Michael Gove has threatened to lock major housing developers out of the Help to Buy scheme or hit them with a fresh tax raid unless they come up with a compensation scheme for victims of the cladding scandal.

Housebuilders were scrambling to respond on Monday after Mr Gove, the Levelling Up Secretary, instructed them to shoulder more responsibility for building safety problems.

He singled out the country’s seven biggest housebuilders in a radio interview, pointing to the “billions of pounds of profits” they had made, and added: “The polluter must pay.”

The remarks sparked fury in the industry, with one insider accusing the Government of using property companies “like a cash machine”.

The National Federation of Builders suggested MPs’ salaries should be cut because their legislation allowed flammable material to be used in the first place.

More than one million leaseholders have been left with flats that are effectively unsaleable after cladding on their buildings was deemed unsafe in the wake of the Grenfell fire, when 71 people lost their lives.

Families in many of these buildings have been left unable to move and facing bills of many thousands of pounds to repair the problem.

Mr Gove is now seeking to make the industry pay instead and has given companies until March to come forward with plans to fund “all necessary” work to make safe the apartment blocks they were involved in, at an additional cost of at least £4bn. 

He suggested developers could also be forced to pay for internal fire defects, saying that while  removing dangerous cladding was “the first and most urgent issue”, there were other “fire safety issues” that he intended to address with building owners and the firms who built them. 

In meetings with campaigners and a letter sent to residential property developers, Mr Gove warned that developers who failed to come up with a response faced higher taxes or potentially being struck from the taxpayer-backed Help to Buy new-build loan scheme.

His comments sent shares in Persimmon, Barratt, Taylor Wimpey, Berkeley, Bellway, Redrow and Vistry Group tumbling, wiping £1.6bn off their combined market capitalisations.

Mr Gove’s proposals – first reported by the Telegraph on Friday – are understood to have blindsided the industry. 

Speaking in Parliament on Monday, he said: “Those who manufactured dangerous products and developed dangerous buildings have faced inadequate accountability so far, and shown insufficient contrition. 

“I’m clear about who should pay the price for failures – it should be the industries who profited.”

Some developers had “done the right thing” but remediation work is still outstanding at many sites, he added.

A Government study of 1,000 affected buildings found that more than 40pc are owned by just 14 corporate landlords while 10pc are owned by “one of five large, very active developers”.

It represents a U-turn on previous proposals that would have forced leaseholders in buildings between 11 and 18 metres tall forced to pay by taking out a loan. 

Developers who do not come forward with funding plans will be named and shamed and risk being made ineligible for government funding.

A wider tax raid on the whole industry is also seen as a final “backstop” option. 

Speaking to the BBC, Mr Gove said: “That is a blunt instrument – but if it is necessary, we will use that blunt but heavy instrument.”