Budget 2025 – a bad day for business?

Reflecting on the year’s biggest fiscal event, BCIS chief economist, Dr David Crosthwaite, sheds light on the Budget’s implications for construction businesses in the months to come.  

Budget 2025 – a bad day for business?

Construction businesses were hoping for an Autumn Budget that brought more certainty to their future. The few crumbs thrown their way might do some good but are unlikely to spur investment in an already lethargic economy.

The newly confirmed increases in the National Living Wage and National Minimum Wage, effective from next April, are likely to deter hiring further and increase costs which could be inflationary.

They follow similar above-inflation increases announced in the previous Budget and look to be an attempt to make paid work more attractive for younger people.

However, contractors, many of whom are already operating on wafer-thin margins, will have little choice but to pass on the increased employment costs in tender prices. This has already been happening as labour cost inflation caused by skilled worker shortages and the hike of employer National Insurance contributions (NICs) works through.

You’d think the government would have learned a lesson from the fallout of higher business costs – i.e. the shrinking construction workforce and subdued output.

The newly confirmed, three-year freeze on the secondary threshold for employer NICs, which starts in 2028, would suggest not. The same goes for the future cap on tax-free employee pension contributions which will require workers and employers to pay tax on annual sums exceeding £2,000.

The new policies may not be happening immediately but will likely have a cumulative effect on business confidence and certainty and ultimately, levels of investment. The latest BCIS construction forecast, published before the Autumn Budget, projected a 15% rise in building costs and a 16% rise in tender prices in the next five years.

These are beyond the Chancellor’s control, but in an economic climate as stagnant as this one, the best thing she could have done was to stop the costs of doing business within her power from increasing further.

Construction firms are after all supposed to be driving the government’s building for growth agenda. To do this, they must be able to convince investors that their projects will deliver cost and time certainty with little risk of these goal posts moving.

Increasing the cost of doing business, when labour inflation and cash flows are already sticking points for contractors, only heightens that risk.

The new minimum wage hikes assume current economic conditions are conducive for businesses to hire and retain staff.

However, the UK’s rising unemployment rate⁽¹⁾ suggests otherwise. It reached 5% in the three months to September 2025 – the highest level since the period between December 2020 and February 2021.

Budget day wasn’t all doom and gloom. Free training for apprentices under the age of 25 for SMEs and a pause on the proposed costly convergence of landfill tax rates show the government might be listening, perhaps selectively.

The £891 million injection into the Lower Thames Crossing scheme and a commitment to addressing complex nuclear regulation also demonstrate a desire to speed up infrastructure delivery.

A funding boost to planning capacity somewhat takes the edge off of the ‘exodus’ cautioned by the Royal Town Planning Institute (RTPI) too. RTPI research⁽²⁾ shows one in five planners aim to leave the profession within three years while 58% report being overstretched frequently or constantly.

An additional £48 million for the planning system, which includes investment in 350 new planners in England, on top of the 300 promised in the Labour manifesto, also turns the heat down a little.

There wasn’t much excitement on the residential front. The government is still bandying its 1.5 million homes target about despite the well-publicised challenges.

The latest BCIS Private House Construction Price Index, which shows the price paid by housebuilders to construct residential property, suggests housebuilding cost inflation is relatively stable. Higher activity levels therefore seem dependent on demand improving – more support for first-time buyers in particular would have been welcomed to kickstart the stalled housing market.

A missed opportunity for construction, this Budget seemed to be aiming for stability over growth – an almost typical tax and spend Labour Party budget.

However, most of the pain in terms of taxation is backloaded and we must ask if that is realistic given an election will be just around the corner. We will have to wait and see if the promised growth ever materialises.

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^{(1) GOV.UK – Unemployment   – here}

^{(2) RTPI – One in five planners expected to leave the profession within three years, with no clear plan to replace them – here}