The Chancellor of the Exchequer (Rachel Reeves)
With permission, Mr Speaker, I will make a statement about the Government’s preparedness and economic response to the conflict in the middle east. Let me begin by paying tribute to our armed forces, and by expressing my concern and sympathy for the British citizens whose lives have been disrupted by the conflict so far. I understand the anxiety felt by families and businesses during these incredibly uncertain times. This conflict affects us all, and we must respond to it.
As I have demonstrated time and again, I will take the necessary decisions to help families with the cost of living and protect the public finances. I am clear-eyed about my response to the current situation. My economic approach will be both responsive to a changing world and responsible in the national interest. The economic impact of the situation in the middle east will depend of course on its severity and its duration. The movements we have already seen are likely to put upward pressure on inflation in the coming months, but I also want to confirm to the House that our financial markets are functioning and that I am in regular touch with the Governor of the Bank of England.
This afternoon, I spoke with G7 Finance Ministers, setting out my priorities for the international co-operation needed. First, we are calling for immediate de-escalation and a return to the diplomatic process. Secondly, we must guarantee the security of vessels passing through the strait of Hormuz. Thirdly, I stand ready to support a co-ordinated release of collective International Energy Agency oil reserves. Fourthly, the UK will play its part as the global hub of maritime insurance. I am meeting the chair of Lloyd’s of London later today, when we will discuss how best to support the continued passage of maritime trade.
I want to assure the country that the fundamentals of Britain’s economy are strong. Every step that I have taken since the election has built our national resilience: stability in the public finances; investment in infrastructure in both defence and energy security; and reform to our economy. Last week, I updated the House about our progress in delivering that plan. We have cut inflation so that it is now at 3%, a lower base than at the outset of the Russia-Ukraine conflict. I have prioritised economic growth to drive up living standards and I have stabilised the public finances. We have already reduced the deficit by £20 billion since last year, from 5.2% to 4.3% of GDP. We are due to reduce borrowing more over the rest of this Parliament, and by more than any other G7 economy, and I have increased our financial buffers, confirmed last week by the Office for Budget Responsibility.
I know that families and businesses will be concerned about the impact of this conflict on them, so I want to set out the action we have already taken and will take to protect them. I am prioritising energy security, investing in clean, home-grown energy. Our contracts for difference are already protecting consumers, ensuring that generators of low-carbon energy pay money back into the system when the wholesale prices are high, shielding bill payers from fossil fuel price shocks. I can confirm to the House that, in the coming days, we will publish the Government’s response to the Fingleton review of nuclear regulation to build nuclear power more quickly.
Our energy system is now more secure than it was at the outset of the Russia-Ukraine conflict. In 2025, the UK imported 17% less gas than we did in 2021. While gas generation is estimated to have set the wholesale price of electricity in Britain around 90% of the time in the early 2020s, that has now fallen by around a third. As a result we are less reliant on and less exposed to volatile international energy prices than we were at the outset of the Russia-Ukraine conflict, and that is welcome.
I recognise the role that North sea oil and gas will play in our economy for years to come. Last week, I met North sea industry leaders to discuss their role in jobs, investment and growth, and in energy supply. The energy profits levy currently remains in place and the electricity generator levy will also be activated if prices remain at high levels. I have set out the details of our successor regime to the energy profits levy, the oil and gas price mechanism, balancing providing certainty to business with fairly taxing windfall profits from energy companies.
I have also taken direct action on energy bills. Our supercharger discount on business electricity is increasing next month, cutting costs for around 500 of the most energy-intensive businesses by an additional £420 million per year. We are supporting the lowest-income families by investing £15 billion in our warm homes plan to improve the energy efficiency of people’s homes and reduce their bills, and, through the warm homes discount, taking £150 off bills for 6 million of the lowest-income households—a doubling of the number of people who will receive the warm home discount compared with the plans the previous Government had. That is in addition to the £117 drop in the price cap that Ofgem has confirmed from next month, thanks to the wider action on bills I took in the Budget.
I want to be clear to families at home that despite the movements we have seen in energy prices in the last few days, the price cap for domestic bills for April will not change, giving families immediate certainty on their bills until at least the end of June. However, I recognise that households who use heating oil face unique challenges, so I have asked the Financial Secretary to the Treasury to lead discussions with officials and rural and Northern Irish MPs to explore further action we can take. Those meetings will happen on Wednesday.
The current conflict only increases the importance of the action I took at the Budget to reduce energy bills. A rapid de-escalation in the middle east remains the best way to protect us from rising energy bills, but as the situation continues to unfold my priorities will continue to be helping families with the cost of living and protecting the public finances. I am also taking action to ensure that people pay the lowest possible price at the pump. In November, I extended the 5p per litre cut in fuel duty for a further five months and ensured that fuel duty will not increase in line with inflation this year. Petrol is more than 8p per litre cheaper today than it would have been under the plans we inherited at the election. That discount increases to 11p per litre next month once that extension takes effect.
The new cheap fuel finder that I confirmed at the Budget is currently being delivered, helping consumers find the cheapest price for their fuel. Almost 90% of petrol retailers have already registered for this and last week I instructed my officials to accelerate the integration of the cheaper fuel finder with map applications. This week, I am meeting petrol forecourt operators and I will not hesitate to call out retailers who fail to provide data to the fuel finder. I am clear that the best way to keep prices at the pump low is rapid de-escalation, and I will continue to monitor prices as the situation develops. I have also asked the Competition and Markets Authority to be vigilant across prices, including essentials such as road fuel and heating oil. Let me be absolutely clear: I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.
I am proud to be the Chancellor who is delivering the biggest uplift in defence spending since the end of the cold war. I am committed to giving our military the resources they need. That is why I can confirm today that I approved access for the Ministry of Defence to the special reserve to deploy additional capabilities in the middle east, meaning that no net additional costs of these operations will be funded by the MOD, but instead will be funded by the Treasury.
We do not yet know how long the conflict will last or what further action will be required, but it is my duty to be responsive in an uncertain world and responsible in the national interest to protect the public finances and help families with the cost of living. That is what the Prime Minister is doing and that is what I will continue to do. I commend this statement to the House.
