Unpacking the 2025 Autumn Budget for the Construction & Engineering Sector

Our construction and engineering team dig into the heart of the Autumn 2025 Budget and its implications for the sector.

Investment in infrastructure, the built environment and the energy sector

The Chancellor’s decision to maintain £120 billion in capital investment for housing, transport, and infrastructure aims to ensure a steady pipeline of projects, including urban regeneration and energy efficiency upgrades. These measures offer significant opportunities for developers, contractors, and consultants, particularly in sustainable construction and green technology.

Leading construction commentators have welcomed the Chancellor’s renewed commitment to infrastructure investment, notably the £900 million for the Lower Thames Crossing, regional rail upgrades and the Northern Powerhouse Rail initiative, as well as a commitment to £13 billion in devolved funding for regional infrastructure and skills. Whilst large-scale projects carry inherent delivery, overrun and cost-escalation risks, the industry hopes to see these funds deployed effectively and efficiently so that these investments sustain workloads in the sector.

In energy, the Budget aims to support net-zero and energy security goals, with backing for nuclear projects like Sizewell C and the UK’s first Small Modular Reactors with Rolls-Royce, alongside ongoing support for renewables and grid upgrades. The Warm Homes Plan and measures to reduce industrial electricity costs further benefit the sector. The government also confirmed its endorsement of the principles in the John Fingleton report to streamline the regulatory process for new nuclear construction.

Planning reforms and funding

Overhaul of the planning system has been a long-standing focus of this government, and this budget allocates £48 million of new funding for local planning authorities to enable them to recruit 350 extra planners. This aims to tackle recruitment and retention issues by extending the Pathways to Planning Graduate Scheme and creating a new planning careers hub. The government also says it is working with judges to reform the way that planning cases are dealt with and the speed with which they are heard.  It is hoped that this will help accelerate approvals for housing and commercial projects, with the OBR projecting annual net additions to UK housing stock rising from around 215,000 in 2026–27 to 305,000 by 2029–30, largely due to reforms to the planning system.

However, the OBR warns that the benefits of planning reforms will take time to materialise, with most housebuilding growth expected after 2027. Short-term risks include a dip in housing supply, potential delays from new environmental safeguards in planning legislation, and the prospect of reduced public capital spending after 2027–28. Rising construction costs and interest rates also threaten project viability. Effective implementation and management of planning changes will be crucial to realising the Budget’s ambitions.

Employment, recruitment and retention

The Budget’s offer of free apprenticeship training for under-25s at SMEs was positively received. Whilst some industry bodies warned that short courses might dilute standards and fail to address core barriers to apprenticeship uptake, moves to address the major and persistent problems with recruitment and retention in the sector will be broadly welcomed.

Whilst increases to the National Living Wage could help mitigate the recruitment and retention problems, no one in the industry will be blind to the cost-pressure challenges that have hit the sector in recent years. With the national insurance rise still within recent memory, the rise in the National Living Wage has been described as a significant challenge to already tight margins. Whether this will lead to project repricing, constrained recruitment and increased insolvency, or whether those fears are exaggerated, remains to be seen.

Landfill tax reforms abandoned

Fears had been building about the plans to reform the two-tier landfill system, which may have threatened housing targets and significant infrastructure projects. Heathrow airport, for example, had projected huge cost increases if plans had materialised. The government decided not to follow through with that plan and the retention of the existing system was broadly welcomed. The tax exemption for filling in quarries remains, which will come as a relief to housebuilders who rely on that cheaper alternative to landfill.

Disputes & Risk Management

The Autumn Budget, while not directly addressing dispute resolution, introduces policies that shape the risk landscape for construction and engineering. Sustained public investment and efforts to stabilise the economy are expected to create a more predictable environment, reducing project disruptions that often lead to disputes. Measures to enhance fairness, such as a £2.3 billion HMRC compliance package targeting fraud in the Construction Industry Scheme (“CIS”), should support honest contractors and reduce rogue activity. Business rates relief and a stable corporation tax regime may encourage investment, potentially resulting in fewer distressed projects and contentious situations. As planning reforms take effect, a decline in lengthy appeals and judicial reviews is anticipated.

However, increased HMRC scrutiny, new CIS and off-payroll rules, and broader tax changes will heighten compliance demands and could trigger more disputes over employment status, VAT, or payment practices. Rising payroll costs and a higher National Living Wage may squeeze margins, leading to more claims under fixed-price contracts. Future public spending cuts, stricter planning requirements, and the complexity of large infrastructure projects also pose risks of disputes and litigation. Robust contract management and early dispute avoidance will be essential to balance growth opportunities with prudent risk management.

Conclusion

The persistent problems in the industry of supply chain constraints, labour shortages, inflation, and higher taxes and interest rates may inevitably continue to challenge the industry, impacting investment and confidence. Regulatory challenges, particularly in the field of building safety, will not be quickly resolved. However, the government’s commitment to training and skills, infrastructure investment, planning reform, and clean energy initiatives will certainly be welcomed by the construction and engineering sector.

Overall, while opportunities are significant, effective risk and contract management is essential in a challenging economic climate. Those businesses and organisations that grapple with planning and other changes and proactively manage and mitigate their risks will be best placed to navigate both opportunities and challenges ahead.

Burges Salmon’s specialist Construction and Engineering team are highly experienced in helping clients across the sector navigate legal, regulatory and policy changes.  Please do get in touch if you have any queries on this or any other topics.

This article has been written by Sarah Steed and James Hancock.