Michael Gove has threatened to block major housing developers from securing planning permission if they fail to come up with a £4bn compensation scheme for victims of the cladding crisis.

In a call with industry executives, the Levelling Up Secretary said that companies must recompense hundreds of thousands of people living in buildings between 11 metres and 18 metres in height or face severe action.

Options for punishment include using government powers to “call in” and block all proposed new estates, as well as banning refuseniks from competing for government contracts and buying land from the state.

Developers reacted to the warning with fury. One executive called the meeting “shambolic” and another described the policy as “Marxist”.

He added: “He didn’t threaten to kill my children, but everything else was on the table. You wouldn’t expect Shell to pick up the costs of a BP oil spill.

“We don’t have any problem at all with cleaning up our own mess, and we’re paying the additional tax on top of that, but this is yet another ask.”

Mr Gove has vowed to tackle the cladding crisis, in which 274,000 properties were found to have unsafe building materials after the Grenfell fire.

An initial £5bn fund set up in 2020 allows people who live in properties more than 18 metres high  to get a grant to remove cladding. This is partially funded by a tax on the industry.

However, people living in buildings between 11 metres and 18 metres in height have until now been forced to take out a low-interest loan that will typically put them tens of thousands of pounds in debt. 

Mr Gove is proposing that the industry should be forced to pay for cladding to be removed from these properties instead, and has demanded that it comes up with a solution by early March.

According to government analysis quoted at the meeting on Thursday, the top seven developers made £16bn in profit in the last four years.