29th May 2024 -

The 2024 UK budget carries several key implications for the construction industry. In a difficult economic period, the budget attempts to meet key goals around stabilisation, growth, and sustainability. We’re going to explore the crucial impacts of the budget on the construction sector, from tax adjustments for small businesses to investments aimed at bolstering the UK's renewable energy capacity and addressing the critical housing shortage. As the construction industry navigates the economic moment, understanding the nuances of the budget can help to flag opportunities and potential issues across the UK.

Key Takeaways

The full budget details many different changes to taxation, insurance, and the overall economy. Here are some of the crucial takeaways:  

How Will This Affect the Construction Industry?

While reception to the budget has been mixed within the construction industry, it is likely to have a variety of impacts thanks to changes in inflation, funding for green initiatives, tax changes, and the push for new home development.

Inflation Could Help Control Building Material Prices

As the 2024 UK budget unfolds, a significant point of interest for the construction industry lies in the government's inflation forecasts, with numbers expected to move below the government's 2% target sooner than previously anticipated. Over the last few years, material prices from timber to steel have risen sharply, thanks to a series of factors including the COVID-19 pandemic and the Ukraine War. A more consistent level of inflation across the UK economy could:

  • Stabilise Material Costs: The construction industry has been grappling with soaring costs for key materials such as timber, steel, and concrete over the last 5 years, exacerbated by global supply chain disruptions. As inflation eases, we can anticipate a moderation in these price surges, aiding in more predictable project costing and planning.
  • Reduce Interest Rates and Borrowing Costs: The budget showcased lower-than-expected interest rates, meaning that projects facing difficulties due to high borrowing costs may become easier to finance, spurring growth within the sector.

The controlled approach to inflation as presented in the 2024 UK budget should be a cause of cautious optimism for the construction industry. However, it’s important to consider the turbulence of recent years, and have clear plans for dealing with future price changes.

Funds For Green Manufacturing

The 2024 UK budget's substantial financial commitments to green manufacturing and renewable energy, with over £1 billion allocated for the upcoming Contracts for Difference (CfD) auction alone. This move is set to invigorate the UK's renewables sector, driving forward the deployment of clean, secure, and affordable energy, and positioning Britain at the forefront of renewable technology, particularly in offshore wind. For the construction industry, this funding boost presents a multitude of opportunities:

  • New Projects and Work Opportunities: The earmarked £800 million for offshore wind, part of the largest CfD allocation round yet, will lead to a wave of new projects. This should mean an uptick in demand for various construction roles, from the initial groundwork and infrastructure development to the final construction phases of renewable energy projects.
  • Adoption of Innovative Construction Methods: The focus on renewables, particularly emerging technologies like floating offshore wind and geothermal energy, necessitates innovative construction approaches. The industry will likely see a shift towards more sustainable building practices, materials, and technologies, aligning with the green transition.
  • Economic Growth and Job Creation: With the renewable sector's expansion, spurred by significant public and private investment, the construction industry stands to benefit from economic growth and job creation. The expectation of £100 billion in private investment for the UK’s energy transition by 2030, supporting up to 480,000 jobs, underscores the scale of this opportunity.
  • Enhanced Energy Security: By bolstering the UK's renewable energy capacity, these investments contribute to greater energy security. In the long term, this should reduce both price fluctuations and overall bills, saving you money across your projects.

Tax Changes For Small Businesses

The budget introduced several tax changes that stand to benefit small businesses, encompassing many within the construction industry. From VAT changes to National Insurance contributions and fuel duty, there are a wealth of small changes that could save you time and money.

  • VAT Threshold Increase: Notably, the increase of the VAT threshold from £85,000 to £90,000 starting 1 April 2024, reduces the tax burden and simplifies financial management for small construction firms. This adjustment allows more small businesses to focus on growth without the immediate pressure of VAT registration and its associated complexities.
  • Self-Employment National Insurance Reductions: The reduction of Self-Employed National Insurance Contributions from 8% to 6%, effective from 6 April 2024, presents a direct financial relief to self-employed professionals within the construction sector. This cut, coupled with the previous year’s reduction, translates into an average tax saving of £650 per year.
  • Growth Guarantee Scheme: The extension and renaming of the Recovery Loan Scheme to the Growth Guarantee Scheme until 2026, guaranteeing 70% of loans up to £2 million, is a critical measure. It provides construction businesses with an enhanced opportunity to access necessary funding for recovery and expansion, supporting the sector's overall resilience.
  • Fuel Duty Freeze: The decision to freeze fuel duty for 12 months benefits construction businesses that rely heavily on transportation.

New Homes

The UK government's commitment to addressing the housing shortage is demonstrated by their plan to deliver over a million new homes within the current parliament. With mass-scale buildings across the UK, there is a wealth of opportunities for construction firms.

The allocation of £242 million to housing projects in London, targeting areas like Barking and Canary Wharf, targets the building of thousands of homes and a new life sciences hub. This investment not only promises to create numerous construction jobs but also supports the broader economic recovery by adding essential housing stock and infrastructure.

It’s also worth noting the launch of a £20 million community-led housing scheme encourages local community involvement in development projects, potentially leading to the creation of 3,000 new homes. The government's strategic investments in housing, alongside support mechanisms like the Local Nutrient Mitigation Fund, illustrate a clear plan to stimulate the construction industry, support economic recovery, and address critical housing needs. However, the absence of specific support for first-time buyers in the budget was highlighted by industry groups as a gap within the budget and a potential source of future issues in the market.

Preparing For the Financial Future

The 2024 UK budget has received a mixed reaction from the construction industry, but there are numerous aspects of it worth considering for those in the sector. It outlines inroads towards economic stability, green innovation, and increased housing stock, generating new business for construction companies while hopefully reducing the price instability that has occurred in recent years. 

Changes in taxes will also benefit small businesses and the self-employed, from reduced National Insurance payouts to guaranteed loans. Embracing the opportunities in renewable projects and housing development will be crucial to capitalise for the construction industry, as well as adapting to the new economic measures.
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