Government unveils £120bn capital plan to bolster long-term growth

The UK Government’s 2025 Spending Review (SR25) outlines an ambitious fiscal blueprint to underpin long-term economic resilience and growth, with targeted implications for the construction sector, housing market and small businesses. The review earmarks £120 billion in additional capital spending, signalling intent to stimulate domestic growth and address structural vulnerabilities across the UK economy.

Housing and construction
A centrepiece of SR25 is the government’s renewed commitment to building 1.5 million new homes over the Parliament. Backing this pledge is a record-breaking £39 billion allocation for a new 10-year Affordable Homes Programme, intended to expand social and affordable housing stock and reduce homelessness. This initiative is further bolstered by £950 million in capital for the next phase of the Local Authority Housing Fund, aimed at increasing the availability of temporary accommodation.

Further investment includes £2.4 billion annually over four years for the School Rebuilding Programme and increased support for local authorities to refurbish and expand children’s homes and foster care facilities—injecting public demand directly into the construction sector. The focus on infrastructure extends beyond housing: £15.6 billion is committed through the new Transport for City Regions settlements, promising long-term pipeline certainty for contractors involved in urban regeneration.

The review’s recognition of productivity challenges within the public sector, and particularly within healthcare construction, signals opportunities for modern methods of construction (MMC), as procurement practices are re-evaluated through a cost-conscious and efficiency-driven lens. Notably, the state-backed Sizewell C nuclear power project (£14.2 billion) and energy sector supply chain funding reflect a clear pivot towards large-scale, strategic capital projects.

Small business and regional investment
For Britain’s SME base—particularly in construction-related trades—the government’s use of financial instruments through the British Business Bank and the deployment of £4.8 billion in financial transactions to catalyse private investment in housebuilding represents a significant lever. The strengthened role of the National Wealth Fund and the Great British Energy programme is expected to generate secondary demand in installation, maintenance and building services, particularly within the retrofitting and clean energy space.

Regional growth strategies, including up to 350 investments in deprived communities and new local growth funds, aim to decentralise procurement and encourage smaller contractors to compete for work, potentially shifting more public spending outside of London and the South East. The government is also reforming the Green Book appraisal process to ensure infrastructure investment aligns with regional priorities—an overdue correction welcomed by the sector.

A mixed picture for regulatory and operational stability
Despite this flurry of capital investment, challenges remain. Local authorities—often critical enablers of housing and construction delivery—continue to face structural financial pressures. While the SR provides an additional £3.4 billion annually by 2028-29 to stabilise council finances, the long-term solvency of many planning departments remains fragile, casting doubt on local capacity to support the government’s ambitious build targets.

Moreover, although the government commits to reducing back-office administrative costs by 16% and rooting out inefficiencies via a zero-based review, industry bodies may raise concerns over the potential delays and disruptions this could trigger for permitting and inspection regimes.

SR25 delivers on headline numbers, with significant funding pledges that, if implemented effectively, could revitalise housing supply, support construction growth and create new opportunities for SMEs. But delivery will depend not just on capital allocation but also on the government’s ability to resolve chronic capacity constraints within local planning systems and navigate the fiscal pressures bearing down on local governance. As ever, execution will be the true test of ambition.