Although the increase in Employment Allowance from £5,000 to £10,500 will provide some relief for small businesses, the Scottish and Northern Ireland Plumbing Employers’ Federation (SNIPEF) has warned that the broader impact of these changes will place additional strain on an already struggling construction sector.

According to SNIPEF chief executive Fiona Hodgson, this could threaten current jobs, limit new job creation and obstruct crucial investments in skills and productivity.

“The plumbing and heating industry is experiencing steady demand, but ongoing challenges, from rising material and labour costs to frequent payment delays, are destabilising our members’ ability to thrive and grow,” Ms Hodgson said.

“While we welcome the Employment Allowance increase for the smallest employers, this increase in employer National Insurance, particularly with a lowered threshold, severely limits crucial investments in equipment, training and development, the very goals Labour’s own manifesto pledged to support.”

SNIPEF’s soon-to-be-published State of Trade survey indicates that while 81% of members remain confident in their industry’s strength, only 32% feel optimistic about the broader UK economy.

“Our members are committed to supporting their communities and delivering high-quality services,” Hodgson continued. “But with rising costs, payment delays and now this added tax burden, any potential for business growth is under threat. We urge the Government to reconsider its approach, as imposing these taxes now only increases pressure on an already fragile construction sector.”

The recent liquidations of major construction firms, including ISG and housebuilder Stewart Milne, underscore the sector’s vulnerability. “Clients are demanding price reductions while supply chain costs are climbing,” Hodgson noted. “This squeeze on margins is increasing the risk of further liquidations.”

SNIPEF argues that further tax hikes on small businesses won’t boost productivity but will instead drain resources that could be used for training, innovation and job creation. “This isn’t support for industry; it’s a hindrance,” Hodgson added. “We need smart, supportive policies that empower small businesses, not blanket tax measures that sap their potential. The government should be looking to incentivise growth, not curtail it.”

SNIPEF calls on the government to consider alternative solutions, such as further support and incentives for training and professional development, which would allow small businesses to continue delivering essential services without compromising growth and innovation.

Recent insights from the Institute for Fiscal Studies support SNIPEF’s concerns, highlighting that additional taxation on companies can weaken their ability to invest in productivity and workforce development, both crucial for economic recovery and long-term growth.

Brian Berry, chief executive of the Federation of Master Builders (FMB), agreed: “The Budget was the first opportunity for the new Government to set out its long-term financial plans for the country. 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.

“The FMB has been calling for more details of the Government’s plans to improve the energy efficiency of the UK’s homes, a key pledge in Labour’s election manifesto. The announcement of £3.2bn to fund the Warm Homes Plan will be crucial to getting more SME building companies to enter the retrofit market. The announcement of additional support for SME house builders to access low-cost loans is also welcome, and alongside the announcements on housebuilding made in recent months, offers hope for the future. SMEs have a crucial role to play in plans to get Britain building again, and it is vital that the Government does not lose sight of the challenges the sector continues to face.” 

Housing emergency ‘must be a priority’

In a flagship Budget announcement, Chancellor Rachel Reeves revealed Holyrood stood to benefit from an additional £3.4 billion in funding through the Barnett Formula, with £610 million being allocated for the capital budget.

It comes after the Chancellor announced £5bn in government funding for housing delivery, including measures to support social and affordable housing provision. These measures consist of £3.1bn allocated for the affordable homes programme, investment in remediation, a reduction to Right to Buy discounts and rent settlements of CPI +1% for the next five years. The Chancellor also announced the UK Government would plough an additional £500m into England’s affordable homes programme.

The Scottish Federation of Housing Associations (SFHA) has now called for fresh investment in Scotland’s affordable homes budget.

The Scottish Government declared a housing emergency in May following criticism from campaigners across the housing sector over its £196m cut to the affordable housing budget amid record homelessness.

The SFHA has said the additional capital funding in yesterday’s Budget presents the Scottish Government with an opportunity to reverse serious underfunding in Scotland’s housing sector in recent years.

Sally Thomas, SFHA chief executive, said: “The Scottish Government has repeatedly said that affordable housing would be its number one priority in the event of an increase to its capital budget, it must now keep that promise and build a better future for the thousands of people across Scotland in need of a safe, affordable home.

“With homelessness at record levels, and the number of housing association homes built last year at its lowest since 1988, it’s clear that recent cuts have had devastating consequences for many of Scotland’s citizens. However, by investing today’s additional capital funding in affordable housing, we can take the first significant step to ending our national housing emergency.”

Callum Chomczuk, national director of CIH Scotland, agreed that the announcement by the Chancellor provides “some welcome flexibility” for the Scottish Government as the country seeks to end the housing emergency.

He said: “An additional £1.5bn this year and £3.4bn for next year provides an increase for both capital and day-to-day spending. The Finance Secretary previously cited housing as her priority ahead of March 2024 UK Budget which did not deliver any capital uplift. Now that an increase has been confirmed we hope that social and affordable housing spending will remain THE priority for the Scottish Government so that the sector can get building, get buying and deliver the affordable homes Scotland needs to end the housing emergency.”

Shelter Scotland has also urged the Scottish Government to commit to investing any new capital funding into delivering the social homes needed to end the housing emergency.

However, the housing and homelessness charity expressed disappointment at the continuation of the two-child limit and ongoing freeze to Local Housing Allowance. 

Shelter Scotland director, Alison Watson, said: “Having declared a housing emergency it’s clear that the Scottish Government must back words with actions.

“It is vital that any capital funding which becomes available as a result of the Chancellor’s investment plans is in turn used by Scottish Ministers to deliver social homes here, but we also need to see growth in the capital budget over a sustained period to support continued investment.

