UK Budget reaction

As widely expected, tax rises featured prominently in yesterday’s Budget. By 2029-30, it will raise taxes by £26 billion – bringing the tax take to an all-time high of 38% of GDP in 2030-31.

Chancellor Rachel Reeves also outlined a downgraded economic growth forecast since the OBR’s last forecast in March for every remaining year of this parliament.

This is a stark reminder of the headwinds the construction industry faces in delivering projects.

All eyes will now be on the Bank of England, which is likely to push money back into the economy by lowering interest rates, encouraging businesses and the public to borrow and spend.

Factors affecting business confidence such as inflation – consistently ranked as one of the top threats to our industry in Gleeds’ UK market surveys – are expected to fall in 2026.

Combined with the potential for cheaper development finance, next year should see project starts becoming more viable.

With various surveys indicating that business leaders were delaying investment decisions until they had seen the Budget, the industry will need to be ready for tapping into increased investment and possible pent-up demand following its long-awaited publication.

Following the positive news of the government approving Heathrow’s third runway, it’s encouraging to see further public money set aside for major projects such as the Lower Thames Crossing and the DLR Thamesmead extension.

However, it’s vital that the government continues to support the industry in a number of ways, to make sure we can deliver these projects in a timely manner and avoid the pitfalls which previous major projects have been prone to in the UK. The 10 Year Infrastructure Strategy and the establishment of NISTA have been significant strides forward, but consistency and continued leadership from the government will be key to ensuring that the industry can play its part in moving projects from policy to completion.

This Budget follows the promising theme of government announcements this year so far, in prioritising nuclear. I welcome the recent announcement of the UK’s first small modular reactor (SMR) to be based at Wylfa on Anglesey (although prioritisation of Wylfa for a large scale nuclear project would have also been very welcome), and it’s a hugely exciting time to be working in the sector. We’re looking forward to playing our part in supporting nuclear’s contribution to the net zero journey, but the sector as a whole still suffers from a significant skills gap.

SMRs bring about a demand for a whole new set of skills, and the nuclear workforce is ageing with many of the most experienced workers now close to retirement. The successful delivery of major energy projects, and SMRs alike, hinges on how loudly the industry can shout about the rewarding nature of a career in nuclear energy, but we can’t do it alone. While allocated finances are of course a huge lever to delivery, more emphasis from the government on addressing the construction skills gap, especially in energy, is still needed.

Clarity and certainty are vital for supply chains when delivering publicly funded schemes. With the details of the Budget now published, the construction industry can progress with a forward-looking pipeline of public projects announced in the Spending Review and Industrial Strategy.

The Budget outlines that spending on the NHS grows at 2.6% a year in real terms after 2028-29 – in line with growth rates set at the Spending Review.

The health service was also given a steroid injection with the announcement of 250 new NHS Neighbourhood Health Centres interestingly being funded through Public-Private Partnerships. NISTA are developing this new model with DHSC with rumours of LIFT / MIM type models being considered.

The drive to build 1.5 million homes continues with a plethora of announcements in recent months and yesterday. These include planning reform, the re-training and recruitment of 350 planners, devolving housing funds to Combined Authorities, three new towns with further announcements in the spring, the National Housing Bank, along with viability support in London.

There is certainly a drive to meet this target and the oil tanker is turning, but further interest rate cuts and market confidence are also needed.

Also announced was cutting the cost of politics and local government, and “selling government assets that we no longer have any use for”. We await further details, but there could be further significant repurposing opportunities for the industry across central and local government estates.

For the retail sector, which delivers 4.4% of the UK’s total economic output and provides 2.6m jobs, the headline measures of permanent business rates reform, investment incentives, and a pledge to close the low-value import tax loophole are welcomed. However, the delay in implementation and ongoing cost pressures call into question the impact of these changes on a sector already under considerable strain.

Retailers have long called for business rates reform, against a backdrop of growing internet sales and rising cost of bricks and mortar retail. The Budget confirmed much-welcomed permanent lower business rates for 750,000 retail, hospitality, and leisure properties under £500,000 rateable value. However, this is funded by an additional surcharge for larger properties, which will impact the larger, anchor stores which generate footfall in high street as well as our supermarkets.

Acknowledging that retailers face further rises in costs with National Living Wage increases and tax threshold freezes will undoubtedly impact consumer confidence and disposable income. A fall in sales in October, as shoppers awaited the Budget resulted in a slow start to the critical Golden Quarter in the run up to Christmas, and it remains to be seen whether the Budget will do enough to reassure the UK retail industry and its consumers ahead of the busiest shopping period of the year.

Many of the announcements within the Budget reiterate previous commitments to housebuilding to solve the nation’s housing crisis but the continued prioritisation of planning reform is welcomed. The forthcoming Planning and Infrastructure Bill with streamlined processes for major infrastructure projects, and presumption in favour of residential led development around transport interchanges, plus an additional £48m going into the planning system to boost capacity, are necessary and incremental steps. However, the Bill needs to be set against a wider context of viability concerns and streamlining of Building Safety Act implementation periods, which continue to significantly impact both delivery of homes and developer appetite to operate in the sector.