Why property and construction matter to economic growth

The property and construction sectors have a vital role to play in supporting the UK economy, from delivering new homes to providing the offices, factories and infrastructure businesses need to grow. However, a combination of funding pressures, skills shortages and uncertainty over future policy risks holding back progress.

Ahead of the 2026 Budget, the Chancellor, John Healey, has an opportunity to address these challenges through targeted tax changes and measures to encourage investment.

Heather Powell, Partner, said:

There are various levers the Chancellor can use to achieve some of the Governments objectives. Whilst the Government has acknowledged that they are not going to deliver on their target of 1,500,000 new homes in the current parliament the Chancellor, John Healey, can encourage housebuilders to improve on the number of houses being built

The challenge is not simply to encourage more development, but to create the conditions in which businesses can commit capital, recruit skilled workers and plan projects with confidence.

Removing tax barriers to housebuilding

The Chancellor could remove the Residential Property Developer Tax (RPDT) paid by the large house building companies. This 4% tax, payable by companies whose residential property development profits are greater than £25m was intended to help pay for the removal of unsafe cladding and other housing costs being funded by the government. These developers are remediating the cladding on the properties they built, and contributing to a fund to cover the errors made by other developers is sucking capital out that could be used to fund the building of new homes. Ending RPDT would free up more funds for investment in building new homes.

Removing the tax could release additional capital for development. However, the impact on housebuilding would depend on whether companies use the savings to fund new projects, rather than other activities. Any reform would also need to account for the continuing costs of making buildings safe.

Tackling construction skills shortages

Funding alone will not deliver the homes and infrastructure the UK needs. The construction industry also faces a significant workforce challenge as experienced employees approach retirement and demand for new skills increases.

The Home Builders Federation estimates that councils hold around £2.2 billion in unspent Community Infrastructure Levy (CIL) funds. These contributions, collected from developers to help fund infrastructure, could potentially support training and recruitment if legislation allowed surplus funds to be used for this purpose.

The scale of the challenge is considerable. The Construction Industry Training Board forecast that the industry would need to attract 225,000 additional workers by 2028 to meet projected demand. Meanwhile, the average construction worker is now 44, with approximately 22% of the workforce aged 55 or over.

Allowing councils to redirect eligible surplus funds towards training could help address labour shortages while supporting local economic development. A larger skilled workforce would also help reduce the risk that housing and infrastructure projects are delayed by a lack of available workers.

Encouraging investment in business infrastructure

Finally – Corporate Interest Restriction (CIR) reduces the interest charge that can be deducted when calculating taxable profits. The Chancellor should expand the projects that qualify for the Public Interest Exemption, a relief that allows companies to exclude interest charged on loans from third parties. The impact of this change will be to increase the interest that can be deducted when calculating taxable profits and thus increase the cash a company can retain to invest in future investments. Encouraging investment in the infrastructure that UK Businesses need to generate growth, including offices and factories, has to be a high priority to underpin any economic growth.

For businesses planning capital-intensive projects, the treatment of borrowing costs can influence whether an investment is financially viable. Targeted changes could improve the economics of infrastructure development, although the benefits would depend on the projects covered and the precise eligibility rules.

Why long-term policy certainty matters

Beyond individual tax measures, the property sector needs a stable framework for investment. Development projects often take years to plan, finance and complete, making businesses sensitive to changes in taxation and regulation.

Heather concludes:

The Chancellor needs to look beyond the current electoral cycle. He should set out a 10-year plan for the sector and adhere to it. Property development and investment is a long-term game and requires certainty to give investors and bankers the confidence to invest and provide funds for schemes that will provide the infrastructure UK Business needs to grow

As part of this long-term plan, a consultation on how Stamp Duty Land Tax (SDLT) and Council Tax could be reformed should be undertaken, with the goal of creating a fairer system that encourages ownership of homes appropriate for the needs of the occupiers. Removing barriers that discourage downsizing, ensuring there are no major charges for families moving into a bigger home when needed would all be welcome outcomes.

What should businesses and property owners consider next?

Ahead of the Budget, businesses across the property and construction sectors should assess how potential tax changes could affect their investment plans, financing arrangements and development pipelines.

Housebuilders should review the impact of RPDT on available development capital, while infrastructure investors should consider how borrowing costs and Corporate Interest Restriction rules affect project viability. Construction businesses should also assess their future skills requirements and opportunities to invest in recruitment and training.

Property owners and individuals should monitor any proposals to reform SDLT and Council Tax, particularly where future plans involve moving home or downsizing.

Ultimately, the Budget presents an opportunity to address immediate barriers to investment while establishing a more predictable environment for the long term. Delivering sustainable growth will require more than individual tax changes: it will depend on coordinated action to support funding, skills, housing supply and the infrastructure businesses need to succeed.

Would you like to know more?

If you’d like to discuss the above, please speak to your usual Blick Rothenberg contact or Heather Powell using the form below.