Sir Mel Stride (Central Devon) (Con)
I thank the Chancellor for advance sight of her statement and add the Opposition’s firm support for our armed forces.
As the Chancellor has made clear, these are very serious and concerning times, and developments in the middle east are already having profound consequences for our economy. Oil prices have surged above $100 a barrel for the first time since the 2022 energy crisis. That alone is enough to have huge knock-on effects for households and businesses: families filling up their car will already have noticed petrol prices increasing, and fixed-price energy tariffs have either been increased or pulled from the market. We are already seeing British households worse off as a result of this conflict.
I am grateful to the Chancellor for updating the House on her meetings with other G7 Finance Ministers, and I welcome her commitment to supporting action to ease pressure on global supply by using strategic oil reserves. That, however, will go only so far.
As the Chancellor has said, the longer this conflict continues, the more likely it is that we will see a sustained period of higher prices. That, in turn, will have implications for interest rates and our cost of borrowing. The longer that lasts, the more likely it is that higher inflationary expectations will become anchored. If that happens, monetary policy will need to adjust accordingly, which may mean higher mortgages for homeowners who have only just begun to see some relief.
Gilt markets have already been responding to these events, which could mean that the forecasts we were given just last week from the Office for Budget Responsibility end up looking very different. We must continue to monitor developments closely.
Where the Opposition clearly differ from the right hon. Lady is in her approach to the economy in the run-up to this crisis, as her gross mismanagement has left us far more vulnerable than would otherwise have been the case. She refers to inflation, which was bang on target when we left office; thanks to her choices, though, it rose back up to almost 4% last year—the highest in the G7—and remains elevated, which is far from ideal given the threat of a significant further spike in energy prices. Extraordinarily, the Chancellor has just now reconfirmed that the Government will press ahead with a rise in fuel duty later this year.
Borrowing is running higher than was forecast when the Government took office—we are spending well over £100 billion a year on debt interest alone. This leaves us far more vulnerable to rising borrowing costs. The Government are also continuing to impose ruinously high taxes on our oil and gas sector and choosing to rely on imports instead of maximising our own domestic energy supply. That is proving to be an incredibly short-sighted approach. However, as the right hon. Lady has just told us, there will be no change in direction. That is the wrong choice. More broadly, of course, business confidence has hit record lows, and unemployment has risen back to pandemic levels. Our economy is weaker as a direct result of this Chancellor.
Last week, at the spring statement, the right hon. Lady had an opportunity to change course; instead, we got no action at all, just breathtaking self-congratulation and denial. She had a vital opportunity to come to the House with a plan to get the economy growing, but she did not do so—not least because this weak Government have caved in to their own Back Benchers, who prefer higher welfare spending to fixing our economy.
Today, let me reiterate our offer to support the Government if—even at this late stage, and particularly given the gravity of the current global outlook—they do the right thing by showing some backbone and coming forward with a proper plan to cut welfare spending and strengthen our economy so that we can properly support hard-working families through this difficult time. That is the very least that the British people deserve.
Finally, let me ask the right hon. Lady the following questions. Will she urgently reconsider her decision to implement the first increase in fuel duty in 15 years? Likewise, will she urgently reconsider her decision to continue with the crippling taxes being imposed on North sea oil and gas producers? On the Fingleton review on nuclear, can she clarify whether the Government are accepting all the recommendations, as Ministers previously committed to accepting?
Will the right hon. Lady give further details on what additional economic action is under consideration internationally if the conflict continues? What measures are the Government considering to support households in the event of a sustained period of higher prices, and what action is being considered as part of the Financial Secretary to the Treasury’s work to support those reliant on heating oil?
Are the Government tracking the Iranian regime’s illegal funding sources to ensure that UK financial systems are not facilitating funds that are being used to support repression? Will the right hon. Lady confirm that there is sufficient resource available in the special reserve so that our brave servicemen and women have the support that they deserve?
Rachel Reeves
I thank the shadow Chancellor for his questions. The Government believe that the best way that we can protect families and businesses from this conflict is through de-escalation. We heard nothing in the shadow Chancellor’s response about what the Conservatives’ view is on de-escalation. We believe that it is important that we get back to the negotiating table and do not escalate this conflict, but I am not sure that that is the view of the Conservatives.
We know that commitment to greater energy security can help guard against shocks. After inaction and delay from the Conservatives while they were in government for 14 years, this Labour Government are committed to investing in and building new nuclear. That is why we are backing Sizewell C and small modular reactors— neither of which were funded by the previous Government, but both of which were funded at the spending review, because this Government are backing Britain’s energy security. This Labour Government are backing the industries of the future, such as carbon capture and storage—not funded by the Conservatives, but funded in the spending review, because we back Britain’s energy security. Through the National Wealth Fund, we are investing in floating offshore wind and our docks—not funded by the Conservatives, but funded in the spending review, because we back Britain’s energy security.
In 14 years the Tories did nothing. They failed when we needed new nuclear. They stood by and allowed the loss of gas storage facilities at Rough. They failed to fix the broken planning system to enable us to build renewables, and they had an effective moratorium on onshore wind, which is the cheapest form of energy. We are taking a different approach in the interests of our economy and energy security.
On energy bills, I urge the shadow Chancellor not to scaremonger. The £150 cut to energy bills that I announced in the Budget will continue, as has been confirmed by Ofgem. We removed the failed energy company obligation scheme, and we removed a number of levies from bills. On heating oil, those conversations will happen this week, and we are working closely with MPs and colleagues in Northern Ireland to make sure that things are working well. The Minister for Energy at the Department for Energy Security and Net Zero met the heating oil sector on Friday and spoke this morning to the Competition and Markets Authority. There is not currently a problem with supply, but if Members have individual issues around supply, they should make sure that they get in contact with DESNZ.
The shadow Chancellor asked about fuel duty. Fuel duty would have risen by 8p if I had used the plans that I inherited from the Conservatives. We have had two Budgets in which the freeze on fuel duty was extended, and both times it was voted against by all Opposition parties. It is a little rich for the Tories now to say that they want to reduce fuel duty when they voted against Budgets that froze it.
On the energy profits levy, the shadow Chancellor must have a short memory, because he was in the Cabinet that introduced the energy profits levy. It was introduced for a reason. Windfall profits were being made by the energy companies and there was a need to help consumers with bills, which is exactly what we have done.
