Budget brings more costs to construction’s doorstep

Construction firms will face added costs from next year after Chancellor Rachel Reeves detailed a raft of pay and tax hikes in the Autumn Budget.

Speaking before the House of Commons on Wednesday, Reeves confirmed a 4.1% increase in the National Living Wage for over 21s and an 8.5% rise in the National Minimum Wage for 18-20-year-olds, effective from April 2026. Pay packets for apprentices and 16-17-year-olds will also increase by 6%.

BCIS chief economist, Dr David Crosthwaite, said increasing pay will only compound a tough situation for construction employers who are being squeezed by tight margins, cost inflation and sluggish demand.

He said: ‘The above-inflation rise in the minimum wage is not as shiny as it sounds. It assumes that economic conditions are conducive for businesses to increase recruitment. That’s not currently the case, as evidenced by the high unemployment rate and dwindling construction workforce.’

Dr Crosthwaite said the three-year freeze on the secondary threshold for employers’ National Insurance contributions (NICs) was another hit the sector didn’t need.

Under the new rules the point at which employers start paying NICs on their employees’ wages, which currently stands at £417 a month, will not rise with inflation as of 2028. This will pull more employers into paying NICs as wage growth continues.

Annual employee pension contributions exceeding £2,000 will also see workers and their employers taxed from 2029.

‘The Chancellor called private investment the lifeblood of economic growth. But as we later had confirmed, the threshold for employer National Insurance contributions (NICs) will freeze from 2028-29 and NICs will be charged on salary-sacrificed pension contributions. Will this government ever learn from the unintended consequences of its policies?’, Dr Crosthwaite added.

‘Increasing the cost of doing business is likely to be inflationary. Higher costs will inevitably be passed on, placing further upward pressure on tender prices and reducing firms’ ability to hire. This could pile on more friction at a time when construction activity is already fragile.’

More promising Budgetary measures for construction businesses include nearly £900 million of additional capital investment in the Lower Thames Crossing scheme, free training for under-25 apprentices for SMEs and £13 billion of flexible funding for seven mayoral strategic authorities to invest in skills, business support and infrastructure.

These introductions are welcome, Dr Crosthwaite said, but are grossly overshadowed by a future of heightened input costs and a lack of support for construction businesses.

‘The Chancellor’s celebration of the government’s planning overhaul to ‘get Britain building’ seemed misplaced. Construction output and housebuilding data tell another story – one of slow demand and a shrinking workforce. For construction, already faced with chronic labour gaps and rocky investor confidence, this Budget might create more issues than it solves.’

New data from the ONS has shown that the UK construction workforce shrank to its lowest level in almost 25 years in 3Q2025. The sector’s quarterly output grew by just 0.1% in the same three-month period.

Key construction-relevant measures announced in this year’s Budget are outlined below:  

• OBR growth forecast increased to 1.5%. Productivity downgraded.  
• Increases in the National Living Wage and National Minimum Wages from April 2026. 4.1% for over-21s, 8.5% for 18-20-year-olds and 6% for apprentices and 16-17-year-olds.  
• Freeze on the secondary threshold for employer National Insurance contributions from 2028 to 2031. The threshold won’t rise with wage inflation during those three years.  
• Capping of annual, tax-free employee pension contributions at £2,000 from 2029. Employees and employers will pay tax on contributions exceeding this amount.  
• Free training for apprentices under the age of 25 for SMEs. Funding to come from £725 million allocated under the Growth and Skills Levy.  
• £13 billion confirmed for seven mayoral strategic authorities. To be invested in skills, business support and infrastructure.  
• Additional £900 million of capital funding for the Lower Thames Crossing scheme.  
• Continued commitment to Spending Review infrastructure and housing funding. 
• Government to produce plan within three months that delivers on recommendations for nuclear regulation reform.  
• £48 million of additional funding for planning capacity. Includes investment in 350 extra planners in England.
• Converging of the two landfill tax rates paused. 

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