Hold your nerve and cut the cost of building: what construction wants from Healey’s first Budget

Two years ago, Rachel Reeves promised to deliver “the most pro-growth Treasury in our country’s history”. But in her first Budget in October 2024, hamstrung by a manifesto pledge not to raise taxes on “working people”, the Labour government’s then chancellor raised employer national insurance (NIC), lowered the employer NIC threshold and raised capital gains tax (CGT), alongside a 6.7% rise in the national living wage. Her second Budget in 2025 cut tax relief for capital expenditure.

Construction has struggled since. The S&P Global UK Construction Purchasing Managers’ Index peaked at 57.2 in September 2024, a month before Reeves’ first Budget, fell to 44.6 by February 2025 and has stayed below the no-change mark of 50 ever since, reaching a low of 38.2 in May 2026. Building safety regulation and this year’s Iran conflict have added to the strain.

John Healey and Andy Burnham have both met business leaders to reassure them, with Burnham reported to have said he wanted the UK to be the most “pro-business country in the world”. Reports this week that Healey has ruled out a CGT rise, against the advice of some cabinet ministers, suggest he is listening.

He is also expected to set out details of the Your First Home scheme, which will let first-time buyers purchase a new-build home with a 2.5% deposit and a 20% government equity loan. But a reported plan to increase tax on banks could push up the cost of borrowing, a risk for the capital-intensive and debt-dependent property development sector.

With a week to go before Healey and Burnham’s first fiscal event, we asked for the views of industry bosses and trade bodies, putting three core questions to them: what their biggest cost pressures are, what Healey could do to help, and what the nightmarescenario would be.  

Which cost pressure is hitting your margins hardest right now, and what should the chancellor do about it?

The clearest themes emerging from the full range of built environment sectors in terms of cost pressures were regulatory burdens and staff costs. The Building Safety Act, introduced in 2022, has often made it more difficult for developers to make large residential schemes viable at a time when borrowing costs remain high and the housing market remains subdued. Environmental regulations including biodiversity net gain and requirements for greater energy efficiency, which are set to strengthen next year with the new Future Homes Standard, have added to a mountain of costly regulatory barriers which developers, architects, contractors and others are having to navigate to get schemes approved, let alone built.

Andrew Reynolds, RLB global board director and chief executive for the UK and Europe, said that regulatory complexity and the associated costs of compliance are “among the most significant pressures facing our industry”. He said effective regulation was essential but it must work “hand in hand with growth, rather than create unnecessary barriers to investment and delivery.” While building regulation is not directly within the remit of the Treasury, Reynolds called on Healey to focus on creating an environment that provides businesses with the certainty to invest and deliver projects efficiently.

There is a need to look at regulatory requirements in the round to see if cost burdens can be minimised without impacting outcomes

Paul Hackett, Southern Housing

Stephen Teagle, partnerships chief executive at Vistry, told us that the “cumulative regulatory burden” was the most challenging cost pressure facing the housebuilder at the moment and called on Healey to review the current regulatory framework to help with viability. Paul Rickard, chief executive of housebuilder Pocket Living, agreed “regulatory layering” and the “combined impact of historic and recent regulations and taxes on the housing sector” as the biggest pressure on margins.

Paul Hackett, chief executive of 80,000-home housing association Southern Housing, flagged the combined cost of the Competence and Conduct Standard and the revised Decent Homes Standard as factors weighing on the balance sheets of housing associations. “There is a need to look at regulatory requirements in the round to see if cost burdens can be minimised without impacting outcomes,” he said, adding that a single later deadline for new Minimum Energy Efficiency Standards and the Decent Homes Standard would enable homes to be upgraded more cost-effectively. 

The increased cost of employing staff under Reeves’ 2024 interventions on employer NIC and the minimum wage was frequently mentioned by firms across the built environment spectrum. “Our biggest cost pressure is people,” said Oliver Milton, managing partner at architect Hawkins\Brown. “Architecture is a people-led profession, yet salaries have struggled to keep pace with inflation while recruitment, retention and other employment costs have increased,” he said, adding that the issue was worsened by fixed fees which make it difficult to pass on costs to clients. Milton called on Healey to avoid further taxes on employment while increasing support for skills and training.