On the public finances, I am not sure the right hon. Gentleman listened to my statement last week or my statement today. The deficit has reduced from 5.3% to 4.2% of GDP. This is the first time in six years that the budget deficit has been less than 5% of GDP. In fact, in the 14 years that the Conservatives were in office, borrowing was higher than the G7 average; it is now lower than the G7 average, and it is coming down in every year of this Parliament. On inflation, I will not take any lessons from the party whose policy took inflation to more than 11%.
The right hon. Gentleman, as a former Work and Pensions Secretary, says that we should be spending less on welfare. Well, it would have been nice if he had done something about it when he was in charge. We are reforming the welfare system, which the Conservatives broke.
On Fingleton, we commissioned the Fingleton review because we are determined to build nuclear power, unlike the Conservative party. On oil reserves, we have reserves equivalent to 90 days of oil imports. As the G7 confirmed today, we will be making further announcements on that. On gas reserves, it was the Conservative party that closed the storage facilities at Rough. National Gas has confirmed today that our gas reserves are at a comparable level to last year and the year before that. The numbers that are being reported are utterly misleading, because gas comes from a number of sources—interconnectors, liquid natural gas and our storage facilities—so I would really rather the Conservative party did not scaremonger when people want certainty.
On money laundering, of course we have the very strictest rules. On the special reserve for defence, of course we will ensure that the Ministry of Defence has all the money it needs to provide support for our armed forces.
Madam Deputy Speaker (Caroline Nokes)
I call the Chair of the Treasury Committee.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
My right hon. Friend is right to focus on the cost of living and de-escalation in the middle east. I am pleased to hear her confirm again that there is money for the Ministry of Defence and access to the special reserve to deploy additional capabilities to the middle east. Can she give us a figure or a range for how much money the Treasury is providing to the Ministry of Defence to deploy?
Rachel Reeves
It would not be right to disclose that sort of information. As I said, we will provide all the support that is needed for our operations in the middle east.
Madam Deputy Speaker (Caroline Nokes)
I call the Liberal Democrat spokesperson.
Daisy Cooper (St Albans) (LD)
I am grateful to the Chancellor for advance sight of her statement, but it does not include a single concrete announcement, and in itself will not provide the reassurance that householders and businesses are looking for as they hear reports that energy bills are about to escalate. Last week, the Liberal Democrats asked the Chancellor whether she would consider scrapping the planned 1p increase in fuel duty, due in September. Will she confirm that that option is still on the table and has not been ruled out?
Last autumn, we Liberal Democrats called for a new energy security bank to roll out low-interest loans to households and small and medium-sized enterprises. We welcomed the Government’s warm homes plan in January, but will the Chancellor confirm that it could be extended from five to 10 years and that it will have a greater emphasis on home insulation? Could small businesses’ investment in energy-saving measures be excluded from business rates calculations?
In the long term, we need energy market reform. I urge the Chancellor and her Government to intervene to stop these unpredictable fluctuations in the gas market. We need urgently to develop a plan to delink gas and electricity prices, and move expensive old renewable subsidies from the renewables obligation to the much better and cheaper contracts for difference model.
I am glad that the Chancellor has written to the Competition and Markets Authority about keeping an eye on petrol pump prices, but last autumn I wrote to the Secretary of State for Business and Trade and asked him to instruct the CMA to investigate bad practices in the energy market that affect hospitality businesses and small businesses. The Federation of Small Businesses and UKHospitality have also asked for that investigation but, six months on, it still has not happened. Will the Chancellor please confirm that she will speak to the Secretary of State for Business and Trade?
Finally, on rural homes, we know that off-grid homes rely on oil, and they are already seeing prices go up as panic buying spreads. I am grateful that the Chancellor indicated that there will be a meeting on Wednesday. Will she confirm that an announcement will be forthcoming by the end of this week?
Rachel Reeves
The hon. Lady talks about energy security, but she has never once acknowledged her party’s failure when they were in government. In 2010, her then party leader Nick Clegg justified opposing new nuclear energy on the grounds that it would take until 2022 to become operational. Well, 2022 has been and gone, but what is here is another example of Britain paying a high price today for the choices of the Opposition parties.
I turn to the hon. Lady’s specific questions. We announced at the Budget that we will take £150 off bills—that will come in in April and continue until June—by taking the failed energy company obligation levy, over which the last Government presided, off bills. People on heating oil also use electricity in their homes and will benefit from reductions in their energy bills from April. As I said, the Financial Secretary to the Treasury will meet relevant MPs this week.
The hon. Lady walked with her colleagues through the Lobby to oppose the Budget measures, which included freezing fuel duties, so it is a bit rich of her now to say that she wants us to cut fuel duty. On ensuring that homes are properly insulated, at the spending review last year I announced £15 billion for the warm homes plan, which is focused on lower-income families.
The hon. Lady is absolutely right that contracts for difference are crucial in weaning ourselves off imported oil and gas. We are in a better place because of the CfD auctions we have been holding and the energy infrastructure we have been building, and which we can build because of the Planning and Infrastructure Act 2025, which Opposition parties opposed.
Finally, as I said in my statement, the Competition and Markets Authority has an important role in ensuring that markets are functioning properly on heating oil, on petrol forecourts and for small businesses. We will ensure that it fulfils that role so that people are not overcharged for the energy they use.
Bill Esterson (Sefton Central) (Lab)
I welcome the Chancellor’s commitment to giving us energy security by reducing our dependence on international fossil fuel markets and moving to clean energy instead. I also welcome what she said about her support for jobs and investment in the North sea, her commitment to protecting consumers through the warm home discount and the warm homes plan, and indeed the commitment she made in the Budget to take £117 off consumer bills.
My right hon. Friend rightly pointed out the dire record of Opposition parties on new nuclear—14 years in which they failed. Will she give a commitment that this Government will add to their already announced successes on Sizewell C and on small modular reactors, and give policy certainty to the industry through a fleet approach to both large-scale and small modular reactors?
