Chancellor Reeves Warns of 'Significant' Economic Fallout from Iran War
Chancellor Rachel Reeves has issued a stark warning to MPs, stating that the economic challenges stemming from the Iran war may be "significant" and that contingency planning is actively underway. The crisis in the Middle East has already driven up oil and gas prices, impacting motorists at petrol pumps and threatening to increase domestic energy bills later this year.
Targeted Support and Fiscal Responsibility
Ms Reeves emphasised that work is progressing on targeted help for households when the current energy price cap expires at the end of June. She told MPs, "Contingency planning is taking place for every eventuality so that we can keep costs down for everyone and provide support for those who need it most, acting within our iron-clad fiscal rules to keep inflation and interest rates as low as possible."
The Chancellor indicated a shift away from the blanket approach to energy bill assistance previously offered by then-prime minister Liz Truss during the Ukraine crisis. She criticised that approach, noting it "gave the support to the most wealthiest of households" and "left us with high levels of national debt, a cheque written then for a bill that is still being paid today."
Fuel Price Surges and Consumer Protection
The economic impact is already evident in fuel prices. As of Monday, the average pump price for unleaded petrol in the UK stood at 144.2p per litre, marking a 3.9p increase week-on-week and a 12.0p jump since March 2, shortly after the crisis began. This represents the highest price for unleaded petrol since July 2024.
Similarly, diesel prices have soared, with an average of 166.9p per litre on Monday, up 8.1p week-on-week and 24.7p since March 2, reaching the highest level since March 2023. To combat this, Ms Reeves highlighted the Fuel Finder app as a tool to help motorists avoid "rip off prices" by comparing petrol station rates.
Energy Security and Legislative Measures
In response to the crisis, the Chancellor outlined plans to enhance UK energy security to shield against global market volatility. She promised legislation to implement the Fingleton Review, aiming to accelerate the nuclear power planning process by 2027. Additionally, the Government is encouraging investment in North Sea oil and gas tiebacks—satellite wells designed to exploit existing fields.
New powers are being granted to the Competition and Markets Authority to clamp down on price gouging through an anti-profiteering framework. Ms Reeves will also meet with supermarkets and banks later this week to discuss potential assistance for customers.
Political Opposition and Defence Updates
Tory leader Kemi Badenoch criticised the Government's approach, advocating for scrapping taxes on energy bills as a "much better" alternative to targeted support. With fuel duty set to rise in September, she argued, "It's completely crazy to be increasing fuel duty at this time, and let's drill our own oil and gas in the North Sea."
Badenoch further accused the Government of failing to prepare for the Middle East crisis, stating, "Keir Starmer has been caught with his pants down, not being prepared, not knowing what's coming, not having any answers except sticking his head in the sand."
Meanwhile, at Tuesday's Cabinet meeting, Defence Secretary John Healey reported that the UK had defended allies in Israel, Saudi Arabia, Kuwait, Bahrain, and Jordan from overnight attacks. A counter-drone team successfully brought down 13 drones during an assault on a joint base in Iraq, according to No 10.
Ms Reeves concluded her address by reaffirming her commitment, saying, "This is not a war that we started, nor is it a war that we joined... but it is a war that will have an impact on our country. The challenges may be significant but I promise to do what is right and fair, being responsive in a changing world and responsible in the national interest."
