Autumn Budget: supporting project viability is a priority for construction

The Autumn Budget arrives at a critical time for UK construction, with rising costs, weak demand and project viability continuing to put pressure on the industry. BCIS chief economist Dr David Crosthwaite explores key considerations for the Chancellor to support construction activity, restore confidence and encourage investment.

From a construction standpoint, the Autumn Budget should be judged by whether it improves the conditions for viable projects to proceed. Housing and infrastructure commitments can support confidence, but their economic value ultimately depends on funding, affordability and the industry’s capacity to deliver.

Chancellor John Healey’s first Budget and commitment to fiscal discipline comes at a difficult time. Government borrowing costs are high, defence spending requires additional funding and construction businesses remain exposed to volatile input costs. Provisional data indicate that the BCIS General Building Cost Index rose by 5.3% in the 12 months to August 2026.

The government has limited space to support demand for construction but at the same time it should try to avoid decisions that make delivery more expensive or undermine investment already planned.

The first port of call is to maintain a credible public construction pipeline. Contractors and suppliers make investment and employment decisions against expected workloads. If funded projects are delayed or spending is repeatedly reprioritised, those decisions become harder to justify.

The effects extend beyond an individual scheme. Stop-start programmes can leave capacity idle, discourage recruitment and interrupt supply chain investment. When work eventually resumes, the resources needed may be less readily available and more expensive.

This concern was raised during a BCIS industry panel earlier this year, where contributors warned that delaying public sector projects for value engineering exercises in response to Middle East-related volatility could ultimately result in higher delivery costs.

This does not mean every existing commitment should be maintained, but any decisions to delay or change programmes should take account of the wider costs of doing so. Changes should also be communicated clearly, particularly around funding and revised delivery timelines.

The second consideration is project viability. While government housing targets and infrastructure allocations provide important signals of intent, they do not necessarily translate into viable schemes. Finance costs, building costs, expected returns and regulatory requirements all play a part in determining whether a project can proceed.

This has been particularly evident in housebuilding, where cumulative development costs continue to constrain progress towards the government’s target of 1.5 million new homes in England. Recent data from the Ministry of Housing, Communities and Local Government suggest that 437,900 net additional homes were delivered in England between 9 July 2024, when the current Parliament began, and 20 September 2026. If this pace continues, the government would fall short of its target by more than 500,000 homes.

Concerns over viability have prompted repeated calls for a review of development costs, most recently from the Prosper UK Housing Commission, which recommended a freeze on regulatory burdens on residential development among other measures.

The Budget is therefore a chance to address these concerns with any review of viability ideally adopting a holistic approach. Further details of the proposed first-time buyer scheme are expected, but measures to stimulate demand must be considered alongside the supply-side pressures facing developers. Addressing both sides of the equation will be essential if policy commitments are to translate into meaningful increases in construction activity.

To this end, further increases in employer National Insurance contributions, Corporation Tax or business rates would likely add to the financial pressures facing developers, contractors and suppliers, potentially reducing the funds available for investment, recruitment and new projects.

Any increase in statutory minimum wages would also raise employment costs, particularly for labour-intensive businesses. The impact can extend beyond those earning the minimum rate, as employers may need to adjust pay for more experienced staff to maintain wage differentials, adding to overall labour costs.

While businesses may absorb some of these pressures when demand is weak, as is currently the case, this is a fragile basis for recovery. Clients and developers need financially sustainable suppliers, while contractors need sufficient returns to invest in skills, equipment and delivery capacity.

Fuel duty is another Budget decision that will have a direct impact on the industry. UK diesel prices recently hit a record high of £2 per litre, leaving construction exposed to increased  plant, haulage and delivery costs, although businesses’ purchasing arrangements vary. Extending the fuel duty freeze would avoid an additional increase during an already volatile period. It would not remove wholesale market pressures, but it would limit the contribution of tax policy to fuel costs.

With industry data continuing to indicate subdued and contracting activity across much of the construction market, the Autumn Budget is an opportunity to help businesses navigate the current period of heightened uncertainty. Fiscal discipline remains essential, but the Chancellor must weigh up the impact of tax and spending decisions on an industry integral to wider economic growth.

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