UK Budget 2025 – what does it mean for infrastructure?

UK Chancellor Rachel Reeves delivered her 2025 budget against a backdrop of economic uncertainty and fiscal constraint.

Growth remains flat, inflation is above target, and the debt-to-GDP ratio is high.

These pressures have shaped the government’s choices. But, while the overall tone was cautious, infrastructure investment remained a priority.

Commitments maintained and capital investment increased

The multi-year capital budgets to 2029-30 remained broadly untouched, maintaining commitments made in June under the Spending Review and 10 Year Infrastructure Strategy.

This provides certainty, reducing the risk of stop-start investment cycles. For infrastructure leaders, this stability is essential to mobilise the workforce and supply chains and attract private finance.

Additional capital investment of £1.7 billion builds on June’s Spending Review, including £891m for the Lower Thames Crossing.

The budget also confirmed the government’s preference for the Regulated Asset Base model to fund the project, with market engagement beginning next year.

Private finance for health infrastructure

The 10 Year Infrastructure Strategy signalled that many of the projects first off the block for a refreshed public-private-partnership (PPP) model would be health infrastructure assets.

The government has made progress on this promise, announcing the construction or upgrade of 250 neighbourhood health centres through a mix of public funding and PPP finance.

The model is being developed by the National Infrastructure and Service Transformation Authority (NISTA) and marks a shift from previous governments’ aversion to PPPs following the controversy around the Private Finance Initiative model.

But developing and using the model may not be smooth sailing.

The ICE has said that the government must improve its commercial capability to make sure private involvement provides the benefits it promises. Currently, key skills like contract management, procurement, and negotiation are too thinly spread.

And the government may face scrutiny from its own benches over private involvement in NHS infrastructure. Before the budget, 40 Labour MPs wrote to the chancellor urging her to change her mind.

Road pricing on the way…

A pay-per-mile charge from 2028 for electric vehicles could mark the start of a wider road pricing system, addressing declining fuel duty revenues as EV adoption accelerates.

Under electric vehicle excise duty, or eVED, drivers will pre-pay based on estimated mileage. Revenue will go directly into road maintenance funding.

The plans, which are out for consultation, propose charging EV drivers 3p per mile, around half what the average petrol or diesel driver pays in fuel duty. Hybrid vehicle drivers will pay 1.5p per mile.

The government says an average EV driver will pay around £240 per year, or £20 per month.

The ICE has long called for a national road pricing scheme to address the declining tax revenues from fuel duty and vehicle excise duty. Sustainable funding for maintenance and upgrades is crucial, meaning smoother journeys for the public and less disruption.

This scheme is a starting point. To gain public buy-in, the government needs to build on it with a clear explanation of the benefits.

… but will it impact net zero?

The Office for Budget Responsibility believes eVED will lower demand for EVs due to the increased lifetime cost to consumers.

The government’s electric car grant scheme somewhat offsets this, but it could still represent fewer EV sales overall.

Only in June did the Climate Change Committee say that strong EV uptake was having “a measurable and rapidly growing effect” on surface transport emissions. The government must introduce eVED carefully to ensure it doesn’t derail the net zero transition.

EV transition support

The transition to the pay-per-mile scheme is softened by a £1.3 billion boost to extend the Electric Car Grant scheme until 2029-30.

The scheme, launched with an initial fund of £650 million, provides a discount of up to £3,750 on eligible vehicles.

An additional £100 million of funding (on top of the £400 million announced at the Spending Review) will support more home and workplace charging points.

Meanwhile, the government will consult on helping people without driveways charge their cars.

Local authorities and public bodies will get £100 million to support new specialist staff to accelerate the rollout of public charge points.

Lowering the cost of energy

The government’s focus on reducing the cost of living and lowering inflation extends to energy bills.

It wants to lower the cost of electricity relative to gas – a top priority from the Climate Change Committee’s advice on delivering net zero.

The government will temporarily refund electricity suppliers for 75% of the domestic portion of their renewables obligation – a subsidy paid by electricity suppliers to support renewable generation, which is currently fully passed on to consumers.

It is also scrapping the Energy Company Obligation, an energy efficiency scheme which is currently funded through bills.

Axing the scheme, which will save households an estimated £150 a year, comes at the risk of scaling back energy efficiency measures. These trade-offs highlight the challenge of balancing short-term relief with long-term decarbonisation goals.

The upcoming Warm Homes Plan will include more detail about how these savings will reduce household bills.

And the plan will receive an additional £1.5 billion capital investment to tackle fuel poverty on top of the £13.2 billion allocated at the Spending Review.

Will planning reforms be enough?

The government is pinning a lot of hope on the reforms in the Planning and Infrastructure Bill to drive growth and remove regulatory burdens.

It estimates that the bill will cut consenting times for 25 nationally significant infrastructure projects (NSIPs) per year, with an average cost of £1 billion. This, it says, will raise productivity and ultimately economic output.

But the Office for Budget Responsibility (OBR) is less optimistic.

Its analysis says that reforms could support long-term growth. But there is limited evidence of them having a high impact, with any growth likely to be modest.

The budget also aims to shore up capacity in the planning system, with a £48 million boost to recruit 350 planners and launch a Planning Careers Hub.

Resourcing planning authorities is essential to unblock delivery and support infrastructure and housing development.

This investment in skills and capacity is welcome. But, as infrastructure leaders have warned, it must come alongside culture change at the Planning Inspectorate and among local authorities.