend of 1p per share.

David Thomas, chief executive of Barratt Developments, commented on the challenging market conditions, citing "macroeconomic and geopolitical uncertainty, alongside industry headwinds and subdued customer demand" that have affected market sentiment. He added that the buyback program is considered the most effective method to create long-term shareholder value under current circumstances.

The buyback initiative is partly a response to pressure from activist investors seeking to reduce the disparity between the company's share price and its net asset value. Phoenix Asset Management Partners, a shareholder holding approximately five percent of Barratt Developments, has welcomed the decision, with founder Gary Channon stating that returning capital while shares are trading below their intrinsic worth is a positive step for shareholders.

The share buyback program is set to commence immediately and conclude by the start of July 2027. In its annual trading update, Barratt Developments reported building 17,667 properties in the year ending June, meeting the upper end of its guidance and including 3,774 affordable homes. The company's order book for future projects was valued at £2.8 billion, a slight decrease from £2.9 billion a year prior. Net cash at year-end stood at £772 million, exceeding previous projections, aided by reduced land spending and deferred building safety remediation payments.

Mark Crouch, an analyst at eToro, described the update as a positive shift in tone for investors after a difficult period. He acknowledged ongoing challenges in the UK housing market, such as affordability pressures, rising build costs, and cautious buyer sentiment, but noted that Barratt Developments appears to be strengthening its operational foundation.