Rachel Reeves
I thank my hon. Friend for that question. We have already signed off commitments to both Sizewell C—a publicly funded nuclear power station—and small modular reactors, which we will build with Rolls-Royce in north Wales. The purpose of the Fingleton review is to ensure that we can build those quickly and cheaply, as—more than ever—the current situation demands.
Sir Jeremy Hunt (Godalming and Ash) (Con)
When I was doing the Chancellor’s job, the Treasury rule of thumb was that a 20% increase in energy prices meant 1% more on inflation and 0.5% less on growth. The truth is that it is much too early to know whether the Chancellor will have to find £78 billion to help households with energy bills, as I had to do in 2022, but we do know that the world is much more dangerous and that there are big problems in our defence budget. I welcome the fact that the Government are now committed to increasing defence spending to 2.5% of GDP, but nearly two years on from when the previous Government made the same commitment, it is clear that that is not enough. Will she unblock the arguments between the Treasury and the Ministry of Defence and outline a timetable whereby defence spending increases to 3% of GDP and we are able to defend our interests in the middle east and our allies in Europe, as the whole House would wish?
Rachel Reeves
The right hon. Gentleman’s point about it being too early to tell the impact is really important. Of course we will take the necessary actions to protect consumers and businesses, but the most important thing we can do at the moment is to de-escalate the conflict and work with Lloyd’s of London and countries around the world to get those vessels flowing through the strait of Hormuz. That is absolutely key for containing the rises in energy prices.
On defence spending, the Conservative manifesto committed to getting to 2.5% by the end of the Parliament. We are going to get to 2.6% by April next year, and we have made further commitments to 3% and then 3.5%. Obviously, we have a spending review coming up next year where these decisions will be taken in the round.
Several hon. Members rose—
John Grady (Glasgow East) (Lab)
The root cause of this issue in Britain is our excessive reliance on gas. That is why consumers in Glasgow East pay much more for their energy. The Conservatives had an offshore wind auction with no bids and an onshore wind moratorium, and the SNP is against any new nuclear power stations. Does my right hon. Friend the Chancellor of the Exchequer agree that we must double down on nuclear and on onshore and offshore wind to attack the root cause of our energy costs?
Rachel Reeves
We are building new nuclear in England and we are building new nuclear in Wales. We would love to build new nuclear in Scotland, but that will be possible only with a Labour Government in Scotland. On renewables, auction round 7 was very successful, and auction round 8 will take place later this year. My hon. Friend is absolutely right: we need to wean ourselves off imported oil and gas and be more secure with our energy supplies here in the UK.
Dame Harriett Baldwin (West Worcestershire) (Con)
The Chancellor has announced today that she is not really making any changes at this point, and that she is calling for a de-escalation. What would she say to my rural constituent who uses heating oil and has a virtually empty tank after a long winter, and is facing a 100% increase in the cost of heating oil? I did not hear anything that would help that particular constituent.
Rachel Reeves
As the former Chancellor, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), said, it is too early to know the impact of this. The key is de-escalation and getting vessels flowing through the strait of Hormuz. The hon. Lady will have heard me say that heating oil is uniquely affected. People who use heating oil will get the benefits in their electricity bills, but I urge her to attend the meeting on Wednesday to put the case of her constituent to the Financial Secretary to the Treasury.
Ben Goldsborough (South Norfolk) (Lab)
I thank the Chancellor and Treasury officials for working closely with the Labour rural research group to discuss the heating oil troubles that we are facing right now, with prices going up by over 200% in some parts. Can she elaborate on what action will be taken with the Competition and Markets Authority to ensure that we are protecting our consumers from these price gouging effects?
Rachel Reeves
The point about price gouging is really important, and that is why we have today instructed the Competition and Markets Authority to ensure that heating oil and petrol retailers, for example, are not taking advantage of this situation to line their own pockets rather than thinking about the consumers they serve.
Chris Coghlan (Dorking and Horley) (LD)
This last week has underlined our perilous national security situation and the potential risks to growth. Does the Chancellor agree that now is the time to raise defence spending to 3% of GDP, perhaps funded by borrowing, along with our European and Canadian allies, to reassure the bond markets and to drive growth and protect our national security?
Rachel Reeves
I have huge respect for the hon. Gentleman, who is on the Treasury Committee, but his party has opposed every increase in taxes that we have brought in to better fund our public services, including higher defence spending. Like me, he will be looking at what is happening in the financial markets. I am not convinced that this is the time to unleash more borrowing on the markets. That is what Liz Truss tried, and look where it got us.
Luke Murphy (Basingstoke) (Lab)
I welcome the Chancellor’s statement, particularly the focus on energy security and our plan for home-grown clean energy. It has been astonishing since the election to hear that the Conservatives’ lesson from the Ukraine crisis was that we needed to be more dependent on international fossil fuels, after it cost us £78 billion, as the former Chancellor, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), just said. The Chancellor mentioned the electricity generator levy. Will she tell the House how and when that would be activated?
Rachel Reeves
The energy profits levy is still in place, and the higher prices go, the more windfall tax is paid. There is also the electricity generator levy, whereby if electricity prices go up because they are, in some cases, outside of contracts for difference and linked to gas prices, we will recoup money there. That is obviously important because if the situation goes badly, we will need to be able to better support consumers. That is why the EPL and the EGL were brought in in the first place, and why they are important parts of the architecture we have.
Sir Edward Leigh (Gainsborough) (Con)
When we are in the middle of a war, I am not sure that it achieves much to be overtly party political. The past is where we were; we are now in the present. Just to be helpful, I agree with the Chancellor on de-escalation and on defending our interests, not pursuing regime change, but the fact is that we have the highest energy costs in Europe. We are now in a crisis and potentially a war economy. I saw the Energy Secretary sitting next to her earlier. Whatever the good intentions on net zero, will she listen to the shadow Chancellor on North sea oil, because we are in this crisis now and have to meet it with every tool in the toolbox?
Rachel Reeves
The right hon. Gentleman is absolutely right. The best way to reduce prices for businesses and families in all our constituencies is to de-escalate and ensure that vessels can get through the strait of Hormuz, and that is our focus. But what this crisis, as well as Russia’s illegal invasion of Ukraine, shows us is that we have to wean ourselves off oil and gas. We are better placed now than we were when Russia invaded Ukraine because we get more of our electricity through contracts for difference than we did then, and we are less reliant on gas prices to set our overall energy prices, but this shows that we need to do more to invest in both nuclear and home-grown renewables so that we are not so reliant on imports. However, as I said in my statement, I met North sea oil and gas leaders last week to talk about how we can support them during this time to ensure that we have access to the reserves we need.
