Labour warned it could miss housing targets over tax burden on sector
A leading construction industry body has warned the Labour government could miss its ambitious house building target as employment costs and tax burdens build pressure on the sector.
The Construction Plant-hire Association (CPA), which represents more than 2,000 firms providing critical machinery and expertise to the industry, told CityAM Labour will fail to meet its housing pledge unless it gives immediate support to the sector.
The Labour government has pledged to build 1.5m homes by the next general election but the fragile state of the construction industry and updated estimates from the Treasury watchdog suggest this target could be in peril.
In the forecast published at Tuesday’s spring statement, the Office for Budget Responsibility (OBR) said net additions to the UK’s housing stock will fall from a 260,000 yearly average to a low point of 220,000 in 2026-27.
Labour’s introduction of loosened planning rules is yet to “meaningfully materialise” in the speed of house building, the watchdog said.
The next election, the deadline for Labour’s house target, is expected to come in 2029 but the OBR said house building will not meaningfully spike until 2030.
Slow progress on this target is even worse in London, with the Centre for Policy Studies warning the capital is facing the worst house building challenge since the Second World War.
Construction began on only 4,170 new London homes in the last financial year, down 72 per cent on the year before.
London is expected to build 88,000 new homes every year to meet the city’s needs but consultancy firm Molior predicts only 4,550 per year will be built in 2027 and 2028.
‘Labour must support family-owned firms’
Steven Mulholland, chief executive of the CPA, told CityAM he backs Labour’s “build, baby, build” mantra but said his members are feeling the pain of rising national insurance contributions and changes to inheritance tax.
He said: “Our sector backs the ambition to deliver the homes of tomorrow. Plant-hire businesses supply the machinery and expertise behind every housing project in the country.
“But it is becoming harder to scale up when those providing that capacity, namely the SME supply chain, are facing higher employer National Insurance contributions, higher and rising net-zero regulatory costs – pressures that will only intensify when inheritance tax changes, including reforms to Business Property Relief, come into force this April.”
Following reforms made at the 2024 Budget – and revised after significant pushback – any inheritance above a £2.5m threshold will face an effective tax rate of 20 per cent.
Construction suppliers claim they will be disproportionately affected by these changes because their value often sits in equipment and machinery rather than in cash reserves.
As many as 80 per cent of the CPA’s members said the changes to business property relief will cause a risk to their transfer of assets, and 76 per cent said they will slow investment in equipment as a result.
Asked to name the biggest pressures affecting their firm, 79 per cent of members listed uncertainty around government tax policy and Labour’s approach to house building.
Mulholland said: “Plant-hire is particularly exposed to inheritance tax changes, with 96% of businesses in the sector being family-owned. More than three quarters of our members have already begun cutting back investment or are planning to do so.
“If Labour is serious about accelerating housebuilding, it must ensure policy does not make a bad situation worse and instead supports the family-owned firms supplying the people, machinery and investment that keep Britain building.”
On Tuesday, construction firm McBains said infrastructure projects will drive construction growth but the housing and commercial sectors will be hampered by planning delays and labour shortages.
McBains’ managing director said minimum wage hikes are a “particular concern” for the industry because they deter construction firms from hiring apprentices at a time when the sector’s workforce is at a record low.
The Ministry of Housing, Communities and Local Government was contacted for comment.