Boost for housing and infrastructure in UK government spending review

The UK government's priorities for the next three years have been set out in the June 2025 Comprehensive Spending Review. The National Health Service and Ministry of Defence are the biggest winners, receiving substantial budget increases, but the housing and infrastructure sectors will also benefit from significant cash injections.

£39bn to fund social and affordable homes

There has been much discussion surrounding the government's manifesto pledge to build 1.5m new homes over the course of the current Parliament. If the government is to come anywhere close to meeting this ambitious target, it will not be able to rely on private sector developers alone.

In a published letter to chancellor Rachel Reeves on 4 June, the cross-party Select Committee for Housing, Communities and Local Government called for "a generational increase in social and affordable housing investment". Following allegedly fraught and last-minute negotiations with the minister for housing, Angela Rayner, the chancellor announced a £39bn package for affordable housing over the next 10 years. This represents a significant increase on the approximately £11.8bn allocated by the previous government on the Affordable Homes Programme 2021-26.

This long-term funding commitment is intended to provide the security called for by housing providers, and the government will be hoping to see greater investment and development as a result. The sector also benefits from £2.5bn made available for low interest loans to facilitate building projects.

Social housing rent settlement and convergence

Further certainty for the future has been provided through a 10-year social housing rent settlement which allows social housing landlords to increase rents in line with the Consumer Prices Index + 1% throughout the period (to run from 1 April 2026).

The caps imposed in recent years on social rent increases has meant a funding shortfall for providers, many of whom now face financial difficulties which they have advised seriously hampers their ability to deliver new housing. As well as providing additional income, the long-term certainty will allow providers to obtain financing more easily and at lower cost, to help drive the government's programme of social housebuilding.

The sector will also welcome the planned reintroduction of rent convergence (dropped in 2015) on which we can expect a consultation shortly. Convergence aims to ensure similar rent for similar properties, taking into account the relative size and value of the home as well as local income levels, and allows social landlords to gradually align rents while maintaining discounts on market rents.

Homes England to catalyse investment in housebuilding

To catalyse private investment in housebuilding, £4.8bn was allocated through loans and equity investments to be overseen by Homes England. This forms part of a £9.6bn assigned to support growth through "financial transactions" and is possible as a result of the fiscal framework reforms announced at the Autumn Budget 2024. 

Additional housing measures

The spending review also confirmed a new UK-wide mortgage guarantee scheme will be launched in July when the current scheme ends, the government's commitment to the Warm Homes Plan with £13.2bn of investment, that social housing providers would be given the same access to remediation funding as enjoyed by the private sector and advised that plans for new housing and infrastructure for New Towns and Cambridge will be set out shortly.

Defence and military accommodation

We already knew that defence spending was due to rise from 2.3% to 2.5% of overall economic output by 2027. The spending review has increased this to 2.6% by 2027.

Much of that increase will be capital spending – a rise of 7.3% – whereas day-to-day spending will only go up 0.7% in the same period. At least £7bn is allocated in this Parliament for the renewal of military accommodation, including over £1.5bn new investment for rapid work to fix forces family housing.

School rebuilding programme

Around £2.4bn per year will be invested in the School Rebuilding Programme over the next four years, reaffirming the government’s commitment to rebuild over 500 schools. It will also commit to expanding the programme beyond the current spending review period as part of the forthcoming 10-Year Infrastructure Strategy.

The chancellor also announced an increase in annual maintenance investment in line with inflation, rising to £2.3bn in 2029-30 to improve the condition of the school estate: an increase of over £400 million per year by 2029-30, compared with 2024-25.

However, with hundreds of schools struggling to find builders to carry out much-needed construction works, rebuilds and remediation are unlikely to be completed quickly.

Health infrastructure

While the Department of Health and Social Care’s budget will increase by an average of 2.8 per cent in real terms over the course of the spending review, NHS capital budgets have not significantly changed.

However, shortly after the publication of the spending review, NHS England announced a plan to introduce an "off-balance-sheet capital investment model" as part of a 100 day plan for Sir Jim Mackey's first few months as the NHS's CEO. This accords with industry expectations that a form of private finance funding model will be essential if government is to meet its ambitious capital investment aims. We anticipate more information will be given in the Infrastructure Strategy, expected towards the end of June.

Transport infrastructure

The week before the spending review, the government announced £15.6bn settlement – and further grant funding – to support transport investment in UK cities and regions. The chancellor has provided £24bn of capital funding for roads improvement and maintenance and allocated £10.2bn for rail enhancements (excluding HS2), including:

• £3.5bn investment in the TransPennine Route Upgrade;
• £2.5bn for the East-West Rail project along the Oxford-Cambridge corridor; and
• £300m for rail improvements in Wales.

The long-awaited Northern Powerhouse Rail project was not mentioned specifically, and industry is hoping that this will be set out in the 10-Year Infrastructure Strategy towards the end of June.

Funding of £25.3bn has been provided for the delivery of HS2 from Birmingham Curzon Street to London Euston and to support the "full reset" of the programme under its new chief executive Mark Wild, which will seek to "address longstanding delivery challenges". As yet, the requirements for the Birmingham-Crewe part of the line are undefined.

Transport for London has been handed its largest settlement in more than a decade, with £2bn for its capital renewals programme over the next four years. However, there was some disappointment from business groups that no certainty was provided over projects such as the DLR to Thamesmead and Bakerloo line extension, which are considered key to unlocking sites for new homes.

Energy infrastructure

Two days before the spending review, the government announced £14.2bn for Sizewell C over the spending review period. Over £2.5bn will also be invested in Small Modular Reactor programmes, with Rolls‑Royce SMR selected as preferred bidder to partner with Great British Energy.

Over £2.5bn is to be invested in nuclear fusion projects and £300 million of Great British Energy support over the spending review period will be invested in Offshore Wind supply chains. Funding for the development of carbon capture use and storage facilities of £9.4bn has also been pledged.

Osborne Clarke comment

The Comprehensive Spending Review is an allocation exercise, meaning there could be no changes to how cash is raised – the focus is on how cash is to be spent. It accounts for around 40% of overall government spending (the rest being dependent on variable factors). Amid difficult economic conditions, the chancellor has faced multiple competing priorities for public purse, as well as pressure from her own party's MPs opposed to welfare cuts. There is much speculation that unless economic growth picks up, significant pressure on funding will see measures to increase the tax take in the Autumn Budget.

The infrastructure and housing sectors have broadly welcomed the investment commitments made by the chancellor, with greater certainty around the pipeline of work helping to boost investor confidence. However, investment on this scale cannot and will not be done without a great deal of private sector investment. It is hoped that further announcements will explain how private sector investment in these initiatives will be incentivised and structured. The NHS appears to have committed to some form of "off-balance sheet capital investment model", and it will be interesting to see what becomes of this and whether this will be carried across into other sectors.

Some questions remain for specific projects, and industry faces some intractable problems such as workforce and skills shortages and building safety challenges. However, it is hoped that the 10-Year Infrastructure and Industrial Strategies, due at the end of June, will continue to help the built environment sector plan their future pipeline and investments with greater clarity and confidence.