Tuesday March 5, 2024

What can contractors expect from the Spring Budget?

2024 is being viewed by most in the construction sector as an opportunity to stabilise and, in some scenarios, pursue modest growth following an extremely challenging 12 months characterised by inflation, labour shortages and increased borrowing costs.

Indeed, with material cost fluctuations beginning to abate, parts of the market remain cautiously optimistic despite others displaying signs of financial distress.

It’s in this context that leaders in the construction sector will be viewing this year’s Spring Budget with interest. We have written more generally about the low expectations for this year’s Budget, with the upcoming General Election and the Treasury’s limited fiscal headroom – the two biggest influences on the Chancellor’s decision making.

And while we anticipate a generally subdued event in terms of the new infrastructure investments that serve to buoy long-term order books, there are a few areas to monitor.

The Construction Leadership Council’s open letter to the Chancellor is a good place to start. The Council has asked for the government to ringfence any increases in planning fees for local authorities; unlock small brownfield sites for SME housebuilders; encourage Build-to-Rent in order to relieve pressures on the housing system; and incentivise more private finance to accelerate the delivery of affordable housing.

These are of course major asks for a pre-election Budget and, while they might form the basis of future election manifestos, they are unlikely to be prioritised over short-terms initiatives that boost contractor confidence and increase faith in the government.

Among these potential short-term initiatives would be an extension of skills incentives and, in particular, greater flexibility within the apprenticeship levy as labour challenges continue to hamper projects and drive-up costs for contractors through wage inflation.

The housing market is also integral to the sector, and we may well see some relaxation to Lifetime ISA allowances to stimulate first time buyer activity, as well as an extension to the sunset clause on Stamp Duty Tax Relief which expires next March.

More imminently, fuel duty, which has been frozen for over a decade, is set to rise in the coming months and the Chancellor could see an extension as an easy and inexpensive win.

Most likely though is an extension of the full expensing allowances introduced in the Autumn Statement. Full expensing gives companies 25p tax relief on every £1 they spend on qualifying plant and machinery. However, some investments were excluded from the scheme, including second-hand plant and machinery, buildings, land, cars and assets that are leased or used for leasing.

For many smaller and medium-sized contractors, leasing is a less risky, more cost-effective option. Making the allowance permanent would provide those firms with greater certainty and confidence when forecasting for the year ahead.

Whatever is announced, it’s imperative that contractors continue to proactively plan for the future. Knowing who their critical suppliers and clients are, understanding their influence and reviewing relationships where necessary will ultimately reduce risk.

The challenges of recent years mean that many have borrowed heavily and are now required to refinance that debt at higher rates. Mapping out a robust plan to best manage debt will help to alleviate financial pressures and allow the business to maximise its growth potential by the time the Chancellor’s red box returns to the House of Commons.