Salaries have struggled to keep pace with inflation while recruitment, retention and other employment costs have increased

Oliver Milton, managing partner at architect Hawkins\Brown

Gaauri Lamb, chief executive of the SME engineering firm FHP Group, said labour costs were “without question” the biggest pressure on the margins of the building services engineer. The rise in NIC contributions landed amid ongoing high inflation, while clients facing their own pressures became more aggressive in project cost negotiations. “We are squeezed from both ends,” Lamb said. She called on the chancellor to ease employer NICs for smaller firms, or raise the threshold, “so businesses can pay people fairly without eroding the margin needed to invest”.

Dan Weiss, managing director of consulting at property services firm Bellrock, said wage inflation was “now running well ahead of fee inflation, and of the client budgets and frameworks we deliver through”, with the pressure greatest in the major cities where living costs are highest. He called on Healey to back professional routes into the sector, “from chartered surveying to fire safety and building safety management, so firms can grow the talent pool rather than compete for the same people”.

Steven McGee, chief operating officer for the UK and Ireland at contractor Sisk, echoed Milton’s call for more help with skills while calling for employment regulations to be simplified. McGee said he wanted to see measures which would help employers “attract talent, improve productivity and strengthen the competitiveness of the built environment sector”.

Meanwhile, Tomás Neeson, chairman at consultant Cundall, called for greater freedom of movement with Europe to allow easier recruitment of the best skills. “The government working towards more free movement of talent with our European neighbours would be a massive benefit to being able to deploy the best available talent in all we do, so in that respect finding ways to assist in skills shortage will help not only our business directly but the whole industry,” Neeson said.

Energy is particularly important because it affects not only contractors but also the manufacturers producing the materials we rely on

Reds10’s chair Paul Ruddick

For others, energy and materials remain the sharpest pressure. “The biggest pressures remain materials and energy costs,” said Reds10’s chair Paul Ruddick. “Energy is particularly important because it affects not only contractors but also the manufacturers producing the materials we rely on.” He called for measures to reduce energy costs for businesses and manufacturers, through targeted tax incentives or support for investment in more efficient, lower-carbon operations.

Stephanie Marshall, managing director for UK real estate cost management at Turner & Townsend, pointed to ONS figures showing the construction insolvency rate at 20% above 2019 levels, warning that a shrinking supply chain is pushing up labour costs while strained manufacturers increase reliance on imported materials. “The chancellor should use the Budget to back British manufacturing, strengthening domestic production in priority sectors and boosting our economic resilience,” she said.

David Crosthwaite, chief economist at the Building Cost Information Service (BCIS), said fuel, oil-derived and energy-intensive products, along with steel exposed to tariff changes, had been the main sources of cost pressure in recent months. “Extending the freeze on fuel duty would therefore be a sensible measure, particularly while the conflict in the Middle East continues to put pressure on energy prices,” he said.

Aecom chief executive Europe & India Richard Whitehead also singled out energy. “High energy prices are placing significant pressure on our sector, driving up the cost of construction and undermining the viability of major projects,” said the firm’s chief executive for Europe and India. “Combined with labour and supply chain inflation, they are squeezing margins across the board and making the UK a less competitive destination for investment.”

What single measure in the 28 October Budget would make the biggest difference to your business over the next three years, and why?

Many firms mentioned targeted tax exemptions as a measure which would provide them with the confidence to invest and grow in the coming years. Pocket Living’s Rickard said a recognition of the challenges facing SME developers by establishing them as a separate “delivery category” with less onerous regulatory and tax burdens would “help stop the slide to extinction facing the sector”. He said any policy exemptions should be appropriate to SME firms’ size and delivery record while maintaining quality and safety.

FHP Group’s Lamb made a similar call for tax relief for SMEs working in the building services sector, arguing specifically for a reduction in employer NICs. “Every pound that eases the cost of employing people is a pound we can reinvest in hiring, training and keeping talent,” she said. “For a consultancy like ours, people are the business, so this is the lever that creates jobs, spending and growth.”

