The expansive phase of public investment is ending. Government is now betting on leveraging private finance to keep construction’s projects pipeline moving, says Simon Rawlinson of Arcadis
For construction, Budget 2026 is less about new money than making existing commitments work harder. Public investment remains historically high, but the expansive phase is ending.
Capital plans are tighter than they were a year ago and even the Defence Investment Plan has to be funded by taking another 1% from departmental capital budgets and drawing down the Treasury’s capital reserve.
That matters because there is progressively less room to absorb higher costs, overruns or new priorities. Tight revenue spending settlements sit alongside an increasingly demanding fiscal settlement, with a significant increase in the tax take towards the end of the period also needed to make the numbers add up.
Construction still has a substantial pipeline, but there is less breathing space around its delivery.
Rather than continually adding demand through higher public spending, it wants to make development cheaper and faster
Government’s response is increasingly supply-side. Rather than continually adding demand through higher public spending, it wants to make development cheaper and faster. Building regulation stability, brownfield BNG exemptions, planning digitisation, the rail cost review and wider application of the approach taken by John Fingleton’s Nuclear Regulatory Review all point in the same direction.
The Data Centre Covenant makes the approach particularly explicit: if developers can meet tougher strategic tests, then government will intervene to help overcome the critical constraint of access to power.
Alongside this sits a bigger role for financial leverage. The National Wealth Fund, National Housing Bank, mayoral borrowing, Good Growth Funds and local tax retention are all intended to use scarce public resources to unlock larger flows of private investment.
The model is changing. Having spent the first half of the Parliament expanding and allocating public investment, government now needs to make it affordable
Paradoxically these measures point towards an increased role for institutional investment, with public funding being used to make projects more investable rather than funding them outright.
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This is not the end of the investment-led construction cycle. Spending on defence, housing, nuclear, grid and selected transport schemes remain substantial. But the model is changing. Having spent the first half of the Parliament expanding and allocating public investment, government now needs to make it affordable.
For construction, hope for future growth will depend on whether government and industry can attract private investment by reducing the cost and friction of getting things built, rather than relying on breathing space created by further injections of public money.
Simon Rawlinson is a partner at Arcadis
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