Labour’s first Budget gets mixed reaction as SMEs warn of tax rise hit

The government’s first Budget has received a mixed reaction from the construction industry, with many firms welcoming funding boosts for more housing but others warning of the impact of tax rises on delivery.

Rachel Reeves outlined £40bn in tax rises this afternoon, including an increase in employers’ national insurance contributions by 1.2% to 15% from April 2025, and lifting the national living wage by 6.7% to £12.21 an hour.

But the chancellor also outlined £100bn in capital investment over the next five years, including £6.7bn for the Department for Education and a £3.1bn increase for the NHS capital budget.

Other commitments announced today included £5bn to deliver the government’s housing plans, £1bn to remove dangerous cladding, money to begin tunnelling to deliver HS2 to Euston, £3.4bn to “kickstart” the warm homes plan. 

Gleeds chair Richard Steer welcomed some elements of the Budget but said the announcements overall “did little” to persuade him that Labour are treating the industry’s challenges on training, retention, planning reform and net zero “with any more seriousness than the last government”. 

“This was a budget designed to put election rhetoric into economic strategy,” Steer said.

Chartered Institute of Building director of policy Eddie Tuttle agreed that increased funding for new infrastructure and housing was welcome but warned that the impact of Reeves’ tax hikes on SMEs could be “devastating”.

“Today’s Budget offers mixed news for the construction sector,” he said. “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.”

“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.”

Tina Paillet, president of the Royal Institute of Chartered Surveyors, was more positive about the Budget, welcoming “positive news” for construction sectors including more funding for affordable housing while arguing tax changes would help secure “badly needed” new infrastructure.

“We hope government investment and changes in rules to attract new international investment will help boost confidence and encourage other players to seek opportunities,” she added.

The focus on new infrastructure enabled by Reeves’ fiscal changes was also welcomed by Civil Engineering Contractors’ Association director of operations Marie-Claude Hemming and said it was a policy which the trade body had called for in recent weeks.

“It is right that the government maintains a strong commitment to controlling day-to-day spending while creating headroom to allow for investment in a long-term infrastructure programme to secure the economic and social wellbeing of UK plc,” she said.

“We are particularly pleased to see the Chancellor make a commitment to rail upgrades such as the Transpennine upgrade, putting funding in place to link HS2 to Euston, and increased funding for local roads maintenance.”

But Richard Risdon, managing director for UK and Europe at Mott MacDonald, said the biggest challenge in terms of delivering the government’s infrastructure ambitions remained a lack of skills.

“Boosting funding for the schools rebuilding programme by £1.4bn to target rebuilding 500 schools is critical to creating the right environment for our young people to thrive,” he said.

“However, it will take time for that young talent to come through into our sector and we urgently need government to work with us on the skills issue.”

Others warned about the unintended impact of the chancellor’s tax rises on the capacity of firms to hire new staff

Federation of Master Builders chief executive Brian Berry said the decision to significantly increase employers’ National Insurance contributions will “create major headaches for firms looking to take on new workers at a time when the building industry is in desperate need of new workers”. 

However, he welcomed an increase in employment allowance and a rise in the apprenticeship wage as a helpful way to make the construction sector become a more appealing career choice for young people.

On retrofit policy, Berry welcomed a £3.2bn injection into the Warm Homes Plan as “crucial to getting more SME building companies to enter the retrofit market” and welcomed low-cost loans for SME housebuilders.

“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,” Berry said.

Eoghan O’Lionaird, chief executive officer at Wates Group, said: “We welcome confirmation of £3.4bn for the Warm Homes Plan, the additional £500m for the Affordable Homes Programme, and the consultation on a five-year rent settlement for social housing.

“In addition to these positive moves to address the UK’s housing crisis, we are also happy to see commitment to a 10-year infrastructure roadmap set out today, which we know will play a crucial role in unlocking government projects for years to come. As one of the UK’s leading school builders, we were also encouraged by the government’s significant £1.4bn boost in funding to rebuild schools across the country.”

Leo Quinn, Balfour Beatty CEO, said: “The government’s ongoing commitment to infrastructure investment is a welcome boost that will create a strong foundation for future economic growth.

“Budgets always entail difficult decisions and the increase in employer National Insurance contributions will of course create challenges for all business sectors, our own included.

“It is therefore vital that the government balances these increases with the certainty that our industry needs in the form of the fundamental planning reforms that are required to enable businesses such as Balfour Beatty to deliver the infrastructure that is so vital to our country’s economic success.

“If the government does this swiftly and decisively, the UK’s infrastructure industry will equally be well-placed to deliver swiftly and cost effectively, the benefits of the critical clean energy, defence, and transport projects that the UK so desperately needs.”

The housing sector’s reaction to the budget was also mixed. Steve Turner, executive director at the Home Builders Federation, said the allocation of £47m to help unlock homes blocked by nutrient neutrality rules was “welcome”. However he said if prospective buyers could not access suitable mortgage finance then investment would be constrained. 

“It is the first time in 60 years there is no effective government support for home ownership and with younger households continuing to struggle to get on the housing ladder, the absence of assistance will hold back housing supply,” he said.

RIBA president Muyiwa Oki said the Affordable Homes Programme top-up was “desperately needed” but a “pocket-sized sum” compared with housing need.

“Alongside calling for next year’s Spending Review to boost the social housing pot, we urge the government to consider its overall approach to funding social homes,” he said. 

“This includes exploring different models that reduce the net cost of delivery, such as that outlined in our report, Foundations for the Future.”

Stevan Tennant, managing director for development at Ballymore, said it was “encouraging to see investment ringfenced for affordable housing” but that the government needed to reconsider taxation measures to ensure the residential sector was incentivised.

“The cost of building affordable housing in London excluding land is significantly higher than the value Registered Housing Providers are willing (or able) to pay for these homes. This effectively means affordable housing becomes a tax on development, and there is no financial incentive for a developer to build affordable housing,” he said. 

“We are in danger of being distracted by conversations about a myriad of other factors that may impact on housing delivery, but at the core of the issue is viability, the costs of home ownership and funding and how it can be used.” 

Andrew Carpenter, CEO at the Structural Timber Association, said: “We applaud the focus on social housing, as well as the recognition that planning can be an obstacle in housing growth. The news that the Government will set out to recruit hundreds more planning officers should go a long way to alleviating that issue.

“Overall, this is a good starting point from which the industry can move forwards, but we would urge the government not to miss the huge opportunity that is presented by aligning house building ambitions with the country’s pressing environmental challenges. With such high targets, achieving this rapid upscaling while also meeting net zero obligations will require a fundamental change in how we build, the materials we use, and the way we attract new people into the construction industry.”