THE UK construction sector has offered a mixed response to chancellor Rachel Reeves’ first budget since Labour’s General Election victory earlier this year.

The rate of Employers’ National Insurance will increase by 1.2% from 13.8% to 15% but, in a boost for the industry, £1 billion will be spent on removing dangerous cladding and extra funds have been allocated to the Affordable Homes Programme. Rachel Reeves also confirmed that the government will provide funding to establish GB Energy next year in Aberdeen.

Eddie Tuttle, director of policy, research and public affairs at the Chartered Institute of Building (CIOB), said the organisation welcomed increased funding for new infrastructure but warned that higher taxes are ‘likely to increase financial strains’ on SMEs.

“Nearly a fifth of UK SMEs operate in construction and the cyclical, boom-bust nature of the sector, as well as recent economic hardships, have created a difficult environment for these businesses,” he added. “So far in 2024, they have accounted for 20% of business insolvencies and alarmingly, around 11,000 firms have collapsed since 2022.

“While we understand the need to build up public finances and reorder the fiscal rules to channel greater investment, the impact of increased costs on construction SMEs could be devastating. SMEs play a vital role in the delivery of new homes and infrastructure as well as the repair and maintenance of existing buildings.

“Increased tax rises without consistent monitoring of the impact they have on the health of crucial sectors, such as construction, run the risk of damaging the pivotal role SMEs play.”

With building safety a ‘critical concern’ for the construction industry, Mr Tuttle said the CIOB was pleased that funding for dangerous cladding remediation was acknowledged, particularly in the wake of the second phase of the report into the Grenfell tragedy.

Tim Balcon, chief executive of the Construction Industry Training Board (CITB), welcomed support for the construction industry through increased investment in the Affordable Homes Programme and the commitment to infrastructure delivery.

“Our research shows that under the government’s homebuilding plans, up to an additional 152,000 workers will need to be found, and this doesn’t include the quarter of a million additional construction workers we need to meet all forecasted construction demand through to 2028,” he said. “The homebuilding and infrastructure delivery challenges can’t be addressed without evolving and improving the skills system as a whole – for example, improving the pipeline of workers and ensuring a shared understanding of competence between industry, government, and CITB is defined.”

Richard Steer, chair of property and construction consultancy Gleeds, said hikes in National Insurance and increases in labour costs will ‘dampen the appetite for recruitment’ in a sector badly in need of fresh talent. He described funding for bringing HS2 to London as ‘sensible’ but added that the budget did ‘little to persuade me that they treat our challenges on training, retention, planning reform and meeting net zero targets with any more seriousness than the last government’.

Steve Mulholland, CEO of the Construction Plant-hire Association (CPA), described the budget as an opportunity for the new government to show it is serious about providing the business community with stability and certainty.

“Despite not being part of the Industrial Strategy there appears to be an acknowledgement that infrastructure shall play its part in this new era of intended stability and growth with a commitment to spending on roads, rail, hospitals, schools, and homes,” he stated. “We welcome the news that fuel duty remains frozen, however it is disappointing that employers will have to pay more in National Insurance, and that the plant-hire sector remains excluded from being able to take complete advantage of the Full Expensing Allowance in its current form. We need further clarity on what fiscal conditions must be met before this can happen. We look forward to seeing more detail.”

Clive Dickin, CEO of National Access & Scaffolding Confederation (NASC), expressed his disappointment at the budget ‘not being focused on the needs of business’.

“Only this morning I received a letter from Rachel Reeves in which she again stated the importance of achieving sustained economic growth,” he said. “In that letter she also agreed with us that a strong construction sector, supported by high-quality and safe access and scaffolding equipment and a skilled workforce, is key to the government delivering its growth mission. Unfortunately, this budget sends a worrying signal. It lacks a business-focused vision, disincentivises quality employment, and hampers innovation – all of which are foundational to future economic health.”

Mr Dickin described the increase to the National Living Wage (NLW) of 6.7% as ‘excessive’, warning that it will jeopardise employers considering employing more junior staff and have an inflationary impact. He added that the increase in employers’ National Insurance contributions will ‘inhibit’ firms from ‘recruiting and even maintaining staffing levels, at a critical time for the UK economy’. “While there was some extra support for the smallest employers, this decision will put new recruitment at risk for most employers and reduce their ability to further reward existing staff,” Mr Dickin said.

The Federation of Master Builders described it as a ‘challenging’ budget for small building companies.

Brian Berry, chief executive of the FMB,said, “In challenging economic conditions, the Chancellor of the Exchequer delivered a mixed budget with promising plans for the long-term future of the construction industry, however it is likely to present substantial challenges to firms managing their business finances. At a time when SME builders are needing a boost, they may, like many in the country, have to take a hit before they see things get better.

“The chancellor’s decision to significantly increase employers’ National Insurance contributions will create major headaches for firms looking to take on staff at a time when the building industry in desperate need of new workers. However, it is good that the chancellor has shielded small companies by increasing Employment Allowance, as is the rise in the apprenticeship wage which will help increase the appeal of a career in construction for young people. Capital Gains increases may also hit builders looking to sell off their companies when they look to retire.”