Autumn Budget 2025: What It Really Means for UK Construction

Posted by Build Warranty Group on 3rd December 2025 -

Now that the Autumn Budget 2025 is on the table, the construction sector has something firmer than rumours to work with – and the picture is mixed. On one hand, there’s a clearer pipeline for infrastructure and some meaningful planning and skills measures. On the other, higher taxes and rising payroll costs will squeeze margins in an industry already facing insolvency pressures and stubbornly high input costs. 

1. Infrastructure and planning: pipeline, but not a bonanza

The Budget confirms billions of pounds of public investment for major infrastructure, including around £8.3bn for big schemes and £1.2bn for brownfield development, alongside the activation of the National Wealth Fund to support transport, energy networks and industrial decarbonisation. For contractors in civils, energy and utilities, that means a more visible workload through the second half of the decade rather than a sudden surge tomorrow.

Planning remains a central lever. The government is backing its Planning and Infrastructure Bill with extra money – roughly £48m – to bolster local authority planning teams and accelerate approvals, alongside digitalisation and fast-track routes for nationally significant infrastructure projects. That should, in time, unstick some stalled schemes. But the Office for Budget Responsibility expects most of the growth impact to arrive only after 2027, so short-term expectations need to stay realistic. 

2. Housing and development: viability under pressure

There was no big new stimulus for homebuyers, and no flagship retrofit or energy-efficiency programme for existing homes – something many in the sector had hoped would drive steady, labour-intensive work. The government’s pledge to deliver 1.5m homes this Parliament remains in place, but budget decisions and OBR forecasts underline how challenging that target will be, with supply growth expected to be slow in the near term.

On the tax side, two measures particularly affect residential development economics. First, a new High Value Council Tax Surcharge (“mansion tax”) on homes over £2m in England from April 2028 will add an annual cost of £2,500–£7,500 for high-end properties, which commentators expect to cool parts of the prime market. Second, from April 2027, rental income will be taxed at higher rates – 22%, 42% and 47% – increasing the burden on landlords and putting further upward pressure on rents and build-to-rent appraisals. 

A rare piece of clearly positive news for small housebuilders is landfill tax reform. By rowing back from the previously-floated 3,000% increase in the lower rate, the Budget avoids a huge spike in remediation costs and is expected to save SMEs thousands per site, even though lower-rate landfill tax will still more than double.

3. Costs, wages and skills: help and hurt at the same time

The Chancellor stuck to the political promise not to raise the main rates of income tax, NICs or VAT – but extended the freeze on tax and NIC thresholds to 2031. In practice, that “fiscal drag” means more workers in construction will slip into higher tax bands as wages rise. Combined with previously announced increases in the National Living Wage, industry estimates suggest payroll costs could rise by £1,200–£1,500 per employee per year for many firms over the next couple of years.

From 2029, there will also be a cap on the NIC advantage of pension salary sacrifice, adding another cost consideration for larger employers. For SMEs operating on tight margins, these changes reinforce the need to re-price tenders, tighten productivity, and be more selective about which projects they pursue.

Counterbalancing this, the Budget does include additional support for skills. Apprenticeship training for under-25s in SMEs will be fully funded from the government side of the levy system, with simplified processes, and there is extra money earmarked for construction-relevant technical skills. Over the medium term this should strengthen the talent pipeline, even if it doesn’t solve immediate labour shortages.

4. Investment, compliance and net zero

On investment incentives, the government is tweaking capital allowances rather than ripping them up. Full expensing is maintained for companies, but from April 2026 the main writing-down allowance falls from 18% to 14%, while a new 40% first-year allowance is introduced for a wider range of plant and machinery, including leased assets and unincorporated businesses. That encourages some investment in new kit, though overall the package is forecast to be revenue-raising rather than a pure giveaway.

For contractors and developers, the Budget doubles down on the transition to a low-carbon economy. The National Wealth Fund and wider capital spending plans prioritise grid upgrades, nuclear, offshore wind, EV charging and industrial decarbonisation – all of which are construction-intensive and come with rising ESG expectations on how projects are delivered. 

Regulation tightens too. HMRC will gain new powers under the Construction Industry Scheme to remove Gross Payment Status and levy 30% penalties where businesses are linked to fraudulent arrangements, alongside a separate programme to simplify CIS administration. Compliance and supply-chain due diligence will need to be taken even more seriously, especially for firms heavily reliant on subcontracting.

5. Overall verdict: strategically positive, tactically tough

Taken together, this is an evolutionary Budget for construction. It strengthens the long-term pipeline in infrastructure and energy, modestly improves planning capacity and skills support, but leans heavily on higher taxes and rising labour costs to balance the books.

For construction businesses, the immediate priority is practical: revisit your pipeline, re-run project viability with new tax and wage assumptions, stress-test housing and PRS schemes against higher landlord and property taxes, and tighten CIS and payroll compliance. Those who adapt quickly will be best placed to benefit from the slow-burn upswing in infrastructure and energy work that this Budget is trying to unlock.