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The initial post-pandemic recovery has been stronger than anticipated, with the Office for Budget Responsibility now expecting the UK economy to grow by 6.5% this year (2.4 percentage points faster than predicted in March). The strengthening economy has provided a boost to government finances. The Chancellor has elected to use the additional funds to both support additional public spending and reduce government borrowing more quickly that previously planned.

Increased investment will be key to realising the Government’s ambition of building a ‘high-wage, high productivity’ economy. However, the Autumn Budget and Spending Review reveals that direct Government investment will grow more slowly over the next three years after the sharp rises in funding provided since 2018/19.

Overall departmental capital budgets are set to rise from £98.7 billion in the current financial year to £111.9 billion in 2024-25. This is a rise of just 1.9% per annum in real terms. However, the fastest growth will be over the next two years and the increases build upon the sharp rises in capital spending since 2018/19.

The table below sets out the capital expenditure totals for key construction-related departments.

Departmental Capital Budgets

Average annual real terms growth
£ Billion 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2021-22 to 2024-25 2019-20 to 2024-26
Health & Social Care 5.9 7 8.6 9.4 10.6 10.4 11.2 3.80% 7.20%
Education 5.2 4.9 4.7 5.6 6.3 7 6.1 0.50% 2.20%
Justice 0.4 0.5 1.1 1.4 1.7 2.2 1.4 -1.40% 20.80%
DLUHC Levelling Up, Housing & Communities 7.4 8.3 9 7.8 8.9 6.9 6.8 -5.10% -5.00%
Transport 8.3 14.2 16.9 18.8 19.5 19.9 20.8 0.60% 4.90%
Business, Energy & Industrial Strategy 11 11.2 18.8 15.6 17 20.8 21.2 8.30% 10.90%
All Government Departments 62.6 70.2 87.9 98.7 106.8 111.5 111.9 1.90% 6.70%

Source: Autumn Budget & Spending Review 2021

Transport

Department of Transport Capital Budget to rise from £16.9 billion in 2021/22 to £20.8 billion in 2024/25, a 0.6% rise per annum in real terms. This will help fund a variety of programmes including:
• £24 billion of strategic roads investment from 2020 to 2025, delivering over 60 upgrades including the A66, A428, A417 and A12.
• £5.7 billion over five years for London-style transport systems across city regions. This will fund projects such as the Sheffield Supertram renewal and the Wednesbury to Brierley Hill metro extension in the West Midlands. Other city regions include Manchester, Liverpool and the Tees Valley.
• Integrated rail plan to be published in November which will clarify the future of the Eastern Leg of HS2.
• £2.7 billion over the next 3 years for local roads maintenance in places not receiving City Region Settlements.
• £2.6 billion from 2020-25 to deliver a long-term pipeline of over 50 local road upgrades, including the A509 Isham Bypass, A259 Bognor Regis and A350 Chippenham Bypass
• Over £2 billion of investment in cycling and walking over the Parliament. This funding will build hundreds of miles of segregated cycle lanes.
• £620 million of additional investment to support the transition to electric vehicles. This is further to the £1.9 billion investment committed at the previous Spending Review.

Housing

• The Spending Review announced an additional £1.8 billion for housing supply. The additional funding will bring 1,500 hectares of brownfield or derelict land into use.
• Reconfirmed the £11.5 investment through the Affordable Homes Programme (2021-26) of which £7.5 billion is over the Spending Review period. This will deliver up to 180,000 affordable homes. 65% of the funding will be for homes outside of London.
• £5 billion to remove unsafe cladding. This will be funded by a RPDT (Residential Property Developers’ Tax), announced in February 2021. This will be a 4% levy on developers profits over £25m from April 22.
Business Rates & Investment
• New investment relief to encourage businesses to adopt green technology such as solar panels,
• 100% improvement relief for business rates. This will provide 12-month relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value.
• A new temporary business rates relief for retail, hospitality & leisure properties for 2022-23. Eligible properties will receive a 50% relief up to £110,000.
• £1 million annual investment allowance extended to March 2023.
• £1.4 billion over the Spending Review period for the Global Britain Investment Fund to support investment in the UK’s life sciences, offshore wind, and automotive manufacturing sectors.
o £817 million for the electrification of UK vehicles and their supply chains.
o £354 million for life sciences manufacturing.
o Up to £230 million for the offshore wind sector.

Communities

• First round of levelling up fund of £1.7 billion, allocated to 105 places for local transport, cultural assets, and regeneration projects.
• £3.8 billion of investment across England and Wales over 3 years to deliver 20,000 additional prison places by the mid-2020s.

Education

• Department of Education Capital Budget to rise from £5.6 billion in current financial year to £6.1 billion in 2024/25, a 0.5% rise per annum in real terms.
• £2.6 billion available over the Spending Review period for school places for children with special educational needs and disabilities. This more than triples the current capital funding levels to over £900 million by 2024-25.

Devolved Administrations

• Devolved administrations provided an additional £8.7 billion per year on average over the Spending Review period to enable further investment in areas such as schools, housing, health, and transport.
• Scottish Government funding is up by £4.6 billion, Welsh government funding by £2.5 billion, and £1.6 billion for the Northern Ireland Executive.

For a view into how this spending will impact the performance of  UK construction over the next two years, register to watch the Glenigan Construction Industry Forecast webinar on 16th of November at 11am.