Employers' National Insurance hike could raise costs by 0.75-1%

• The latest Winter Market View report from Arcadis highlights a construction sector poised for transformation but still grappling with significant headwinds.

• 2025 tender price forecasts have been updated to 2.5-4.5% for buildings and 4-7% for infrastructure, highlighting mixed sector growth fortunes.

• The recent reversal in new orders will see a slower recovery in some markets in 2026, with tender price escalation reduced as a result.

• Stubborn inflation and a slower than expected reduction in interest rates will not help to break the logjam of investment-led schemes, particularly as projects adjust to new regulatory requirements and processes.

Increased employer's National Insurance Contributions (NICs), taking effect in April 2025, will add an estimated 0.75%–1% to construction costs, as detailed in Arcadis’ latest Market View report. Titled ‘Stuck in the Middle’, the report underscores the challenges posed by stubborn inflation, escalating costs, and regulatory complexities. A full recovery is now anticipated in 2026, later than previously forecast.

The construction landscape remains varied, with labour shortages, particularly in MEP trades, expected to affect data centres, energy projects, and water and electricity networks. Meanwhile, investment-led sectors such as commercial and residential will see slower growth prospects as viability issues stubbornly persist.

From 2025 onwards, construction markets are likely to diverge further. The housing market’s delayed recovery contrasts with accelerating investments in energy and water infrastructure.

Arcadis’ Winter 2024 Tender Price Forecast reflects the impact of recent budget decisions and a slowdown in workload growth in certain sectors, including high-density housing. Public sector investment is expected to ramp up gradually, reducing the immediate risk of ‘crowding out’ private developers.

The report also highlights the potential delays to high-risk buildings, especially in residential markets, as clients and contractors adjust to the new gateway requirements and approval timelines of the Building Safety Act (BSA).

Simon Rawlinson, Head of Strategic Research and Insight at Arcadis, commented:

“The Building Safety Regulator’s implementation of the Gateways aligns closely with the Hackitt Report’s vision, incentivising the delivery of safe, compliant housing. However, the shrinking pipeline for high-density residential developments poses a serious concern. The BSA, while crucial for safety, may inadvertently deter the development of higher-risk buildings, creating challenges for meeting housing needs in urban areas.”

BSR’s implementation of the Gateways has stuck closely to the vision in the Hackitt Report. Gateways are clearly acting as a positive incentive to deliver safe and compliant housing. However, the pipeline for high density residential development is shrinking at an alarming rate. The lessons from the applications of Gateway 2 are clear. Developers and their teams need to fully integrate the requirements within their commercial strategy, design process and approach to information management.

Ian Goodridge, Market Intelligence Lead at Arcadis, added:

“While the construction sector’s fundamentals for growth are sound, the pace of recovery will be hindered by rising costs and diminished project viability on one side, and heightened risk aversion from clients and contractors on the other.”

“Despite these challenges, significant opportunities lie in the expanding energy and water sectors, where investment programmes are gaining momentum. With a resilient supply chain and strategic focus, the sector is well-positioned to recover over the medium term.”