Construction Sector Under Acute Pressure as Tax Rises Bite

The 2025 Autumn Budget has brought with it substantial tax increases, a freeze on thresholds, and new charges on property and vehicles. For the UK construction sector – already under severe margin, liquidity, and insolvency pressure – the outcome risks pushing many firms beyond breaking point.

The latest data from the 2024/25 Industry Confidence Report (ICR) by the Centre for Construction Best Practice shows contractors are delivering works at or near cost. With inflation, rising wage bills, and now punitive fiscal policy, contractors are being squeezed – passing little relief to clients and little protection for subcontractors across the supply chain.

CCBP warns that without decisive intervention, the government’s housing, infrastructure and net-zero ambitions will be at risk within the next 12 months.

While projects continue to flow through the pipeline, many contractors are now delivering work close to cost as unrealistic budgets, late contractor involvement, policy volatility and rising material cost compound operational risk across the supply chain.

Budget Measures Intensify Sector Pressure

Key aspects of the Autumn Budget will materially increase costs and risk for construction firms:

• Personal income thresholds – including National Insurance thresholds – will remain frozen until at least 2028, increasing the tax burden on both employers and individuals as wages rise with inflation.
• From 2028, mileage-based charges will apply to electric and hybrid vehicles, affecting logistics, site transport costs and sustainability and net zero ambitions.
• The minimum wage is set to rise – while we welcome this for individuals, this will further increase labour costs for businesses during a period where many firms are already operating on thin margins.

The combination of frozen thresholds, increased taxation and rising labour costs means the “cost floor” for delivery has risen – yet public procurement budgets and tender models have not adjusted to match.

Industry Confidence report: Margins, Insolvency Risk and ECI as a Lifeline

The Centre for Construction Best Practice (CCBP) Industry Confidence Report reveals:

• 63% of contractors report a growing pipeline and 74% see high volumes of tenders. Yet, only 40% believe that cost increases are reflected in budgets.
• 72% state inflation is negatively impacting delivery and 73% say insolvency in the supply chain is already affecting their projects. Construction accounts for the highest number of insolvencies of any sector, representing around one in six of all business failures in England and Wales.
• Skills shortages are now a delivery risk: 70% say shortages already impact projects, 72% say recruitment hasn’t improved, and 60% say the sector isn’t attracting new talent. This is affecting viability, quality and programme certainty. The Budget’s increased apprenticeship support for SMEs is welcome, but while this increases Government co-investment and removes the remaining 5% contribution currently paid by employers, it still represents a relatively small saving.

Why the Budget’s “Support for Infrastructure” Pledge Isn’t Enough Without Real Procurement & Tax Reform

While the government pledged funding and investment in infrastructure, housing and skills – with references to major projects and “getting spades in the ground and cranes in the sky” – the fiscal policy context undermines delivery for many firms.

Unless procurement models, contract budgets and public-sector payment terms are adjusted to reflect real costs, much of the promised investment may stall – or be delivered by a shrinking number of financially resilient (often larger) firms, reducing capacity and competition across the sector.

These pressures are echoed by leaders across our Industry Advisory Group, who warn that without long-term certainty, the Budget’s short-term measures will have limited impact. As John Wilkinson, COO at BAM UK and Ireland, comments:

“We welcome any commitment in the Autumn Budget to ease pressures on households and businesses, but short-term relief must not overshadow the long-term investment Britain needs. Infrastructure is the backbone of economic resilience. Without sustained funding dedicated to improving infrastructure, the benefits of any of these measures will quickly fade.

Crucially, energy bills will not fall long-term unless major energy projects can move forward with fewer barriers to delivery, supported by a more efficient planning system.

Multi-year capital commitments give businesses the confidence to plan, invest and deliver. They create jobs, strengthen supply chains and drive regional growth. We urge the government to keep momentum behind major projects and ensure infrastructure remains a priority alongside consumer support.”

CCBP’s Calls to Government Post-Budget

In light of the Autumn Budget 2025, CCBP calls on government to:

1. Re-align public budgets and procurement with real-world costs – recognising inflation, wage rises, tax burdens and supply-chain pressures.
2. Mandate early contractor involvement (ECI) and “best-value” procurement across public programmes, not lowest-price tendering that risks subcontractor insolvency.
3. Protect smaller contractors: review the impact of frozen thresholds, dividend and property taxes, and vehicle/energy-related charges on SMEs and supply-chain firms.
4. Prioritise skills and workforce investment: while wage increases are welcome, industry needs long-term funding, training and stability to address shortages and retain staff.

Robbie Blackhurst, Chair of the Construction Best Practice (CCBP), said:

“Our Industry Confidence Report 2025 shows significant opportunity – a strong pipeline, committed firms and demand, it also highlights eroding margins, skills shortages, policy uncertainty, and outdated procurement models putting delivery at risk.

With 73% already feeling the impact of contractor insolvencies, and now higher taxes, wage costs and compliance burdens, the Autumn Budget is essentially squeezing the sector when it can least afford it.

If government truly wants to deliver its housing, infrastructure and net-zero ambitions, this Budget must be followed with meaningful procurement reform and early contractor involvement mandated, realistic budgets and long-term support for the entire supply chain.”