Angela Rayner’s housebuilding drive is at risk of collapsing under the pressure of rising inflation and the Government’s controversial National Insurance hike, according to industry experts.
Chancellor Rachel Reeves’ National Insurance increase is set to send employers’ wage bills soaring, increasing the financial burden on a construction industry already struggling with a skills shortage and plummeting business confidence.
Labour has pledged to build 1.5 million homes over the course of this Parliament to tackle Britain’s deepening housing crisis.
But a shock rise in inflation to 3% has cast fresh doubt over these plans, exacerbating an already sluggish construction sector and pushing material and labour costs even higher.
Steve Mulholland, chief executive of the Construction Plant-hire Association, warned that the combination of inflation, tax hikes, and dwindling confidence has created a dire situation for the sector.
Labour has pledged to build 1.5 million homes (Image: Getty)
“It’s just not helpful at all. The economy is stalling, housebuilding targets will fall short, and there’s a skills shortage that’s only been made worse by the October Budget,” he said.
“The rise in inflation has a cost implication on materials and labour. It’s a perfect storm. The National Insurance hike will hit employers in the pocket, and firms simply aren’t recruiting how they would like to because of all these costs coming down the line.”
Housebuilding activity has already fallen to its lowest level in a year, a worrying sign for Labour’s promise to ramp up construction. The latest S&P Global UK construction purchasing managers’ index (PMI) showed residential building activity fell for the fourth consecutive month in January, sinking to its weakest level in 12 months.
The economic squeeze is also keeping rates stubbornly high, dampening demand from first-time buyers and further discouraging developers from breaking ground on new projects.
Richard Donnell, executive director at property website Zoopla, told the : “We’ve got weaker demand from first-time buyers and weaker demand from affordable housing providers. Housebuilders would like to build more homes, but there’s nothing really improving.”
He added that meaningful change would require cuts, lower costs, and greater government support for affordable housing. But with inflation still rising, hopes of a Bank of England cut in the near future are fading.
Steve Turner, executive director of the House Builders Federation, echoed these concerns: “Housing supply is still flatlining due to increasing regulatory costs, but primarily because people can’t get mortgages.
“If inflation impacts , it could suppress demand even further. availability and deposit affordability are the real issues at the moment.”
This latest blow comes as Labour battles mounting economic headwinds. Rachel Reeves has already faced criticism over the impact of her record £40bn tax raid, which has seen borrowing costs soar and business confidence take a hit. Now, her plans to revitalise housebuilding risk going up in smoke as economic pressures mount.
A government spokesman insisted that ministers remain committed to tackling the housing crisis, saying: “We delivered a once-in-a-Parliament Budget to wipe the slate clean and deliver the stability businesses need to invest and grow, while protecting working people’s payslips from higher taxes.”
“Now we are going further and faster to kickstart economic growth and raise living standards, including cutting red tape and overhauling the planning system to help deliver 1.5 million new homes as part of our Plan for Change.”