Chancellor’s continued focus on capital investment welcomed but property sector disappointed that viability issues are not addressed
The chancellor’s second Budget, designed to double her fiscal headroom to £22bn, has received a mixed reaction from the construction industry, with many firms welcoming her commitment to capital investment and funding for apprenticeships but others warning of the impact of property taxes on the housing market.
Rachel Reeves outlined £26bn in tax rises this afternoon, including freezing national insurance and income tax thresholds until April 2031 and introducing a so-called mansion tax in England for properties valued at over £2m.
Other measures included £13bn skills, business support and infrastructure funding for seven regional mayors, increasing minimum wages and halting plans to converge two rates of landfill tax halted.
Alex Vaughan, chief executive at Costain, said: “The chancellor has provided further reassurance that infrastructure remains a powerful lever for the UK’s growth mission. This is an industry that thrives on predictability and clear decision-making from government. Long-term planning and skills investment are essential ingredients for the successful delivery of complex, fit-for-purpose infrastructure across our water, energy, defence and transportation systems.
“However, without a dedicated cabinet-level Minister for Infrastructure, the industry is at risk of spinning its wheels. This role at the heart of government would oversee the 10-Year Infrastructure Strategy and Infrastructure Pipeline, align policy and funding across departments, and instil much-needed confidence in business leaders wanting to invest in the skills of tomorrow.
“Consistency and continuity from government will unlock the UK’s full infrastructure potential and help create a more prosperous, resilient and decarbonised future.”
Andrew Reynolds, RLB UK & Europe chief executive, said: “Productivity is the nation’s challenge, and ONS data shows the construction sector is finally making the biggest upward contributions to year-on-year growth in output per hour worked. The chancellor’s announcement today of £ 820m over three years for “youth guarantee” will be particularly welcome in our sector, particularly the promise for every 18-21 year old in England access to apprenticeship, training and education or job opportunities.
“It was also good to hear the £13bn funding to devolved governments and tax breaks for high street retail and leisure, which will help the urban regeneration needed in so many of our towns. However, the biggest absence from this budget was any significant new announcements on PPP, which, although off the balance sheet, surely is needed to fund the future of our estates within the regions.
“Yes, we’ve had the announcement on Neighbourhood Healthcare Centres, which although part of the chancellor’s narrative today, was announced in July. But nothing further. We could do with more comprehensive announcements on TIF (Tax Incremental Financing) and RAB (Regulated Asset Base) models.”
Melanie Leech, chief executive, British Property Federation, said, “There wasn’t a single thing said in the chancellor’s speech that wasn’t leaked in its chaotic build up. However the lack of surprises doesn’t hide the disappointment that many in the development industry will feel after today. Whilst she spoke positively about the importance of business investment and maintained full expensing and the headline rate of Corporation Tax, there was little to cheer from an investor perspective.
“Indeed, confirmation of the large property business rates surcharge will impact critical national infrastructure like logistics businesses and priority sectors identified in the government’s own Industrial Strategy. While it was always going to be a challenge for the chancellor to both balance the books and support economic growth, it is disappointing that there was nothing introduced to alleviate acute development viability issues. Overall, no surprises, but nothing to cheer either.”
Ben Goodwin, CECA director of policy & public affairs, said: “Contractors will welcome the message in this Budget that infrastructure investment is central to the UK’s growth strategy.
“We are particularly pleased to see that Government has listened to industry, and decided not to go ahead with converging rates of Landfill Tax - a proposed reform that would have severely hamstrung the ability of CECA members to deliver projects cost-effectively.”
On unchanged Stamp Duty for most homebuyers, Spencer McCarthy, chairman and CEO of Churchill LivingOn said: “For too long, punitive costs have discouraged movement within the property ladder and limited access to suitable homes. Stamp duty is a major barrier to home ownership and house moves and the lack of action to change that in today’s budget will condemn Britain’s housing market to further stagnation.
“If the government is serious about growth it needs to urgently reform property taxes so that people can once again move to housing that better serves their needs and we can start to see a more dynamic, accessible market.”
Referring to the London commerical market, Shabab Qadar, Partner, London Offices Research at Knight Frank, said: “For central London offices, the impact is twofold. Occupiers in finance and professional services will take encouragement from efforts to revive the UK’s capital markets, but rising employment and living costs could temper expansion plans elsewhere in the economy. The combination of higher operating costs and limited movement on planning or infrastructure means decision-making is likely to remain cautious as firms look ahead to 2026.
“Investors, meanwhile, will welcome clarity on the fiscal framework but may adopt a more selective stance as pricing adjusts to a tighter macro environment. Prime, ESG-aligned buildings will continue to command interest, but the absence of meaningful support for sustainable refurbishment leaves secondary assets with an unnecessarily uphill path to repositioning.
“Overall, this was a Budget that steadied the ship but did not set a new course. London’s market will adapt - it always has - but today’s measures mean the sails may fill more slowly before the wind picks up again.”
On the viability issues for small developers, Paul Rickard, chief executive, Pocket Living, said: “As the OBR has pointed out in its budget response, the positive planning reforms will take time to materialise and a marked increase in housebuilding is only currently expected to take place from 2027/28. It is therefore imperative that all steps are taken to remove the current barriers to delivery, including tackling the issue of viability. This is especially important for the vital-to-delivery SME housebuilding sector which has the potential to deliver tens of thousands of extra homes across the country. While good progress has been made, now is the time to really pull every lever available to ease the housing burden and stop generation rent becoming generation debt.”
Speaking about the impact on trades,CEO and Co-founder of On The Tools, Lee Wilcox, said: “As the UK’s largest construction community, we hear from trades on site every day. This Budget is asking them to shoulder more risk at the very moment they need stability the most. Higher wage bills, increased National Insurance, and frozen tax thresholds all squeeze the brickies, sparkies and plumbers who already run on wafer‑thin margins, and many will feel they are being taxed for simply keeping Britain’s infrastructure standing.
There are, however, some important green shoots, particularly the £13bn of flexible funding going to seven mayors across England. If those pots are used to back housing, retrofit, regeneration and local infrastructure, it could mean more work.
Another area of optimism is the £820m youth guarantee and the wider focus on skills and apprenticeships. If that money genuinely reaches small firms and sole traders, not just the big players, it could finally help rebuild the talent pipeline and bring thousands of young people into sustainable careers in the trades.
On attracting investors to the UK, Nik Potter, associate commercial research at Knight Frank, said: “The Budget’s focus on infrastructure, innovation and productivity sends an important message that the UK is competing for global capital not just waiting for it. Strategic investment unlocks confidence and keeps the door open for private sector opportunities, particularly into real estate sectors with resilient income profiles and growth opportunities.
“A slower economic backdrop in 2026 may test sentiment but it will also create opportunity. The fundamentals of UK commercial real estate remain strong and as the rate outlook improves those who position early will be best placed to act. The UK is still firmly on the radar of international investors and remains the top destination for global CRE capital in 2025.”
Budget at a glance
- Freeze on income tax and national insurance thresholds extended for three years from 2028
- Legal minimum wage to rise in April by 4.1% for over 21s and by 8.5% for 18 to 20-year-olds
- Plans to converge two rates of landfill tax halted
- £13bn funding for seven regional mayoralties
- “Mansion tax” of between £2,500 and £7,500 for properties valued over £2m.
- Recommitment of £900m for Lower Thames Crossing
- Funding for regional infrastructure projects including £20m Peterborough sports quarter
- OBR upgrades growth forecast from 1% to 1.5% but downgrades productivity
- Fiscal headroom doubled to £22bn
- Recommendations to cut red tape in nuclear sector to be delivered within three months
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