“Delivering more social homes remains the single most effective way to tackle the housing emergency in Scotland, and only the Scottish Government can decide how much of its budget it commits to that endeavour.

“However, we can’t ignore the role that austerity has played in exacerbating Scotland’s housing emergency.

“The freeze on local housing allowance and the two-child limit has forced thousands into poverty; they will continue to do so as it seems the Chancellor has chosen to keep them in place.”

GWSF director David Bookbinder said that the budget had been a double-edged sword for housing associations.

He added: “On the one hand we see increased taxes being used to boost house building, with the expectation that this will have consequential benefits for Scotland. But on the other, the sharp increase in employers’ National Insurance will add significantly to costs and it’s hard to see how this won’t have to be reflected in rent increases.”

£5 million capital funding withdrawn

Elsewhere, the UK Government confirmed the £5 million capital investment funding pledged to Perth and Kinross Council in the Spring 2024 Budget has been withdrawn.

The money, from the previous Conservative UK Government’s Department of Levelling Up, Housing and Communities, had been earmarked for three projects to support culture and regeneration in Perth city centre.

These projects were to create a visitor attraction and office space at Lower City Mills, to create an exhibition and retail space at The Ironworks and a high street outlet for micro producers.

Perth and Kinross Council leader Councillor Grant Laing said: “We are all well aware of the financial challenges facing the UK but this is an extremely disappointing – and, in my opinion, short-sighted – decision.

“We have three excellent projects ready to start, all of which would help to breathe new life into Perth city centre for the benefit of residents, businesses and visitors.

“Perth fought hard for a share of funding. When the £5 million was announced in March this year I was pleased the UK government had finally recognised the value of investing in Perth and Kinross, even if we received a smaller share than many other areas.

“To have the rug pulled out from under us by the new Labour government now simply adds insult to injury.

“We will look to see if other sources of funding is possible for these three projects and continue our ongoing efforts to regenerate Perth city centre.”

Perth and Kinross Council chief executive Thomas Glen said: “It is extremely disappointing the new UK Government has chosen not to uphold the pledge made to Perth and Kinross in March.

“These three projects are part of our ambitious plans to regenerate Perth city centre but they require funding to become a reality.

“Consultation on the Perth City Centre Design and Development Framework, which sets out our ambitions for the city, will begin in November.”

Further trade responses

Eddie Tuttle, director of policy, research and public affairs at CIOB, said: “(Yesterday’s) Budget offers mixed news for the construction sector. Increased funding for new infrastructure is welcome – as is the continued emphasis put on housing – but higher taxes, like increased employer National Insurance contributions, are likely to increase financial strains on the SMEs that are so vital to the industry and its supply chain.

“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. So far in 2024, they have accounted for 20 per cent 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. We urge ongoing government consultation with bodies like CIOB to monitor these impacts on the sector.

“We welcome the government’s plans to introduce the Warm Homes Plan, which was a key feature in the Labour Party’s election manifesto and includes a promise of £3.4bn for energy efficiency measures. We hope policymakers will consult with the construction industry on how the grant funding will be targeted, to avoid repeating previous mistakes in other upgrade schemes.

“Finally, building safety remains a critical concern for the construction industry, so we were pleased funding for dangerous cladding remediation was acknowledged as part of the Budget, particularly in the wake of the second phase of the report into the tragedy at Grenfell Tower.”

Tim Balcon, chief executive of the Construction Industry Training Board (CITB), said: “The government’s continued support for the construction industry through increased investment in the Affordable Homes Programme and the commitment to infrastructure delivery is welcome.

“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.

“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. This is why CITB has been working collaboratively and at pace with the Government and industry to develop interventions to meet the construction workforce skills needs to deliver its homebuilding ambitions.

“A strong pipeline of apprentices and construction workers is required to build the millions of homes we need, and key to achieving the Government’s ambitions is to get the right skills policies in place. It is essential that the new Growth and Skills Levy drive up construction apprenticeship numbers that have declined under the Apprenticeship Levy. Last year CITB helped over 29,000 apprentices during their courses.

“However, apprenticeships aren’t the only route into a career in construction, and we need to ensure we’re making all the available pathways into the industry clear and accessible for people, including upskilling and identifying transferable skills from other industries. We’re ready to work with Government, industry, and training providers to ensure that the coordinated reforms are put in place to drive sustained growth in the construction industry.”

Steve Mulholland, chief executive officer of the Construction Plant-hire Association (CPA), said: “(Yesterday’s) Budget was 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.

“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.”

Gillian Charlesworth, chief executive officer of the Building Research Establishment (BRE), added: “We are pleased to see the Government announce additional funding for the delivery of both affordable housing and new infrastructure, despite the fiscal pressures it currently faces. It is encouraging to see an acknowledgement of the central importance of our built environment in today’s Budget, with £3.4bn committed to the Government’s Warm Homes Plan to address fuel poverty and help households meet energy efficiency targets. Delivering a supply of healthy and liveable homes alongside infrastructure which meets the needs of the modern population will reap economic and societal impacts for the UK over the long term.

“It is, however, vital that this investment is not squandered. While the target of building 1.5 million new homes over the next Parliament is a high one, we must all work to ensure every new home that is built meets high standards, both with regards to the standard of living it provides and its environmental impact. Building homes fast, without regard for the future, will only add to the already huge task of retrofitting our existing housing stock to meet net zero. Similarly, sensible infrastructure investment is critical to decarbonising our economy. With new funding comes an opportunity to take strides towards greener systems which are built with less environmental impact and allow us to live greener lives.”