Gleeds UK sectors react to the Government’s Spring Statement 2025

As outlined by the Chancellor yesterday, the Office for Budget Responsibility (OBR) has lowered its GDP growth forecast for 2025 to 1 per cent – reflecting weakened business and consumer sentiment since the Autumn Budget last year.

With inflation above target and economic growth sluggish, it remains uncertain how quickly the Bank of England’s Monetary Policy Committee will cut interest rates, which were held at 4.5% last week.

The construction industry will hope for further cuts later in the year to help mitigate rising costs and improve project viability. 

Encouragingly, the government is putting housing and infrastructure front and centre in its plans for economic growth. The Office for Budget Responsibility has assessed that the government’s reforms to planning "will lead to housebuilding reaching a forty-year high”.

A commitment to working closely with the industry is welcome in boosting the skills needed across construction, while supporting employers in recruiting and retaining apprentices. 

The Construction Industry Training Board (CITB) is doubling their New Entrants Support Team programme – committing £32 million, while the government’s £625 million package for skills in construction is expected to provide up to 60,000 more skilled workers this parliament. Establishing 10 new Technical Excellence Colleges specialising in construction in every region in England is a positive step for our industry.

Amid “a changing world”, careful and proactive supply chain management will also be essential in the coming months, as the risks posed by volatility are priced into the cost of borrowing and contracts.

Data centres, designated by the government as “critical national infrastructure”, look set to benefit from investment allocated towards the UK’s digital infrastructure.

Creating AI Growth Zones offers the prospect of streamlined planning approvals, which should help accelerate the required data centre development that will be needed to make the UK a global leader in AI.

With various technology firms pledging to make the UK their home for data infrastructure, the opportunity for the government to make the UK a data centre and technology leader will require reforms currently being considered by Ofgem to speed up the electricity grid connection process.

Tax incentives for the technology sector, while not announced yesterday by the Chancellor, ought to be considered in the Autumn’s Budget. For instance, enhanced capital allowances on construction costs would help the viability of developing and operating data centres.

The Chancellor highlighted the significance of the Planning and Infrastructure Bill, which had its second reading this week, in speeding up infrastructure approvals – fast-tracking 150 planning decisions on major economic infrastructure projects by the end of this parliament.

One key requirement is national policy statements being updated every five years, so that they reflect the government’s priorities and ambition, thereby providing more certainty for the sector, while encouraging investment and mitigating legal challenges.

Private investment options to build the long-delayed Lower Thames Crossing are being assessed to create a planned £10bn road tunnel linking Essex and Kent. The Secretary of State for Transport gave development consent earlier this week, with National Highways planning to commence construction in 2026. A Regulated Asset Base (RAB) model could be one such funding option that has a proven track record in infrastructure projects, including the Thames Tideway Tunnel and Heathrow Terminal 5.

Earlier this year, the Chancellor gave government support for a third runway at Heathrow – the UK’s first full-length runway in nearly 25 years. The government has also approved London City Airport’s plan to expand its existing terminal – increasing capacity from 6.5 million people annually to 9 million. Meeting the demand for air travel will only become more challenging with global forecasts showing a near doubling of passengers and cargo in the next 20 years.

Outside of the capital, a commitment to road network funding is vital to local economic growth, while key connectivity projects like West Yorkshire Mass Transit and the Transpennine Route Upgrade continue to be supported.

Given global uncertainties, the Chancellor touched on measures to enhance the UK's security.

Indeed, Ofgem last week announced plans to fast-track around £4 billion of investment into expanding the UK’s electricity transmission network to meet demand, while looking to decarbonise the grid by 2030.

The Spring Statement brought back into sharp focus Ofgem’s 6.4% energy cap increase from April, adding to already stretched household budgets.

Ultimately, domestic clean energy will protect households from the volatility of fossil fuel markets, and reforming the grid queue will accelerate connections for industrial sites and data centres.

The National Energy System Operator’s proposal for a “first ready and needed, first connected” approach to whittle down the queue replaces the flawed “first come, first served” status quo. This ought to prioritise the projects needed to deliver clean power and significantly reduce the number of “zombie projects” in the system that mean developers currently face connection dates well into the 2030s.

