Budget reaction: what is the impact on construction?

As the dust settles on Rachel Reeves’s red book, BCIS chief economist Dr David Crosthwaite considers the likely impact of the Autumn Budget on construction and highlights its potential pitfalls.

The silver lining of the Autumn Budget being Labour’s first fiscal event is that it is likely to be the most painful of budgets presented in this Parliament, with more stimulus as we get closer to the next election – that’s assuming things don’t get any worse before they get better.

However, the increased tax burden of employer National Insurance contributions will undoubtedly weigh on businesses. For the construction sector, these added employment expenses could very well stifle growth, discouraging firms from hiring and curbing their appetite for investment.

Labour pledged to ‘get Britain building again’, but where’s the evidence? The budget channels £100 billion in capital spending toward public services, but it does little to foster private-sector construction activity or address the industry’s underlying needs for growth. While public service investment is crucial, it’s unlikely to stimulate the kind of broad-based economic growth or productivity gains that targeted construction investment could achieve.

The Office for Budget Responsibility’s forecasts have adjusted GDP growth slightly upward for 2025 and 2026, but beyond that, growth projections have been revised downward since March. Rising business costs are likely a key factor here, with firms expected to rein in both spending and investment as they adjust to the increased burden of taxes and operational costs. For construction, already operating on tight margins, this budget provides limited direct support to offset these pressures.

There’s also the risk that these higher employment costs will fuel inflation within the construction sector. Firms facing elevated labour expenses will likely pass these costs on to clients, further inflating project prices. And these tax changes could hinder recruitment at a time when skills shortages are already a pressing concern.

Meanwhile, significant details are still outstanding. We’re still waiting for a comprehensive infrastructure pipeline, and many decisions have been postponed to the Spending Review in spring. Major projects like the Lower Thames Crossing remain in limbo, as yet another example of a delayed decision that leaves construction planning and resourcing in uncertainty.

There’s also a need for clarity on how the new National Infrastructure and Service Transformation Authority (NISTA)—replacing the National Infrastructure Commission and Infrastructure and Projects Authority—will operate in practice. Labour’s proposed 10-year infrastructure strategy, Invest 2035, is under consultation, as are crucial aspects of the pledge to build 1.5 million new homes, including specific targets and timelines for addressing social housing needs. Without concrete plans or timelines, these initiatives remain aspirational at best.

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