Why UK construction labour keeps getting more expensive in 2026

The Apprenticeship Levy, CITB levy, employer NI changes, and the structural labour supply shock, explained through the ONS labour cost index.

Trails Research·Updated 2026-04-19·6 min read
Labour YoYN/ALatest: N/A
Labour vs 2020N/ACumulative, 2020 Q1 to latest
Labour vs materialsN/AYoY gap, percentage points

Labour has outrun materials by a wide margin for four years. Policy, demography, and post-2020 demand all compound.

Source: ONS Labour Cost Index for construction and MHCLG Monthly Building Materials. Latest print: N/A.

If you are pricing residential work and wondering why your labour quotes are materially higher than three years ago, the answer is not one thing. It is four overlapping structural factors that have all been pulling in the same direction.

UK construction labour cost index, 2014 to latest

Source: ONS Labour Cost Index for construction. Base: 2015 = 100. Quarterly data from 2014 to latest.

Four structural drivers

The Apprenticeship Levy, 2017

Introduced in April 2017, the Apprenticeship Levy is a 0.5% payroll charge on employers with an annual pay bill above £3 million. It is paid to HMRC and recoverable as training vouchers through the digital apprenticeship service. Most mid-sized design-build firms sit below the threshold and so do not pay directly, but their principal contractors and larger supply-chain partners almost all do. The cost passes through to trade day rates and subcontractor quotes. For larger firms that do pay directly, the levy is either a direct cost (when vouchers go unused) or an administrative drag on the training they would have run anyway. (Source: HMRC.)

The CITB Levy, ongoing

Separate from the Apprenticeship Levy and predating it. The Construction Industry Training Board levies employers in scope of the 1964 Industrial Training Act at 0.35% of PAYE payroll plus 1.25% of net CIS (subcontractor) payments, above a small threshold. It raises roughly £140 million per year to fund industry training and grants. Unlike the Apprenticeship Levy, CITB applies specifically to construction employers and is harder to recover through training vouchers if a firm's training is not CITB-accredited. The net effect is an employer-side cost that prices into trade rates across the sector. (Source: CITB.)

Employer National Insurance changes, 2022 to 2025

The 2022 Health and Social Care Levy added 1.25 percentage points to employer NI and was then repealed in November 2022, but underlying NI thresholds have continued shifting. The April 2025 threshold cut announced in the 2024 Budget raised employer NI costs on sub-£40k wage earners by lowering the secondary threshold. Construction has a high proportion of direct employees and CIS-paid workers in that wage band, so the sector carries more of this cost-per-head than white-collar services. Employer NI feeds through to either wages (when trades push for gross uplifts to compensate) or to subcontractor rates (when a trade operates as a limited company). Either route reaches the headline labour index. (Sources: HMRC, HM Treasury.)

Brexit and the labour supply shock, 2020 onwards

The removal of free movement from January 2021 reduced the available UK construction workforce. Industry estimates put the reduction at 8% to 12% over 2020 to 2023, concentrated in trades with historically high EU-national representation: bricklayers, carpenters, plasterers, and some groundworks roles. A supply shock this size shows up in day rates with a lag of roughly 12 to 18 months, as existing contracts roll off and new bids price in the tighter availability. The effect is visible in the ONS labour index from 2021 onwards and has not fully retraced. (Sources: CIOB, ONS Labour Force Survey.)

Why these compound

Employer-side costs (Apprenticeship Levy, CITB Levy, NI changes) pass through to headline day rates because the firms that carry them directly have to price them into their subcontractor and trade quotes. A trade operating as a limited company will set its day rate to cover its own NI, pension, holiday, and sick cover gross of employer cost, plus a margin. When the cost base moves, the day rate moves with it. The levy and NI effects therefore reach the ONS labour index through the rates paid to contractors and their subcontractors, not only through direct-employed payroll.

These effects are durable, not cyclical. The Apprenticeship Levy and CITB Levy are statutory and not time-limited. Employer NI thresholds move with policy but historically ratchet rather than reverse. The Brexit labour-supply shock is structural, not demand-driven. That means the labour-cost pressure is unlikely to unwind even if construction demand softens, which is different from materials inflation (where a demand drop does cool the index).

