Michael Comba and David Owens discuss the impact of the new government's first budget on the construction industry.
Back in July we took a look at what the King’s Speech had in store for the construction industry. We saw grand plans for boosting infrastructure and construction with planning reform and government-led initiatives like GB Energy. What we didn’t see at that point was the funding behind them – so what did the Budget deliver?
New housing
Housing is a central plank of the Government agenda. We had previously identified that its plans for major housebuilding growth probably needed a greater role for government with social housebuilding remaining sluggish.
There was movement in this direction – £500 million given for the affordable homes programme to support construction of 5,000 affordable homes and over £5 billion in housing investment overall.
Local authorities will now also be entitled to retain 100 per cent of all income receipts from right-to-buy sales.
This has been a longstanding demand from councils to help reduce pressures on social housing stock. They may be further pleased by the announcement to reduce the discount available to those using right-to-buy.
We could see a further uptick in local authority and registered provider housebuilding as a result.
Old housing
Perhaps less noticed than RTB changes, was the announcement of a new social rent settlement. Subject to consultation, the intention is to permit providers to increase rents above inflation rent.
That had been long called for by the sector to help replenish coffers for much needed repairs and maintenance.
The Budget also had more for upgrades to housing stock. The Warm Homes Plan was given £3.4bn to support heat decarbonisation and energy efficiency in homes – largely distributed through local authority grants.
A further £1 billion was also committed towards remedial works for unsafe cladding – something that has been progressing slowly.
That all could lead to an injection of demand in the repairs and maintenance market in both public and private sector settings.
Public sector estate
The general election saw a lot of discussion around the perceived state of disrepair within public buildings.
Schools are one beneficiary of this, with Rachel Reeves pledging nearly £4 billion for the rebuilding of 500 schools and in school maintenance, particularly for RAAC repairs.
Another is hospitals, with a £3.1 billion increase in capital expenditure. The focus of this investment will be on repairs and expansion of bed and testing capacity.
Together with new housing spending, contractors could be looking at order books filling up with government contracts.
Infrastructure
The Chancellor announced the greenlight for various flagship projects from the Trans-Penine railway to 11 new green hydrogen schemes. There was also confirmation that the HS2 link to London Euston station was back on.
The Treasury has now also adopted new borrowing rules that will free up more money for capital expenditure – that could lead to more infrastructure projects further on in the government’s term.
Next up?
Public sector employers will be pleased to see some additional monies to undertake both new projects and badly needed repairs and maintenance. The industry will similarly be pleased by a possible buoyance in public sector demand.
Nonetheless, contractors will still be concerned that the industry remains hampered by an ongoing skills shortage and general lack of capacity within the sector. The Government will ultimately need supply to deliver on its new demands.
Specifically on housing, these new initiatives will help the Government’s ambitious target of 1.5 million new homes. However, there remains a lot of ground to make up.
All eyes in the housing sector will now be on the forthcoming Spring Spending Review in 2025. In particular, it is expected the Government will use that review to set out the details of its investment in the affordable homes programme post-2026.
Michael Comba is an Associate and David Owens is a Partner at Sharpe Pritchard LLP.
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