Allan Wilen is economics director at Glenigan
The autumn 2024 Budget was hotly anticipated across the entire construction sector, especially as the election of a Labour government in July did not result in the sudden growth spurt some may have hoped for. Indeed, we found the value of construction projects started was down 22 per cent in Q3 compared to the preceding quarter as major projects were delayed by the general election.
“The government doubled down on its commitment to green energy, yet it was surprising not to hear about specific investments in wind, solar and nuclear”
While the various trailed (or leaked) policies have been met with a mixed reception, there will be some things that UK construction can be pleased about. In any event, the Budget, while presenting a number of challenges, is not without opportunity. The Chancellor has pledged to “invest, invest, invest” and has reformed the government’s Fiscal Rules to support her ambitions.
The Budget could be seen as the first step towards delivering the government’s agenda and, whilst next Spring’s Spending Review will detail the government’s long-term spending plans, it did unveil a substantial 13 per cent increase in departments’ capital funding from next April.
Focusing on what we heard yesterday, the anticipated green-lighting of a handful of in-limbo projects, including the HS2 Euston Extension will be welcomed, hinting at bigger transport upgrades to come. It will provide a much-needed boost, supporting our forecast growth predictions in 2025 and 2026.
A boost for the sector?
Perhaps the biggest surprise was the sheer amount of potential future work for the construction sector, especially within the public sector.
For starters, there seems to be plenty of infrastructural work to go around, from pothole filling through to major rail projects as well as supporting the roll-out of broadband infrastructure to underserved parts of the UK. This will definitely be a boon for those working in the civils and utilities vertical, and projects will likely be hotly contested by contractors in 2025 and 2026.
Equally, the government doubled down on its commitment to green energy, yet it was surprising not to hear about specific investments in wind, solar and nuclear. Instead, carbon capture and storage, as well as green hydrogen were highlighted for significant investment. As such contractors should be on the lookout as these projects start to come online, especially if they’re looking to grow their footprint in renewables.
It was also encouraging to hear positive sounds around government support for the industrial sector, with aerospace, automotive, life science facilities and gigafactories namechecked in the Budget. This announcement had a distinctly regional flavour and will go some way to drive more construction investment and activities across the whole country.
While the increases to capital gains tax and changes to stamp duty land tax may further discourage buy-to-let investors, £3bn of additional support for SMEs and the build-to-rent sector, in the form of housing guarantee schemes, should help support private new housing activity.
Social housing has fared well. The Affordable Homes Programme will receive an additional £500 million in 2025‑26, taking the budget to £3.1 billion. Additionally, plans to allow above inflation increases in rents over the next five years will enable social landlords to borrow more to fund new build projects. It’s a great opportunity for those looking to develop for both quality and sustainability, with the government known to favour a focus on the latter, particularly for social homes. Not only that, smaller developers will get more of a look-in, creating more diversity and competition within this vertical.
Unsurprisingly, for a Budget set against the tone of fixing a ‘broken Britain’, there was a lot of funding allocated towards remedial work, particularly in the healthcare and education sectors. While there were a few modest commitments made towards new assets within these vertical, it’s likely that we won’t see any major building programmes in the next fiscal year.
A potential surprise growth area, and one to watch, is retail, hospitality and leisure. Business rate reforms were not trailed and likely relief provided for bricks and mortar assets may kickstart construction activity within a market suffocated by this punitive tax for decades.
Going above and beyond tradition, it seems chancellor Rachel Reeves has been able to pull more rabbits out of the hat than ever before, which will likely benefit some parts of the construction industry. However, they’ll need to bring more projects to the table in the coming months to help the sector overcome the slump in which it’s found itself over the past couple of years.
A key element of the government’s strategy is that higher public capital expenditure will happen alongside, and in some cases in partnership with, an increase in private investment. The chancellor will definitely need to capitalise on the government’s recent Investment Summit to top up the pot if they want to deliver this plethora of projects in the tight amount of time they’ve set themselves.
