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Persimmon and Barratt move to slash costs

Barratt is telling subcontractors it will be demanding savings on how much money it will pay them in the future.

The news is the latest attempt by a top three house builder to put the squeeze on costs as the house building market plunges further into the doldrums.

It comes just days after Persimmon told its 5,500 staff that it is cutting several hundred jobs. This is because of the problems which have seen the York-based firm already call a halt to starting work on scheduled new sites until the mortgage market had improved.

The third member of the triumvirate, Taylor Wimpey, said last month that it will be axing 600 jobs from the business which employs nearly 5,000 in the UK.

Barratt is due to issue a trading update to the City on 11 July before it unveils its year end figures - which finish on 30 June - in September.

But the firm has warned subbies that they can expect to see workloads drop off and bills squeezed. A spokesman said: “We have more subcontractors than there is work to do. We will be looking at things on a division-by-division basis in accordance with market conditions.”

He added: “Management at Barratt is committed to keeping a very tight rein on its cost base.

Suppliers are the biggest part of our cost and we will be looking at how much we pay subcontractors.”
The move echoes the one made at the start of the year by Taylor Wimpey when it asked subcontractors to knock five per cent off previously submitted bills.

Barratt has not mentioned redundancies among its 6,500 staff, which is the prospect now being faced by at least three per cent of Persimmon staff.

The £3 billion turnover company has begun a 30-day consultation process, with staff bracing themselves for the first redundancy notices at the end of the month. A spokesman declined to comment on reports that all staff have been put on notice.

He said: “The consultation is across all the different regions and the expectation is that there will be several hundred cuts as a result.”

Persimmon is divided into three divisions - northern, central and southern - and has just over 30 operating companies stretching from offices at Bathgate and Hamilton in Scotland down to Fleet in Hampshire.

The spokesman said the firm would not be getting rid of any regional offices but that the cuts would come from across all the regions.

He added: “The intention is to reduce the workforce in the light of the challenging market conditions and the reduced demand caused by people’s inability to get access to mortgages.”

This week lender Bradford & Bingley was forced to turn to US private equity business Texas Pacific to shore up its finances after recording an £8 million pre-tax loss in the first four months of this year.

How the big three are faring

Barratt is traditionally the last of the big three house builders to report its annual results – its year end is June rather than December – and these are due out on 24 September.

Like its peers Persimmon and Taylor Wimpey, the company has already given a downbeat assessment of the market and chief executive Mark Clare has previously said he is not planning on a recovery of the market this year. And he recently added: “In the next financial year we will continue to tough it out.”

Taylor Wimpey has already said that market conditions in the UK have weakened further in 2008 and has told shareholders to expect full-year results “at the lower end of our expectations”.

But Persimmon’s AGM statement a week later on 24 April sent confidence in the sector to a new low when it said it would not be developing new sites because of problems with buyers getting mortgages.

The statement finished: “At some stage, in our view, the housing market will improve given the underlying requirement for more housing.”