Jim Dickson (Dartford) (Lab)
I thank the Chancellor for her statement. It is vital for residents in Dartford and across the country that they know the Government have their back when it comes to fuel bills going forward. Does she agree that the economic stability she set out last week in the spring statement means that the economy and consumers are much less vulnerable to the price shocks coming from the middle east than they otherwise would have been?
Rachel Reeves
We are in a better position than we were when Russia invaded Ukraine for two reasons. The first is our macroeconomic situation. For the first time since 2019, our deficit is below 5% of GDP. It came down by 1 percentage point of GDP just this year, and the OBR has forecast that it will fall every year, which gives us a bit more of a buffer. Of course, I set out how the headroom against the fiscal rules—both the stability rule and the investment rule—had increased at the spring forecast compared with the Budget. The other way we are better prepared is that more of our electricity comes from contracts for difference, which are not linked to the volatile and rising gas prices. That means that bills will be less affected, but I come back to the point that de-escalation will have the greatest impact on my hon. Friend’s constituents in Dartford and people elsewhere in getting their bills down.
Kirsty Blackman (Aberdeen North) (SNP)
Families are already struggling with the ongoing cost of living crisis, and the Chancellor has failed to bring down energy bills in the way that was promised in the manifesto. As prices continue to soar and international events cause people real anxiety as they look on, people are struggling and feeling the squeeze from the cost of living more than ever before. Will she now recognise that this is a crisis for families and put in real support to help them through the cost of living crisis?
Rachel Reeves
With respect to the hon. Lady, on 1 April, energy prices will fall by an average of £117 thanks to the action that I took in the Budget, and will be frozen at that point until the end of June. As the former Chancellor, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), and other Members have said, the most important thing we can do now is de-escalate the crisis. If she really believes in energy security, she should back Labour’s plans to invest in nuclear energy, as well as the jobs that it would create in Scotland.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
I welcome the Chancellor’s reiteration of the British industry supercharger scheme, but she will know that it helps only 10% of this country’s energy-intensive industry—electro-intensive industry in particular. The price per therm of gas is pretty much double what it was last week, so will she set out what help might be available for gas-intensive industry and for electro-industry that is not part of the supercharger scheme? Although we all hope that de-escalation comes, if it does not, will she meet the energy-intensive industries impacted by gas prices to see how they can be given immediate relief?
Rachel Reeves
I thank my hon. Friend for that important point. Five-hundred businesses will benefit from an increased discount through the supercharger, taking it from 60% to 90%, from April. Next April, the British industry competitiveness scheme comes in, and it will benefit around 7,000 businesses. Of course, we will continue to consider how we can support our energy-intensive industries if the situation in the middle east continues.
John Glen (Salisbury) (Con)
Given that it was promised at the start of June last year, when will the Chancellor sign off on the defence investment plan?
Rachel Reeves
I have huge respect for the right hon. Gentleman and the time he spent at the Treasury. As he knows, the previous Government committed to reaching 2.5% by the end of this Parliament. We are committing to bringing that forward, and by April next year we will be spending 2.6% of GDP. We will set out the defence investment plan based on our strategic defence review. Of course, the previous Government did not even bother to do a strategic defence review.
Sam Rushworth (Bishop Auckland) (Lab)
Constituents in Weardale, Teesdale and Gaunless valley are already paying double what they would have paid for their heating oil a week ago, and some of them simply cannot afford to fill up their tanks. Thanks to the fiscal headroom that the Chancellor has created, there is money in the system to support them, so will she consider fixed-term payments in the short term, and an expansion of the warm homes local grant in the long term, to help people to transition to cheaper forms of fuel?
Rachel Reeves
As I set out in my statement, we put £15 billion into the warm homes plan at the spending review last year, to better insulate people’s homes and help them to move to cheaper forms of energy. However, I recognise the immediate problems relating to heating oil, which is why I have asked the Competition and Markets Authority to consider price gouging, and why the Financial Secretary to the Treasury will meet MPs on Wednesday. I hope that my hon. Friend will be there on behalf of his Bishop Auckland constituents.
Sarah Dyke (Glastonbury and Somerton) (LD)
Since the outbreak of the conflict in the middle east, heating oil prices have increased by over 100%. That is a harsh reminder that relying on volatile fossil fuel markets leaves households financially vulnerable. Many rural households are off the gas grid, so constituents such as Julian from East Lambrook are not protected by the energy price cap. Does the Chancellor agree that that is unfair on rural communities, and will she take steps to develop a mechanism to protect those householders from damaging global fossil fuel price shocks?
Rachel Reeves
Almost every household uses electricity to turn on the lights. They will benefit from some of the changes that will come in on 1 April. Some 4% of households in Great Britain, and more than 60% in Northern Ireland, rely on heating oil. We recognise the unique situation here. The increase in the price in the past few days does not reflect market conditions, which is why we have asked the Competition and Markets Authority to look urgently at extortionate prices. We are also ensuring that supply remains stable. Enough heating oil is available, and we do not want people to be priced out of it.
Matt Rodda (Reading Central) (Lab)
I welcome the Chancellor’s statement and thank her for her work to reduce dependence on fossil fuels. Will she say a little more about her long-term work to increase grid capacity and change the planning system to help invest in new nuclear and solar?
Rachel Reeves
We made changes to the national policy planning framework a few days into this Government, and at the end of last year we passed the Planning and Infrastructure Act 2025, which makes it easier to build a range of infrastructure from housing to data centres and, crucially, energy infrastructure. That Act was opposed by the Opposition parties, who need to explain why they are against building the grid connections that will help us to benefit from cheaper energy.
Martin Vickers (Brigg and Immingham) (Con)
I agree with the Chancellor that de-escalation is desirable, but this conflict is likely to go on for many months. She talks about reducing our reliance on fossil fuels, which I agree with, but businesses are operating in the here and now, and they want reassurance. Forget the 500 businesses that will benefit from the supercharger scheme; what message can she give to medium-sized businesses that are very concerned and are having to lay off staff?