What this means for your labour rates over the next 18 months

  1. Treat labour YoY as your quote-validity constraint, not a general inflation overlay. When you write "valid for 30 days" on a quote, the labour index is why. Materials are stable enough that you could hold a quote for longer on the materials side; labour is what moves underneath.
  2. When the Autumn Budget lands each November, re-check labour rates in Q1 of the following year. Employer NI changes usually take effect from April and show up in day rates by mid-year. A Q1 re-price is cheaper than a mid-project surprise.
  3. For projects over 9 months, price in a labour-side buffer rather than a general contingency. A split contingency (3% materials, 5 to 7% labour on a 50/50 project) is more defensible and more useful than a single blended figure, because the risk really is asymmetric.

What isn't driving this

A few things people blame that aren't actually the issue. Materials inflation (the 2022 shock) is mostly resolved and materials are now close to equilibrium; the labour vs materials divergence article is the detail on that. IR35 (the 2021 private-sector off-payroll rules) changed how trades structure their businesses, which produced one-off administrative cost and some day-rate adjustment, but not the underlying wage trajectory. Brexit paperwork in itself is a materials issue (customs declarations, CE-to-UKCA transition) not a labour issue; the labour effect of Brexit is the free-movement change, which is a different mechanism.

Numbers cited for the Apprenticeship Levy, CITB Levy, and NI thresholds are public-source estimates at time of writing; confirm current rates with HMRC and CITB for any specific calculation. The ONS labour index in the chart and stats above is the primary live data, refreshed each quarter. For project-level day rates by trade, see the UK trades day rates article .

Frequently asked questions

How does the Apprenticeship Levy affect UK construction labour costs?
The Apprenticeship Levy (HMRC) charges employers 0.5% of their paybill above £3 million annually. Main contractors and larger subcontractors pay it directly; smaller firms pay indirectly through subcontract rates as larger suppliers pass it on. The levy was introduced in 2017 with the intention of funding apprenticeship training, but recovery of funds against eligible training has been lower than paid-in, so for many construction firms the levy acts as a net cost addition to employment. CITB's 2024 Construction Skills Network report notes the combined effect of the Apprenticeship Levy and the CITB levy adds roughly 1% to 1.5% to employment cost for main contractors.
What is the CITB levy and who pays it?
The CITB (Construction Industry Training Board) levy is a statutory industry-specific training levy under the Industrial Training Act 1982. It charges 0.35% of PAYE payroll and 1.25% of net payments to non-PAYE construction labour (sub-contractors taxed under CIS), above an exemption threshold of £135,000 payroll. It is separate from the HMRC Apprenticeship Levy and funds the CITB training programme, grants, and National Construction College. Unlike the Apprenticeship Levy, CITB grants are recoverable against eligible training activity, so larger firms with apprentice programmes can claw back more than they pay. Smaller firms typically pay net.
Why has UK construction labour supply fallen since Brexit?
ONS Labour Force Survey data shows the EU-born share of the UK construction workforce fell from around 14% pre-2016 to roughly 6% to 8% by 2024, a reduction of approximately 200,000 workers in absolute terms. The post-Brexit immigration regime removed the free-movement route that had filled trade shortages on London and South East sites particularly. Skilled Worker visa routes do not cover most construction trades at the required salary thresholds. CITB's Construction Skills Network 2024 projects the domestic replacement rate is well short of retirement attrition, which means the labour squeeze is structural and will tighten further through 2026 to 2028.
How have employer National Insurance changes affected construction labour costs?
The April 2025 increase in employer NI (from 13.8% to 15%) and the reduction in the secondary threshold (from £9,100 to £5,000) added meaningful employment cost across the UK economy. For construction specifically, where labour is a higher share of cost than most sectors, the aggregate impact is roughly 1% to 1.5% on headline employment cost. Contractors typically pass this through in subcontract rates, so the effect shows up in the ONS labour cost index with a two to three quarter lag. Under JCT Option B fluctuation, the NI change is reimbursable; under Option A, the contractor absorbs it.
Will UK construction labour costs ever return to pre-2022 levels?
Not in nominal terms. UK construction labour costs rarely fall nominally; historical ONS data shows nominal declines only in deep recessions (1991, 2009) and even then modest. What can happen is labour cost inflation slows to near-zero for a period, while general inflation catches up, so the real cost level falls. For that to happen the structural supply squeeze would need to ease (more apprentices completing, meaningful migration route opening, or a construction demand softening). Base case for 2026 to 2028 is nominal labour cost inflation persisting at 3% to 5% annually, with real terms flat to modest rises as CPI falls back to target.

About this data

This article uses live data from Trails Cost Tracker, aggregating ONS Construction Output Price Indices, MHCLG Monthly Building Materials Statistics. Data is auto-refreshed each quarter.

→ See the full Trails Cost Tracker→ Methodology and sources

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