Nick Gray, our UK & Europe COO reflects on what the recent UK budget means for construction

14 November 2024

A commitment to construction

The Chancellor’s central pledge to ‘rebuild Britain’ was a key component of the first budget of the new Labour government

Manifesting itself in a promise to invest an extra £100 billion over the next five years in capital spending covering a broad range of infrastructure projects across key economic sectors, including: transport, the NHS, education, housing and energy, it marked a welcome investment in UK plc.

The construction industry desperately needs the transparency which a forward pipeline of such spending commitments brings and the budget provides an opportunity to consider how it can meet the challenge of delivering ever improving value for money, given the wider backdrop of record public-sector debt/borrowing.

A short-term economic boost

These commitments will benefit the industry in a number of ways. Clarity of the pipeline will encourage the industry to invest in itself through greater adoption of new technologies; modular construction; the sourcing, synthesis and application of data-driven innovation and the identification of imaginative solutions to the challenge of achieving net zero.

There are further bright spots that will provide a positive boost to ongoing activity, notably in the transport and energy sectors. Plans to extend HS2 into Euston station, as well as the development of the TransPennine rail service between Leeds, Manchester and Liverpool, and the A1 duelling north of Newcastle, will maintain the construction industry’s key role in delivering economic improvements to local communities up and down the country.

Similarly, the £2.7 billion capital commitment to projects such as Sizewell C, and the £3.9 billion of funding earmarked for carbon capture, usage and storage, mean construction companies will continue to contribute the UK’s net zero energy targets. There is therefore much for the construction industry to be optimistic about.

A give-and-take budget

Notwithstanding the commitment to key transport and energy infrastructure projects, there remains a lack of detail and certainty in other sectors. The announcement of a review of the government’s commitment to the New Hospital Programme (‘NHP’) is a missed opportunity to bring clarity to the critical need to address both condition and capacity in the huge NHS estate which is so desperately needed to improve patient outcomes. Hopefully, more positive news will follow in the new year.

There is also a concern within the industry, that the tax-raising measures brought forward by the Chancellor, such as the increase to employers’ national insurance contributions may further constrain capacity. They will almost certainly make it harder to recruit and retain skilled labour with this burden likely to fall disproportionately on smaller firms that are a critical part of the overall supply chain, potentially threatening their solvency.

The impact of additional borrowing has also been flagged as a risk which could also impact on the extent and speed with which interest rates might otherwise have fallen, potentially dampening any resurgence in private sector investment.

Can this budget deliver GDP growth?

While the new capital spending commitments are positive in the short term, questions remain as to how these might meaningfully shift the dial in terms of GDP growth in the long-term. Whether or not it will satisfactorily address the systemic structural problems which have weighed down the UK economy in recent years, and deliver the certainty and stability our industry needs, remains to be seen.

And what of the impact of a second Trump term in the Oval Office? There’s every likelihood that the US economy will strengthen in the short to medium term. Good for the US, no doubt, but given the new President’s leaning toward protectionism and an apparent disregard of the need to drive net zero, maybe less so for the rest of the world.

It is however encouraging to see the UK government focusing on investment in much of our infrastructure – classic ‘Keynesian economics’. Time will tell, but there is also hope that the NHP will yet receive the commitment it so desperately needs and when such opportunities land, the construction industry will, as always, be shovel-ready, poised and committed to play its part in driving the growth of UK plc.

Nick Gray, Chief Operating Officer, UK & Europe