Rachel Reeves
I recognise the concerns about businesses. As well as the supercharger, the British industrial competitiveness scheme is coming in next year, and we are monitoring the situation carefully to see what else might be necessary. De-escalation is so important. There is no reason why this conflict has to go on for months and months—nobody wants that, it is in no one’s interest, and we must quickly get vessels flowing through the strait of Hormuz. That is why I am meeting Lloyd’s of London later today, to work through what insurance products can be introduced, and it is why G7 Finance Ministers talked on the call this afternoon about how we can guarantee the safety of vessels flowing through the strait.
Perran Moon (Camborne and Redruth) (Lab)
Tens of thousands of homes across Cornwall are still totally reliant on heating oil, so I am delighted that the Chancellor has confirmed that the Financial Secretary to the Treasury will be meeting rural MPs, whose constituents are disproportionately affected by the crisis. Does she agree that in order to accelerate away from a fossil fuel-led economy, the British Business Bank, National Wealth Fund, and Great British Energy need to take a more dynamic attitude to risk when supporting renewable energy projects?
Rachel Reeves
I thank my hon. Friend for that question, and the group of rural Labour MPs for contacting me over the weekend with their stories and suggestions. That is why the Financial Secretary to the Treasury will be meeting MPs on Wednesday this week. The National Wealth Fund and British Business Bank are already investing heavily in renewables, and we increased their budget for them to do so. I also recognise the important opportunities in Cornwall, not just the South Crofty tin mine in my hon. Friend’s constituency, but other energy projects, including geothermal energy, and I have asked the National Wealth Fund to look again at those opportunities.
Robert Jenrick (Newark) (Reform)
The British people are being clobbered. The Chancellor could have come here today and scrapped her hike in fuel duty. She could have come here, ended the insanity, and got drilling again in the North sea. Instead, she offered nothing—absolutely nothing. This crisis deserves a proper response. When will she finally understand that for now at least she is the Chancellor, not just a bystander?
Rachel Reeves
The freeze in fuel duty—Reform opposed it. The energy profits levy—the right hon. Gentleman introduced it when he was in the Conservative Government. I will take no lectures from him and the Tory tribute act sitting up there.
Torcuil Crichton (Na h-Eileanan an Iar) (Lab)
I thank the Chancellor for her statement, for her support for the armed forces, and for acknowledging the anxiety of constituents abroad. Closer to home—at home, in fact—half of my constituents in Na h-Eileanan an Iar outside the town of Stornoway rely on heating oil to heat their homes. They face great uncertainty, with no guarantee of delivery, or of price on delivery. I hear what Money Saving Expert Martin Lewis fears regarding price gouging and price rises, so I welcome Treasury talks and hope that they will lead to further scrutiny and regulation of this unregulated industry. Otherwise, I will have to introduce the Financial Secretary to the Treasury to the old Lewis tradition of cutting peat for winter fuel.
Rachel Reeves
I recognise that my hon. Friend’s constituents will be affected more than most by worries about the delivery and price of heating oil. That is why I have instructed the Competition and Markets Authority to look at price gouging and why the Financial Secretary to the Treasury will be meeting my hon. Friend and other concerned MPs on Wednesday this week.
Tom Tugendhat (Tonbridge) (Con)
Will the decisions that the Chancellor is making about the strategic reserve being used for defence include consideration about the availability of funding for the Royal Navy to prepare warships to go to sea? There has been rumour over the past few days that one reason why one of His Majesty’s ships is not ready is that the contractor is still working 9 to 5. Will she be able to fund this properly, so that all ships are available as quickly as possible?
Rachel Reeves
I can confirm that there are no financial impediments to warships going to the middle east. Money is available through the special reserve for personnel and contracts for all our operations in the middle east.
Alex Baker (Aldershot) (Lab)
As the Member of Parliament for the home of the British Army, I thank the Chancellor for her support for our armed forces. My constituency is also home to innovative defence and aerospace businesses, many of which are ambitious to expand and to play their part in strengthening our national security, but that depends on being able to access the investment that they need to scale up. Will the Chancellor reassure those businesses in my constituency that this Government will continue to work closely with the financial sector to ensure British defence and advanced manufacturing companies can access the capital that they need to invest, grow and create good, skilled jobs here in the UK?
Rachel Reeves
As my hon. Friend knows, we have increased the funding available to both UK Export Finance and the National Wealth Fund to invest and support our defence industry. I also support the work that she and my hon. Friend the Member for York Outer (Mr Charters) are doing in ensuring that the financial services sector also lends to defence businesses, including scale-up businesses.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
Almost two thirds of homes across Brecon, Radnor and Cwm Tawe are dependent on heating oil, the price of which is now surging thanks to Donald Trump’s decision to bomb Iran. Will the Chancellor reassure my constituents that help will be on the way from the Government?
Rachel Reeves
The meeting with the Financial Secretary to the Treasury will be open to all MPs and is taking place on Wednesday this week, and I urge the hon. Gentleman to attend that meeting. We are aware of the unique situation with heating oil. That is why I have instructed the Competition and Markets Authority, but I am also keen to hear directly from MPs.
Mr Calvin Bailey (Leyton and Wanstead) (Lab)
The impacts of this spiralling conflict are serious and will fall on our constituents’ pockets, so I welcome the Chancellor’s statement and the measures that she has set out. Yet last week, the hon. Member for Clacton (Nigel Farage) was in the United States attempting to lobby against our national interests—with a comical lack of success. Does my right hon. Friend agree that the impact on living costs can only be compounded by continued, deeply unpatriotic interventions by Members of Reform UK?
Rachel Reeves
I thank my hon. and gallant Friend for his question and for his contribution to the debates last week. He knows how important it is to de-escalate, because it is our armed services personnel who would be at the frontline of any escalation of the crisis. De-escalation is also in the interests of all our constituents, whether because of heating oil, the price paid at petrol pumps or mortgage rates. That is why this Government are putting all our diplomatic efforts into de-escalating this crisis and reopening the strait of Hormuz.
