How will the Autumn Statement 2023 impact construction?

Reports that the UK economy will grow more slowly than previously thought overshadowed November’s Autumn Statement, leaving the construction industry in need of hearing news that would substantially boost morale and, indeed, the economy.  Therefore, it wasn’t entirely surprising to see that reactions from key figures in the built environment to the Chancellor’s announcement were, in the main, ‘underwhelming’, which echoed the sentiment of our own response. 

There were some glimmers of hope among the measures announced – changes to the planning system and updates to permitted development could give the housing sector a much-needed boost, as well as helping to keep Repair and Maintenance (R&M) buoyant. But is it really the ‘budget for growth’ that Hunt hailed it as?  We take a look at what the key measures mean for the construction industry.  

Full expensing made permanent 

Much has been made of this measure on Corporation Tax, which the Chancellor described as the ‘largest business tax cut in modern British history’. This extension to the ‘Full Expensing’ first-year allowance gives companies 100% relief for qualifying main rate capital expenditure, and 50% for expenditure on special rate assets. 

Many of our clients rely heavily on finance and are very sensitive to cash flow disruption. Therefore, we advocate for any measure that will help them plan capital investment more effectively. We welcome full expensing of plant and machinery becoming permanent, for those firms who qualify, as it will be a lifeline for firms looking to invest now and in the future.  

But in truth, this is merely an updated measure that was due to end and has now been made permanent. As the largest businesses plan capital expenditure several years ahead, this will provide extra certainty that they can continue to benefit from this relief and receive a 25% tax saving on expenditure well into the future. But it won’t make a difference for the majority of small and medium-sized businesses, that already receive 100% relief per year through the Annual Investment Allowance, which was announced by the Chancellor in his Spring 2023 budget.  The allowance hasn’t been extended to plant hire and leasing companies either. Stu McInroy, Chief Executive of the Construction Plant-Hire Association (CPA) has expressed concerns that this will impede the economy’s growth, stating: ‘If the government is serious in its desire for the economy to grow, plant hire companies must be afforded the opportunity to take advantage of the changes to the Full Expensing Allowance without restriction.’ 

The measure to abolish class 2 NI contributions for the self-employed is unlikely to make much difference either. A growing demographic in our industry, the reduction will amount to a saving of just £3.45 a week. This remains a drop in the ocean considering the financial challenges construction trades continue to face. 

Companies at risk of insolvencies need more support 

In the list of key measures we wanted to see in the Statement, we advocated for more support through Project Bank Accounts (PBAs) to maximise protection for contractors that are stuck in a volatile cycle. We’re disappointed that the government hasn’t included measures to improve payment practices across the industry.  

£50 million investment in apprenticeship pilot schemes but still no retrofit strategy  

A slice of a £50 million investment pot for engineering apprenticeships is welcome. But yet again, the Statement has neglected to show any commitment to a national retrofit strategy or willingness to invest in the specialist skills required to implement one. Furthermore, a report by Lloyds Banking Group found that four in ten private landlords have cancelled plans to decarbonise their properties following the government’s decision to roll back requirements for all rental properties to meet a minimum EPC rating of C by 2028. The government has potentially further slowed progress towards improving the energy efficiency of the UK’s housing stock.  

Although there are welcome investments in clean energy – £960m in total – it was disappointing to see the complete omission of how to address the built environment’s significant contribution to carbon emissions. Although the industry continues to take the lead through this, via initiatives that include the Built environment Carbon Database (BECD), we need the government to support our efforts through mandating on measuring and reporting whole life carbon assessments.  

From what we can tell, there were also no details of a review of planned maintenance programmes for all public sector buildings. Not only is this essential for the safety and upkeep of our public buildings, it could also provide a boost to both the Facilities Management and R&M sectors.    

Little on offer to reassure housing sector 

The government has committed to investing £110m over the next two years to ‘deliver high quality nutrient mitigation schemes, unlocking 40,000 homes, as well as £32m to make a dent in the planning backlog and build new housing quarters in Cambridge, London and Leeds. It’s also pledged £450m to social housing to build 2,400 houses new homes.  

However, while this honours their recent commitment to regenerate urban areas, it’s still far off the government target of 300,000 homes a year. Leading figures in the housing industry have also criticised the government for not doing enough to support the sector in making headway on net zero targets – for example, VAT relief on the greening of housing stock to improve EPC ratings, or modernising Stamp Duty with a ‘rebate to renovate’ incentive for households.   

Plans to speed up the planning process are encouraging, as is the permitted development right measure to convert houses into two flats (without planning permission). The latter, in particular, could give a much-needed boost to both the rental and property markets without actually building anything new.  

However, it remains to be seen just how viable this scheme will be – some critics say it won’t be possible to split the majority of houses without changing the façade. There are also concerns it could lead to a shortage of larger homes that are currently in short supply. It’s worth noting though that if the scheme is successful, it could be yet another boost to the growing retrofit market.  

Further pushbacks on the Pipeline  

Investment in infrastructure, and removing barriers to private sector investment, is hugely important to driving economic growth. However, the already delayed National Infrastructure and Construction Pipeline is still nowhere to be seen, with the government saying it will publish a National Infrastructure Strategy next year. In addition to this, transport experts have expressed concerns that funds allocated for Network North haven’t been properly costed and lack delivery timeframes.  

This leaves construction firms operating in an uncertain market simply having that uncertainty prolonged yet again. The housing sector would also benefit more from tangible growth in the economy, which could have been boosted now by transparency around and commitment to infrastructure plans. This could help solve the supply and demand issue at the heart of the downturn in housebuilding, exacerbated by high interest rates.  

Conclusion

Our data forecasts that new work output isn’t expected to return to growth until the end of 2024. And there are few measures within the Autumn Statement that look set to dramatically impact economic growth or address the severe skills shortages the industry faces. Therefore, it’s imperative that the government listens to the industry and identifies how it can better support construction’s priorities, in time for next year’s Spring Budget. 

The BCIS estimates of the impact of the Autumn Statement on construction output over the next two years are as follows:  

• Housing – down 
• Infrastructure – steady 
• Other public– steady 
• Commercial – down 
• Industrial – down 
• Repairs and Maintenance housing – possibly down as more landlords choose not to upgrade the energy efficiency of their homes.  
• Repairs and Maintenance infrastructure – up as some investment will be repairs and maintenance 
• Repairs and Maintenance public other – up, given funding for health and schools to carry out repairs on RAAC 
• Repairs and Maintenance private other – down, less money available in the commercial sector 

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