Since taking office, the Labour government has pushed ahead with significant tax rises aimed at increasing public spending and stimulating economic growth. However, as we move through February 2025, the effects of these policies on the construction and engineering sectors are becoming increasingly apparent, and many in the industry are feeling the strain.
The Immediate Impact on the Construction and Engineering Sectors
The increased National Insurance contributions for employers and the rise in Corporation Tax have placed additional financial pressure on design consultancies, engineering firms, and contractors. Many businesses have responded by cutting back on hiring, reducing project bids, or even delaying expansion plans.
According to CADagency’s latest employment survey, 58% of employers in the construction design sector reported a decrease in hiring confidence compared to this time last year. This follows a challenging end to 2024, where hiring slowed significantly due to economic uncertainty and increasing business costs. January 2025 saw a further 12% drop in new job postings compared to the previous quarter, with employers citing tax increases and sluggish project approvals as key factors.
Salaries, however, continue to rise, with the average wage for CAD professionals increasing by 5.2% in the past year. This reflects the continued skills shortage in the sector, with businesses competing for top talent despite economic pressures. Job satisfaction, however, is down 9% compared to mid-2024, with professionals citing increased workloads and a lack of job security as growing concerns.
Project Delays and Budget Constraints
Many firms reliant on government-funded infrastructure projects are facing uncertainty. While the Labour government has pledged to boost infrastructure investment, tax increases have limited immediate capital availability, meaning projects are stalling rather than accelerating. The increased tax burden on mid-sized construction firms is further squeezing margins, making it difficult for them to take on new work.
Private sector investment is also wavering. Some of the UK’s largest developers are holding off on major commercial and residential projects, wary of increasing costs and uncertainty in material pricing. For architectural and engineering consultancies, this means fewer planning and design contracts being secured, exacerbating an already cautious job market.
The Skills Shortage Worsens
Despite the economic slowdown, the UK is still facing a severe shortage of skilled professionals in construction and engineering. The rise in Capital Gains Tax has seen some senior industry professionals opt for early retirement rather than taking on additional financial burdens, removing experienced talent from the workforce. CADagency’s ongoing industry polling found that 47% of employers have struggled to fill technical roles in early 2025, up from 39% in mid-2024.
To counteract these challenges, firms are increasingly looking at automation and digital solutions, with BIM adoption seeing a 7% rise since last year. However, digitalisation is not a short-term solution, and many businesses are calling for government support in training initiatives to ensure the next generation of skilled professionals enters the industry.
What Needs to Change?
- Reevaluation of Tax Increases: Adjustments to employer National Insurance contributions and Corporation Tax could alleviate financial strain on businesses, allowing them to reinvest in hiring and expansion.
- Faster Infrastructure Rollout: While the government has promised infrastructure investment, ensuring that funding reaches projects quickly will prevent further stagnation.
- Support for Skills Development: Increased investment in apprenticeships and training schemes is critical to addressing the industry’s growing skills shortage.
- Tax Incentives for R&D and Innovation: Offering tax relief for firms investing in digital transformation and efficiency-driven technology could ease long-term costs and encourage productivity growth.
Labour’s tax policies were intended to drive growth and fund public services, but in practice, they are adding strain to construction and engineering businesses already facing market challenges. While some firms are adapting through digitalisation and restructuring, others are delaying investment and scaling back operations. If the government hopes to maintain economic momentum in the sector, policy adjustments may be required to ensure that businesses can continue to operate and grow.
Sources:
- Financial Times – UK Tax Increases and Economic Forecast
- The Times – Labour’s Tax Plans and High-Net-Worth Exodus
- Morningstar – UK GDP Forecast 2025
- Reuters – Morgan Stanley’s Revised UK Growth Forecast