Continued and enhanced support from the government into new nuclear (via Great British Nuclear) is an essential component of developing a sustainable and affordable contribution from nuclear for decades to come, harnessing innovative technologies through collaborative supply chain engagement models.

The Spring Statement confirmed the government’s plans for a mix of spending cuts and slimming down of the civil service over the term of the parliament.

UK government borrowing significantly exceeded expectations in February, according to official data, intensifying the pressure on the Chancellor ahead of yesterday’s announcements. There was one piece of good news recently, that being lower than expected inflation, with this dropping to 2.8% – hopefully paving the way for an earlier Bank of England interest rate cut and needed stimulation to the economy.

The Chancellor said she is increasing capital spending by over £2 billion a year compared to the Autumn Statement. This is focused on driving growth in the economy and to meet vital defence commitments. Increases for social housing, Ministry of Defence (MoD) married quarters and infrastructure will support our sector, as will the vitally needed training initiatives and funding.

Key departmental spending plans will be made in phase 2 of the current Spending Review, with allocations for 2026-27 onwards due to be announced in June. This is awaited with bated breath, but I’m sure many political battles and challenges will be faced over the intervening weeks!

Going forward, the government has committed to holding a Spending Review every two years, with departmental budgets set for a minimum of three years. This should offer a level of stability in capital expenditure encouraging investment and collaboration with the private sector.

Ahead of yesterday’s Spring Statement, Defence Secretary John Healey said the government's first task is to "secure Britain's future".

These sentiments were echoed by the Chancellor repeatedly stating, “the world has changed”.  Rachel Reeves duly announced an additional £2.2 billion for the MoD in the next financial year.

Defence spending is to increase to 2.5% of GDP from April 2027, with an ambition to reach 3% in the next parliament. 
This equates to the biggest increase in defence spending since the end of the Cold War to make the country a “defence superpower, safer and drive economic growth”.

Strong national security, arguably, being an essential foundation for a secure economy which can assure UK-based jobs across many sectors.

The Chancellor said a minimum of 10% of the MoD’s equipment budget will be spent on novel equipment including drones and AI-enabled technology. SME participation will be strengthened with a renewed focus on equipment exports boosting defence trade.

Cuts to the international aid budget will also help fund infrastructure upgrades at Portsmouth naval sites, while Glasgow, Derby and Newport will see advanced manufacturing production.

Barrow-in-Furness will receive £200 million of investment to help job creation for a town which plays a significant role in national nuclear and naval capabilities via BAE Systems. This follows Rolls Royce signing a £9 billion contract with the MoD for the design, manufacture, and support of nuclear submarine reactors in Derby.

At the Farnborough-hosted industry expo DPRTE, which opened yesterday, the Minister for Defence Procurement and MoD’s Director for Economic Security emphasised the need for - and opportunities arising from - industrial collaboration at home and abroad: “this needs to drive the way we work … (the defence) mission is right at the heart of government.”

These appear optimistic, encouraging messages.  Whether defence spending can positively affect economic growth remains to be seen, but the sector looks set for a much-needed long term boost from central government.  Noting the awaited publication of the Strategic and AUKUS Reviews, together with the Defence Industrial Strategy, if gains in procurement agility and better access to MoD contracts for SMEs materialise, national security should be the ultimate beneficiary.

Meanwhile, in our ongoing role supporting development of the MOD and industrial defence estate, Gleeds’ specialists are helping to optimise the effect of every pound planned and spent.

UK consumer confidence was declining before the Spring Statement with this nervousness around the economy resulting in both cuts in everyday spending and deferring of big-ticket purchases. As such, the Statement offered the Chancellor the opportunity to rectify this position and offer confidence in the longer-term UK economic outlook.

Sadly, the opportunity was wasted. The £5bn cutting public spending and significant welfare cuts set against the backdrop of OBR downgrading its economic growth forecast for 2025 will further erode consumer confidence. The high street will undoubtedly suffer as a result of the Spring Statement with reduced sales volumes which will be a further blow to retailers who are already struggling with additional costs including higher employer national insurance contributions and a new package levy.