Budget 2024: Investment prioritised
The recent budget, whilst presenting a number of challenges, is not without opportunity. It was about restoring long-term stability, and was always going to be a difficult job not falling back into austerity yet evening the keel. The chancellor has just about pulled it off.
The chancellor, Rachel Reeves, said she’s about ‘invest, invest, invest’ and repairing the ‘fabric of our nation’. So her controversial, last-minute changes to the fiscal rules are important as they will potentially free up greater scope for critical capital expenditure. Crucially this will allow them to borrow more for investment than they currently can – essential to releasing funds for investing in schools, health, infrastructure, industrial and social housing.
Perhaps the biggest surprise was the scale of investment set aside for critical infrastructure and other construction related activity. This means projects, like the HS2 Old Oak Common to Euston extension and the Transpennine Route Upgrade (TPU), which have been hanging in the balances over the last four months, may actually get off the ground in the next fiscal year. This will all be welcomed across the construction supply chain, providing a much-needed boost following a subdued 24 months of activity.
Steaming ahead While the spending review scheduled for next year will detail the government’s longer term spending plans, the budget includes a substantial increase in capital funding for next year. It’s welcome to hear some big infrastructure announcements that will certainly buoy the construction supply chain. With significant rail upgrades announced, there are huge opportunities for both large and small organisations, with the likelihood that there will be complementing boosts in associated verticals including residential, retail, commercial and hotel and leisure.
There were a string of namechecked projects mentioned, including the aforementioned HS2 Euston extension and TPU, but also nods to East/West Rail as well as major upgrades for key northern rail hubs. Likewise, for roads, with an increase in the pothole fund and an ambitious commitment to fill one million of these a year which will keep civils contractors busy, as well as even more funds allocated for upgrades and resurfacing nationwide.
Looking at other infrastructure investment; while the budget was light on utilities the prospect of a rural broadband upgrade will create more work as the nation looks to address its longstanding poor connectivity.
The government is keen to diversify the UK economy, and this was clearly evidenced through the announcement of more giga factories, ports, aerospace, automotive and life science industries. This could present many opportunities for growth within the industrial sector, where we’ve recently seen a considerable increase in warehouse and logistics facilities as well as data centre projects. As our economy moves further online, no doubt there will be an uptick in these developments.
Social housing was a big winner and will help the government deliver on its manifesto commitments to increase the amount of stock nationwide. A commitment of £5bn on housing, including £3.1bn allocated to affordable homes which will increase government support for new social housing. In addition, the decision to allow above inflation increases in rents over the next five years will enable social landlords to borrow more to fund new build projects. Again, major growth areas including Liverpool and Cambridge were namechecked as locations which would see major residential development in the near future, so these will be the places to watch.
Furthermore, there will also be more work for those specialising in remedial work, with a further £1bn allocated to recladding buildings which do not meet current regulatory compliance.
This government has made a lot of noise around renewables and the statement did not disappoint, with a commitment of billions directed towards the development of more renewable energy resources, particularly carbon capture and storage, as well as green hydrogen. Of course, we will wait to see what form this takes and how the energy secretary overcomes the prevailing NIMBY-ism across the UK regarding renewable infrastructure.
Contrary to expectations, it seems the budget has come as a much-needed and welcome surprise to the entire construction sector. With much-needed capital now being freed up, there’s so much potential to unlock growth and clear and increasingly clogged pipeline of projects.
The announced intention to raise the energy efficiency of the existing housing stock, particularly in the social sector, promises to be another important step towards the UK’s net zero target while also cuffing household fuel bills.
The retail, hotel & leisure sectors will breathe a sigh of relief, especially since the measures announced by the chancellor will not significantly adversely affect them. As usual, the cut in draught duty by 1.7% will be toasted by publicans and operators across the land. Even better, these sectors will no doubt raise a glass to the surprise announcement of business rate reform for these two sector verticals. Unfair business rates have suffocated expansion for decades and a permanently lower tax rate for bricks and mortar assets will no doubt encourage growth and opportunity as operators capitalise on less hostile tax terms.
Bigger increases in funding for Scotland, Wales and Northern Ireland were announced. The largest real terms funding increase since devolution. The construction industry should be particularly interested in the City and Growth Deals in Northern Ireland and Scotland as some of this might be allocated to future new build and urban redevelopment.
Many local authorities have been under increased financial pressure, sparking calls from council leaders and mayors UK-wide for increased funding. The announcements made by the chancellor, especially around the commitments to giving more devolved powers to metro mayors, particularly Greater Manchester and West Midlands. This will give these authorities more control over their budget, and freedom to borrow, unlocking further potential investment in local infrastructure, amenities and other community projects.
The private residential property sector will be smarting from the policies outlined. Not only will they be hammered by the knock-on effects of the CGT rises, but also the increase in stamp duty on second homes by 2% to 5%, This will dent appetites to invest in additional properties.
There will be plenty of work within the education sector, with a generous pot of £2.1bn allocated towards upgrading outdated and crumbling stock, particularly to address the endemic problem of RAAC in facilities.
Likewise a record injection of funding for healthcare facilities upgrades will be welcomed by those working in this sphere, and can look beyond RAAC upgrades; especially with the announcement of around £2bn, which will be partly allocated for other upgrades and extensions as well as new surgical hubs and diagnostic centres.
Contrary to expectations, it seems the budget has come as a muchneeded and welcome surprise to the entire construction sector. With much-needed capital now being freed up, there’s so much potential to unlock growth and clear and increasingly clogged pipeline of projects. The signals are positive and bode well for next year’s keenly anticipated spending review. We’re in no doubt this government does want to invest in building, and look forward to seeing how these exciting announcements unfold over the coming months