Consultant pushes back timing of full recovery in sector to 2026

Arcadis has issued the latest warning about the impact of the Budget on construction costs with the consultant saying the National Insurance hike could add an extra 1% to budgets.

It said the rises, due to come into force next April, could raise project costs by between 0.75% and 1%.

Last week, the S&P Global UK Construction Purchasing Mangers鈥� Index said the impact of tax rises announced by chancellor Rachel Reeves in the October Budget meant optimism about the sector鈥檚 outlook was at its lowest level for more than a year.

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Increased staff costs will add an extra 1% to the proce of projects, Arcadis has said

Now Arcadis has added its name to the list of those concerned about the tax hikes, warning the Budget was a mixed bag for the industry.

鈥淭he positive impact of a 拢100bn boost in capital spending was blunted by increased business costs related to the National Living Wage and employers鈥� National Insurance Contributions (NICs),鈥� it said. 鈥淭his will add to headwinds, which include a potential slowdown in the pace of interest rate cuts in 2025.鈥�

It added: 鈥淎dditional costs associated with directly employed labour will add 0.75% to 1% to construction costs. The timing and extent to which these costs are passed through on projects will depend on existing contracts and market conditions.鈥�

And it added the living wage and NIC rises would also affect the price of materials as suppliers looked to recoup the hikes and warned about the impact on smaller firms. 鈥淐onstruction is reliant on micro-businesses and reforms to the Employment Allowance combined with NIC threshold changes could act as a disincentive to business expansion.鈥�

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The NI tax and living wage rises announced by chancellor Rachel Reeves are due to come into effect next April

Arcadis said that inflation, escalating costs and regulatory complexities meant it had pushed back the timing of what it called a full recovery by a year to 2026.

Ian Goodridge, market intelligence lead at Arcadis, said: 鈥淲hile the construction sector鈥檚 fundamentals for growth are sound, the pace of recovery will be hindered by rising costs and diminished project viability on one side, and heightened risk aversion from clients and contractors on the other.

鈥淒espite these challenges, significant opportunities lie in the expanding energy and water sectors, where investment programmes are gaining momentum. With a resilient supply chain and strategic focus, the sector is well-positioned to recover over the medium term.鈥�

Arcadis said that next year鈥檚 tender price forecasts had been updated to 2.5%-4.5% for buildings and 4%-7% for infrastructure.

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