Simon Hoare (North Dorset) (Con)
As heating oil and petrol prices go up in rural North Dorset, my constituents are hearing the Chancellor echo one of her predecessors in effectively saying, “Crisis? What crisis?” She needs to actively get a grip on this issue. Motorists in rural areas use their cars because they have to. The vast majority of my constituents are off grid and have no alternative to keep warm other than using heating oil. This is a crisis in costs taking place today that meetings with and letters to the CMA will not help or address. She has mentioned that this meeting has been organised on Wednesday and that invitations have gone out for it. [Interruption.] We do not need the hon. Member for Swansea West (Torsten Bell) gesticulating like some—
Rachel Reeves
I have huge respect for the hon. Member. As the former Chancellor of the Exchequer, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), says, it is too early to know what the impact of this crisis will be. That is why I met with G7 Finance Minister colleagues today, which I am sure the hon. Member for North Dorset (Simon Hoare) welcomes. We discussed the release of the International Energy Agency’s strategic oil reserves, for example. What is needed to contain prices for all our constituents is to ensure that we have the oil and gas on the market that we need. That is why we are prioritising diplomatic routes to de-escalate this crisis.
Jonathan Davies (Mid Derbyshire) (Lab)
I thank the Chancellor for her statement, because this is a worrying time for not just our national security, but our economy. I am pleased to hear about the work going on with the Competition and Markets Authority in respect of consumers of heating oil, but may I suggest that she has a conversation with her colleagues in the Department for Energy Security and Net Zero to expedite the £1 billion-worth of community energy investment coming through the local power fund and focus it as quickly as possible into rural areas such as mine in Derbyshire? If this is going to be a protracted conflict, that could make a difference.
Rachel Reeves
In the spending review last year, I put in £1 billion for the community investment fund in local energy schemes to ensure that communities are more self-reliant for their basic energy needs. That is the lesson from Russia’s invasion of Ukraine, and it is also the lesson from this conflict in the middle east. We need to be more resilient and secure as an economy, and that is exactly what we are doing.
Dr Ellie Chowns (North Herefordshire) (Green)
The Iran crisis highlights the urgent need to speed up the UK’s energy system transition to clean, green, cheap renewables and energy efficiency. The last time that energy prices went through the roof due to illegal international aggression, in 2022, normal people paid the price while huge energy giants raked in billions of pounds in windfall profits. Will the Chancellor guarantee that in responding to this crisis, she will do everything possible to protect ordinary households and ensure that no energy company makes profits from this war?
Rachel Reeves
The reason we have the energy profits levy and the electricity generator levy is to ensure just that. If the hon. Lady is really serious about energy security and investing in low-carbon energy, I really do not understand why her party opposes planning reforms so that we can build grid infrastructure, as well as both small modular reactors and new nuclear in Suffolk. All those things add to our energy security and reduce our reliance on fossil fuels. Why do the Greens oppose them?
Tom Hayes (Bournemouth East) (Lab)
I respect the Conservatives who are calling for de-escalation, but they need to have a word with their leader, who wanted to sign Britain up to a war of choice with changing goals and no clear timescales, thereby contributing to the chaos and the worsening cost of living crisis. The Chancellor has a plan, and we are seeing inflation, interest rates and Government borrowing falling as a result. Will she commit to keeping to that plan to keep bringing down borrowing so that the country can live more within its means and get rid of the awful inheritance left by the Conservatives?
Rachel Reeves
Last week’s spring forecast from the Office for Budget Responsibility showed inflation coming down, borrowing coming down and debt coming down. Our economy is fundamentally strong, but we all need to see a de-escalation of this conflict and the reopening of the strait of Hormuz to ensure that our constituents continue to benefit from falling energy bills and falling interest rates. That is why we are so focused on the diplomatic efforts.
Sir Oliver Dowden (Hertsmere) (Con)
As the Chancellor has repeatedly said, at the root of the current economic crisis lies the closure of the strait of Hormuz. What conversations have the Government had with the Trump Administration, both about insurance and, more importantly, about deploying UK military assets to secure the reopening of the strait? Does she agree that a more robust approach might reassure our friends and allies in the Gulf who invest so much in the United Kingdom? Our presence there has been notable by its absence.
Rachel Reeves
There are two things that are needed to effectively reopen the strait. The first is security for vessels passing through it, which will require cross-country action involving the US, of course, but also the UK and France. We all stand ready to do that, and that was one of the things we discussed on our G7 Finance Ministers’ call today. Once that is provided, we also need to ensure that appropriate insurance products are in place, and we are working on that with Lloyd’s and the US Administration. We are the global leader in maritime insurance, so we have an important role to play to ensure those vessels are properly insured once they start to move again.
Josh Newbury (Cannock Chase) (Lab)
The Chancellor has taken decisive action to bring down energy bills, but as she noted, those who rely on heating oil are often the most exposed to sudden price shocks. Even in my fairly urban constituency, there are hundreds of households in that position, and some of them have been on touch with me because the cost of heating oil has doubled in a week due to the effect of the Iran conflict. As the Chancellor works to shield the British public from the economic fallout, will she ensure that our households on heating oil are protected from the shocking increases we are currently seeing?
Rachel Reeves
It is important that the players in the heating oil sector behave responsibly and do not seek to profiteer from the current conflict. It is their customers who will lose out, which is why we have instructed the Competition and Markets Authority to guard against price gouging. I know that my hon. Friend will attend the meeting with the Financial Secretary to the Treasury on Wednesday to make those representations, but the best thing we can do is de-escalate and get those vessels moving, in order to get that oil and gas flowing.
Helen Morgan (North Shropshire) (LD)
One in three households in North Shropshire are dependent on heating oil—I declare an interest, because mine is one of them. Since last week, people have been in contact with me, concerned about the rapid escalation of heating oil costs. I welcome the Chancellor’s announcement that she recognises that problem and wants to act on it, but can she outline in more detail what kind of remedy she envisages and how soon it might be put in place?
Rachel Reeves
I said in my statement that despite what we did in last year’s Budget to take £150 off domestic energy bills, there is a unique situation with regard to heating oil. That is why I was pleased to receive representations on that topic over the weekend—the Treasury is working through those proposals—and it is why the Financial Secretary to the Treasury will meet MPs this week. The reason prices are going up, though, is the challenges in getting oil and gas out of the middle east. That is why it is so important to de-escalate, but it is wrong for anyone to profiteer off the back of this crisis.