For a consultancy like ours, people are the business, so this is the lever that creates jobs, spending and growth

FHP Group’s Gaauri Lamb 

Matt Keen, senior vice president for construction at software firm Causeway Technologies, wants the Budget to take “real action towards prompt payment”, blaming slow and inconsistent payment practices for “high numbers of businesses going into administration”. He called on the government to “enforce fair, on-time payments for SMEs and eliminate paper invoicing through the e-invoicing mandate”, which he said would “help support and modernise how the industry operates”.

Architects made the case for a tax change aimed at existing buildings. Hawkins\Brown’s Milton said a reduced or zero rate of VAT on qualifying retrofit and energy-efficiency works would make the biggest difference to his practice. “Many clients are looking at retrofit as a way to reduce the cost and carbon associated with demolition and new construction, but the upfront business case remains difficult,” he said. “Over the next three years, this could turn retrofit from an aspiration into a viable investment decision for many more building owners.”

Pierre Wassenaar, chair of Stride Treglown, also called for VAT on refurbishment and new build to be equalised, alongside “political bravery” to unlock stranded assets, such as compulsory purchase. “All the headlines are about new build homes, but there are outrageous numbers of unoccupied buildings (commercial and residential) across the UK that could be turned round to help the housing crisis,” he said, pointing to Spain, where the state has intervened to take stranded assets off the market, refurbish them and rent them out for five years before returning them to their owners. “We should be considering bold ideas like this.”

“Certainty” was also a word which came up frequently in responses, particularly in relation to public spending programmes. “For me, it’s all about certainty,” said Ruddick at Reds10. “Construction doesn’t respond well to stop-start investment. We make decisions years in advance, whether that’s recruiting people, investing in manufacturing facilities or developing new technologies,” he added.

Rather than calling for new announcements, Ruddick is hoping for confirmation that existing announcements on public sector projects, including healthcare, education, defence and infrastructure, are still going to happen.

RLB’s Reynolds agreed that the “single most impactful measure” at next week’s Budget, not just for construction but for UK plc more broadly, would be “a clear commitment to a fully funded, long-term infrastructure pipeline”. Marshall at Turner & Townsend said “consistency” is the key to both enabling the industry to deliver and providing private investors with confidence. “Given the limits of the public purse, this has to be a priority for the chancellor if the government is to bridge the gaps in funding and ultimately achieve Burnham’s promise of good growth in every postcode,” she added.

Aecom’s Whitehead, investment alone is not enough. He wants the government to tackle “slow, fragmented progress in delivery” and introduce new funding mechanisms to improve the viability of complex sites. “Planning reform has been a welcome step forward, but faster approvals alone will not bring forward projects that are no longer financially viable,” he said. “Targeted support to bridge funding gaps would help unlock stalled schemes, restore confidence and ensure the industry can turn ambition into delivery.”

The longer we delay upgrading our infrastructure the more costly and complex this will become

Cundall’s Tomás Neeson

Cundall’s Neeson called for investment in infrastructure, especially renewable energy, and for infrastructure to be made resilient to future climate risks. “2026 has already seen record breaking heat in the summer and exposed several vulnerabilities in infrastructure’s resilience,” he said. “The longer we delay upgrading our infrastructure the more costly and complex this will become.”

Those wanting a clear direction on future infrastructure pipelines will have been unsettled by Burnham’s refusal to confirm his support for the expansion of Heathrow airport, although Healey said last week there was a “pro-growth case” for the £49bn project, which would be privately funded but needs government backing. This year’s change of prime minister has also injected a degree of uncertainty over previous PM Keir Starmer’s 10-year infrastructure strategy, which Burnham is yet to comment on directly.

On housing, many firms are seeking more support for first time buyers and affordable housing. Neil Deely, co-founder and partner at architect Metropolitan Workshop, said low cost loans for councils could help housing starts while increased grants could be targeted at social housing. McGee said Sisk would like to see Healey address housing affordability to deliver wider economic benefits including better labour mobility and workforce retention. The government’s key intervention in this field is likely to be the Your First Home scheme, which will be fleshed out next week.

Sally Lewis, principal at BM Stitch, went further, arguing that the government’s £39bn social and affordable homes programme “is simply not enough and won’t shift the dial, particularly in London”. Vistry’s Stephen Teagle wants support for Homes England and combined authorities to accelerate delivery through the cash-backing of allocations.

