Last week, the Labour government presented its first Budget for the country in 14 years, introducing a range of measures that they claim will restore stability to the nation’s finances while investing in public services.
As she delivered this Budget, Chancellor Rachel Reeves used building analogies like ‘fix the foundations’ and ‘rebuild Britain’, but what will the changes mean for construction and the built environment? In this week’s blog, we’ll outline some of the key points.
Fixing the foundations
Framed as a long-term strategy to ‘fix the foundations’ of the UK’s economy, this budget marks the end of short-termism with the allocation of £100 billion for capital projects over the next five years.
However, with a mix of tax increases and strategic investment, the budget presents both challenges and opportunities for the construction sector. Here’s a breakdown of the tax implications and the opportunities arising in relation to housing, schools and healthcare settings.
Tackling tax challenges in construction
While Reeves pledged to restore stability, the construction sector will face some significant tax adjustments as a result of this Budget:
- Employer’s National Insurance: Increasing employer NI contributions from 13.8% to 15% (effective April 2025) and lowering the secondary threshold will raise £25 billion a year for the public purse. For construction firms, this adds to payroll costs, potentially tightening profit margins on ongoing projects.
- Capital Gains tax hikes: Capital gains tax rates are rising – lower rates from 10% to 18% and higher rates from 20% to 24%. While this affects the industry broadly, it could particularly deter property investors, impacting overall project funding and investment.
- Corporation tax: It was announced that the corporation tax rate will remain at 25% during this parliamentary term.
To navigate these tax changes, construction businesses will likely need to re-evaluate their financial strategies to mitigate the increased costs, maintain profitability and stay competitive.
Opportunities in housing, schools and hospitals
Despite these challenges, the budget also presented some notable opportunities for the construction sector.
Starting with housing, it appears that a significant portion of funding is being channelled into addressing the housing shortage:
- Affordable housing: An additional £500 million for the Affordable Homes Programme aims to facilitate up to 5,000 new affordable homes. Small and medium-sized construction enterprises, especially those in the Build-to-Rent sector, will also benefit from £3 billion of support in the form of housing guarantee schemes.
- Stamp Duty and social housing: Increased stamp duty on second homes aims to support more than 130,000 extra housing transactions from first-time buyers and those moving home. Further consultations on long-term social housing rent caps are also planned.
- Energy efficiency initiatives: The Warm Homes Plan will receive £1.8 billion to aid over 225,000 households, reducing energy bills and supporting the decarbonisation of homes, alongside a renewed push for heat pump manufacturing.
- Planning: Local planning offices will have access to £46m in additional funding to recruit and train 300 graduates and apprenticeships. Another £47m is being allocated to support the building of 28,000 homes which have been stalled due to nutrient neutrality rules.
Moving on to schools, the construction industry stands to benefit from a significant increase in capital investment for education:
- School Rebuilding Programme: £6.7 billion has been allocated for education next year with £1.4 billion dedicated to helping over 500 schools through the School Rebuilding Programme. This sustained investment brings steady opportunities for construction firms specialising in working with educational facilities.
The NHS will also see a boost in funding, with specific plans to address urgent structural issues in hospitals and support upgrades to GP surgeries:
- RAAC removal and hospital upgrades: £3.1 billion has been earmarked for hospital capital works, including RAAC removal and funding to address the NHS’s extensive repair backlog.
- GP upgrades: A dedicated fund to upgrade 200 GP surgeries across England will create long-term opportunities in healthcare construction.
Preparing for opportunity amidst the challenges
The 2024 budget presents a mixed landscape for the UK construction industry. While tax increases pose challenges, the injection of capital into housing, schools and healthcare creates opportunities for growth and collaboration.
Some industry observers are saying that now is the time for construction companies to prepare for those opportunities by getting ‘tender ready’, for instance by refreshing certifications, gathering testimonials and fine-tuning case studies to stand out from the crowd.
By navigating the challenges and embracing the opportunities, construction firms could be about to play a pivotal role in ‘rebuilding Britain. What do you think? Share your thoughts on the impact of the Autumn budget for construction and the build environment by commenting over on our Facebook or LinkedIn pages.
05.11.2024
Feature image: Freepik