Mr Luke Charters (York Outer) (Lab)
Many of my constituents stranded in the middle east have been left out of pocket because of their travel insurance. In my view as a former regulator, those policies have overly broad exclusion terms. Will my right hon. Friend update the House on her meetings with the insurance sector, the Financial Conduct Authority and consumer groups, and will the City Minister meet me to discuss this issue?
Rachel Reeves
I am sure that the relevant Minister—whether that is a Minister in the Department for Transport or the Economic Secretary to the Treasury—will meet my hon. Friend. It is important that everybody who wants to get home from the middle east is able to do so. We welcome the work that airlines are doing with the support of the Government to get people home, but it is also important that people are not ripped off for that.
Harriet Cross (Gordon and Buchan) (Con)
For months now, we have heard the Chancellor and other Government Front Benchers saying that we will be using oil and gas for years to come. Of course we will—no matter how much they want to wish it away, we will be using oil and gas for years to come, so we must secure our supply. In her meeting this morning with G7 Finance Ministers, did any of them say that banning new oil and gas licences in the North sea was a good idea? Are any of them banning themselves from accessing their own energy resources?
Rachel Reeves
It was, of course, the hon. Lady’s party that introduced the energy profits levy in the first place, and it did so for a good reason. Many of the questions today have been about the impact on prices, and the way that support was given to consumers during the Russia-Ukraine crisis was through money from the energy profits levy being used to subsidise people’s bills. That is why we have the energy profits levy.
Dave Robertson (Lichfield) (Lab)
I thank the Chancellor for her statement. She is absolutely right to take the action that she has on energy prices, particularly given that 20% of the world’s oil is transported via the strait of Hormuz. The strait of Hormuz also transports more than a third of the world’s urea, almost half its sulphur, and a significant amount of ammonia. What steps is the Chancellor taking to protect our farmers from spiking fertiliser prices at the same time as energy prices are rising?
Rachel Reeves
We are working closely with the Department for Business and Trade and the Department for Environment, Food and Rural Affairs, as well as business, to understand the different parts of industry that will be affected by protracted conflict. That is just another reason why it is so important to de-escalate. That is exactly what we are seeking to do, and it is also why we are working with G7 allies focused on reopening the strait of Hormuz, because that is the best thing we can do to bring down prices and ensure that supply continues to flow.
Sorcha Eastwood (Lagan Valley) (Alliance)
I welcome the Chancellor’s statement this afternoon. As she has outlined, Northern Ireland is uniquely exposed, with up to 70% of people across Northern Ireland reliant on home heating oil. Instead of meeting me, does she have plans this week to meet the Minister for the Economy and my ministerial colleagues in the Northern Ireland Executive to see how we can best support our people?
Rachel Reeves
It is important to understand the extent of the impacts on Northern Ireland. When we made the announcement in the Budget, we made money available for Northern Ireland to have its own scheme, recognising the slightly different energy market there. The Financial Secretary to the Treasury, who is leading on this work at the Treasury, will meet his opposite numbers in the Northern Ireland Executive to ensure that we understand the challenges there and what we can do to best support people.
Tony Vaughan (Folkestone and Hythe) (Lab)
I thank the Chancellor for her statement, which underlines the importance of new nuclear to boost our energy security. Many of us who back new nuclear also care deeply about nature. Dungeness in my constituency is both a nationally important habitat site and a vital location for new nuclear. Does the Chancellor agree that we urgently need a reformed framework for habitat protection—along the lines proposed by the Fingleton review—so that we can safeguard the environment and welcome new nuclear back to places such as Dungeness?
Rachel Reeves
I thank my hon. Friend for his pragmatic approach. We will be responding to Fingleton in the next few days and then legislating as quickly as possible to make it cheaper and quicker to build the energy infrastructure that we know we need.
Sir Alec Shelbrooke (Wetherby and Easingwold) (Con)
Defence industry supply chains are desperately in need of the defence investment plan. The Chancellor talks about the money being invested, but why is the Treasury not allowing the DIP to go forward? It is starting to become critical, and we need that infrastructure. The Secretary of State is desperate for that infrastructure. We need to know when it is coming forward. They are the Government’s self-imposed deadlines, nobody else’s.
Rachel Reeves
We published the strategic defence review earlier this year, and in the spending review last year, the biggest uplifts in spending were at the Ministry of Defence and the Department of Health and Social Care. The previous Government said that they would get to 2.5% at the end of the next Parliament. We will get to 2.6% by April next year, and that money is already being spent. The right hon. Gentleman does not need to worry about that.
Baggy Shanker (Derby South) (Lab/Co-op)
My constituents in Derby will be worried about the devastation that they see across the middle east, and they will agree that de-escalation must remain a priority. They are also worried, though, about the impact on their weekly shopping bills, petrol prices and energy bills. Does the Chancellor agree that stability for our businesses and local people is vital, given the volatility we are seeing internationally?
Rachel Reeves
I am pleased that since I became Chancellor, the Bank of England has cut interest rates six times, and we have been able to take £150 off energy bills and freeze prescription charges and rail fares. My hon. Friend’s constituency contains Rolls-Royce, which will benefit from small modular reactors and also from the increased defence spending that is already going in.
Ben Lake (Ceredigion Preseli) (PC)
Some 72% of households in my constituency have no connection to the mains gas grid. For those who filled their tanks over the weekend, the consequences of the Iran crisis have become very real, and those who are still to do so are anxious to learn when any potential support that may be agreed on Wednesday will be provided.
Rachel Reeves
I recognise that there are significant challenges in some areas of Wales, as indeed there are in Northern Ireland, and I urge the hon. Gentleman to attend the meeting with the Financial Secretary to the Treasury. We have already had representations over the weekend about what is needed, and I want Members in all parties to be able to contribute to that, but the best way to reduce prices is to get that oil and gas flowing again, which is why it is so important to secure not only a military solution to get the strait of Hormuz open but an insurance solution, and I am working closely on that at the moment.
Several hon. Members rose—