Southern Housing’s Hackett called for a pilot of a shared ownership staircasing mortgage product devised by the housing association and backed by the National Housing Federation and the G15, which he said could release around £7bn of additional capital receipts for housing associations to reinvest over five years.

But respondents had different views on whether boosting demand is the answer. The Home Builders Federation (HBF) argues that a lack of effective demand is one of the biggest constraints on supply, while the Royal Institution of Chartered Surveyors (RICS) says “housing supply, not demand, remains the key constraint” and wants support extended to buyers of existing homes. BCIS’s Crosthwaite warned that Your First Home “on its own does little to address the viability constraints facing housing development”, and that a sudden rise in demand without the workforce and supply chain to meet it could push costs up further.

What is the worst outcome this Budget could deliver for your sector?

It is clear that the worst case scenario for many built environment firms would be further NIC increases. This seems unlikely given Healey and Burnham’s signalling to business, although the chancellor has not ruled it out and he remains hemmed in by his pledge not to raise income tax, VAT or employees’ national insurance. 

The worst outcome next week would be “anything that further throttles growth,” said Wassenaar at Stride Treglown. He is concerned that “bond market pressure will force austerity measures which further limit growth”. Hawkins\Brown’s Milton pointed to some tentative signs of growth this year in the UK economy, which grew by 0.6% in the first quarter and 0.5% in the second. “The worst outcome this Budget could deliver for our sector would be anything that dents inward investment and confidence in the UK economy,” he said, adding that Healey needed to be “assertively pro-growth” in order to build on any nascent recovery.

Crosthwaite at BCIS aid Healey needed to recognise that a healthy construction industry depends on both sides of the market. “Clients need confidence that projects are affordable and deliverable, while suppliers need a viable pipeline of work at prices that reflect the true cost of delivery and allow a sustainable margin,” he said. Further cost increases could make already challenging business cases unviable, while greater uncertainty over workloads could cut into the margins of contractors and their supply chains, risking further losses of skills, Crosthwaite said.

Construction does not need a catalogue of new announcements from the Budget. It needs consistency

T&T’s Stephanie Marshall

T&T’s Marshall also warned of the impact of “reopening previously made commitments, delaying funding decisions or adding abrupt costs without giving businesses time to adapt”. If higher costs result in a stop-start cycle of investment by both public and private clients, Marshall said there would be deeper longer term damage. “Firms will defer investment in recruitment, training, technology and capabilities, weakening the capacity needed when demand returns,” she said. “Construction does not need a catalogue of new announcements from the Budget. It needs consistency.”

Aecom’s Whitehead warned that a cut to capital investment in infrastructure “would be a blow to a sector already facing significant cost and delivery pressures”, damaging the pipeline and risking “driving away the private investment the UK needs”. With Burnham yet to comment directly on his predecessor’s 10-year infrastructure strategy, Whitehead’s message was pointed: “The government’s 10-year infrastructure strategy is a strong foundation, and investors need confidence that this commitment will be sustained.”

Cundall’s Neeson argued that market uncertainty was one of the leading causes of “the current sluggish performance across construction as a whole”. He called for an “enlivening” of delivery programmes for new schools, hospitals and other public sector buildings, adding that the worst outcome would be “another tilt towards austerity”. Reds10’s Ruddick agreed uncertainty was the “biggest risk”. He said: “If the markets aren’t convinced that the government has a credible plan for managing the UK’s finances, borrowing costs will remain higher for longer. The danger is that more public money ends up being spent servicing debt rather than investing in the infrastructure, schools, hospitals and housing the country needs.”

The danger is that more public money ends up being spent servicing debt rather than investing in the infrastructure, schools, hospitals and housing the country needs

Reds10’s Paul Ruddick 

Bellrock’s warned against “a Budget that ignores the need for infrastructure and building renewal”. When budgets are under pressure, planned maintenance of existing buildings “is usually the first thing deferred, because the consequences are not immediately visible”, he said. “The sector has seen where that leads, from RAAC to damp and mould in social housing. Deferring renewal does not remove the cost. It moves it into the future, increases it, and places the risk on the people who live and work in those buildings.”

For housebuilders, the nightmare outcome is any move which further threatens project viability. Vistry’s Teagle said the worst result would be any reduction or slowing of the government’s £39bn social and affordable homes programme (SAHP) or changes to the 10-year rent settlement. While Southern Housing’s Hackett believes there is no reason to expect the latter, he said the result if it did would be “ruinous” for housing associations. Lewis of BM Stitch said the worst outcome would be “no tangible action to fund permanent social housing on a grand scale to stop emergency public spending on temporary accommodation”. 

Developers are also tentatively awaiting details around the Your First Home scheme, with Pocket Living’s Rickard saying that his worst case scenario would be a scheme that offers no support for SME developers or one which does not encourage innovations in newbuild delivery.

Few doubt Andy Burnham’s ambition for this government. What some may question is his willingness to make difficult decisions which would risk his standing in both the Labour party and the country at large. For RLB’s Reynolds, the worst outcome next week would be “ambition without any firm implementation plans to create the certainty, capability and capacity needed to turn policy commitments into real projects and economic growth”.

What did the trade bodies say?

Chris Williamson, RIBA President:

“Andy Burnham talks about growth in every postcode, of economic renewal and good homes, delivered by councils and mayors across the country. But the Government is missing the key ingredient: investment. A little in to get a lot more out – be it economic or social value.  

“Our asks of Government set out a clear package to deliver this. We need to see investment in architectural education, a programme that enables local authorities to build social homes, and a change to built environment apprenticeships that work for young people and universities.  

“We don’t need to dig deep to begin demonstrating the value of this investment. City architects, who provide strategic oversight of the built environment, can provide a high return on investment. Modelling suggests that a three-year pilot in Greater Manchester could generate £47.6 million in additional value from an investment of just under £702,000. 

“This Budget is an opportunity for Andy Burnham’s government to turn its ambition into action, backing the skills, local leadership and social housing needed to deliver growth across the country.”

Ben Goodwin, director of policy and public affairs for the Civil Engineering Contractors Association (CECA):

“The government’s infrastructure ambitions must be unambiguous: to deliver economic growth and good jobs, a stable pipeline of investable infrastructure projects is necessary.

“Budget 2026 must deliver funded programmes, reliable procurement timetabling, and a properly resourced planning system that cuts red tape and brings projects forward to market. 

“The dhancellor should resist the temptation to make short-term savings at the expense of the infrastructure that underpins long-term growth and, ultimately, national security. Cutting or delaying investment would weaken industry confidence at a time that CECA members need to recruit, train, and build capacity.

“The projects CECA members deliver are central to our economic health as a nation. That’s why we’re calling on John Healey to use his first Budget to outline how the UK will go for growth, move away from disruptive stop-start investment, and prioritise infrastructure as the backbone of our shared economy.”

David Barnes, head of policy and public affairs at the Chartered Institute of Building (CIOB):

“The Autumn Budget is an opportunity to strengthen support for construction skills, accelerate investment in existing homes, and to ease the pressures facing small and medium-sized construction firms. 

“The National Audit Office’s recent Increasing Construction Skills report highlights the risks to delivering the workforce needed to meet the Government’s ambitions. Sustained investment in apprenticeships, further education, and training providers is essential to closing skills gaps and delivering housing and infrastructure.  

“The government must also increase support for repair, maintenance and improvement, while reducing red tape and fiscal burdens on SMEs, helping businesses remain viable, and invest in the workforce of the future.” 

Chartered Institute of Housing (CIH):

The Budget submission from the CIH says it wants the chancellor to go further on social housing, building more homes, keeping the ones that exist and improving their quality. It is calling for the Social and Affordable Homes Programme to be topped up and front-loaded, with options explored to free councils from historic Housing Revenue Account debt and to retain existing social rent homes. It also wants action on homelessness and temporary accommodation, and a modernised Healthy Social Homes Programme, devolved to mayoral strategic authorities in England.

“The Autumn Budget is the time for the government to go further and faster to address the scale of the housing challenge,” it said. “Bringing forward more funding into the early years of the programme would deliver more homes more quickly.”

Building will be covering next week’s Budget and comparing the announcements against these asks