Middle East: Economic Update

Baroness Kramer Excerpts

Thursday 26th March 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, for the third time in as many weeks, the Chancellor came before the other place on Tuesday and once again delivered a Statement remarkable only for its lack of substance.

I welcome the confirmation respecting nuclear power, including the implementation of the Fingleton review, which should help to accelerate construction. The references to relations with the EU are less convincing. What price will we be expected to pay for these supposed benefits? The Government’s history of giving in unnecessarily to the EU does not give confidence. We are also suspicious of claims about the need for new powers regarding alleged price-gouging. This smacks of playing to a not very well-informed gallery, but what exactly do the Government intend here?

The Chancellor has praised countries such as Norway and Canada for increasing oil and gas production and for playing their part in securing energy supplies during a time of conflict. Yet here at home the Government refuse to do the same. The Energy Secretary continues to block increased production in the North Sea, so the Government applaud others for strengthening their energy security while wilfully weakening our own. That is pure masochism.

We could scarcely be entering this crisis in a weaker position. We face the highest industrial energy costs in the developed world, with consumer prices not far behind. Just today, the OECD has said that the war in the Middle East will hit UK growth hardest of all, with inflation set to accelerate. The Government speak of reducing dependence on energy imports, yet their own actions are driving us in precisely the opposite direction. That is a self-inflicted vulnerability.

This is a dangerous position to be in. I gently say to the Minister that the public will not thank the Government for ideological gestures; they will expect practical action to secure our energy future. It ought not to be beyond the wit of government to expand green energy supplies while also sustaining supply through oil and gas—which we will simply import more of if we do not produce it at home.

I will also briefly mention the defence investment plan. It was very unedifying to see the Prime Minister discomforted when he was asked about it at the most recent Liaison Committee meeting. On Tuesday, the Defence Select Committee heard from industry leaders that without the defence investment plan—which is now well overdue—some defence manufacturers are going bust, while others have been left in “paralysis” and “bleeding cash”. The plan was originally expected last autumn, but it has been repeatedly postponed, despite repeated warnings that our Armed Forces face a £28 billion funding gap. When will we see the plan?

The Chancellor said that her response to the crisis in the Middle East would be “responsive” and “responsible”. What on earth is responsible about this: a refusal to agree a defence funding plan when the MoD faces a £28 billion black hole, British defence firms going under—and all at a moment of acute global instability, when our sovereign territory has been attacked and our citizens are being threatened at home?

Our economic and defence situation is perilous. Gilt yields are at levels not seen since the 2008 financial crisis. Inflation and employment are disturbingly high. Our defences are in a mess. Taxes, borrowing and spending are at record levels and interest rates are going the wrong way. No wonder a respected commentator said this week that he had never been so concerned that the person nominally in charge of the economy—the Chancellor—was manifestly out of their depth. We need better than this.

[Baroness Kramer (LD)]

My Lords, if this war with Iran continues, and especially if the Strait of Hormuz remains closed as we approach autumn, the global economy will be in serious trouble and the crisis will impact severely—directly on energy prices and, more broadly, on the cost of living. There was far too little in the Chancellor’s speech to give ordinary folk, never mind the markets, real reassurance. People are not naive. Simply to repeat the steps that the Government planned for the economy anyway in the pre-Iran war world is not sufficient.

The Chancellor indicated that any support beyond changes that are already in the system would be targeted at those who are most in need. What does that mean? Is it limited to the 6 million people who claim welfare or pension credit? Is it correct that the Treasury lacks the capacity to identify and assist those who do not qualify for those benefits but are still very low earners? What should the earnings threshold be for support? Will the Chancellor act immediately to, at the very least, zero-rate VAT on heating oil and liquefied petroleum gas? Will she introduce a proper price-cap mechanism for off-grid fuels? Will the Government also reverse their senseless cuts to home insulation programmes, which will be important to a wide range of people?

In her speech, the Chancellor failed to recognise the dire position of small businesses. Inflation in January pre-war was at 3%. We have found today that UK business activity is growing at its slowest pace since September, with a huge jump in manufacturing input prices. At such a time, tax, NICs and other blows from the Budget will fall on small businesses in April—a few days away. This Government seem cavalier about loading small businesses with additional costs, even though they are the backbone of our economy and jobs, and sustain our local communities.

The Government know that small businesses face a broken energy market that leaves most of them paying inflated energy prices. Will they now instruct the Competition and Markets Authority to investigate suppliers that are blocking small business access to the best energy deals? Will they now change the business rate system so that small businesses can improve their energy efficiency without facing business rate penalties? Will they adopt the idea of an energy security bank to provide low-cost loans for households and small businesses to invest in energy efficiency?

When the country is anxious, it needs a speech from the Chancellor that recognises and responds to the changed reality. Will someone from the Government please give that speech before anxiety becomes a self-fulfilling prophecy?

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

I am grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and their questions. As it is the last day before Recess, I wish both noble Baronesses a very happy Easter in advance.

The noble Baroness, Lady Neville-Rolfe, began her comments by welcoming what we are doing on nuclear, and I am grateful for her support on that and for her support as we implement the Fingleton review. As she knows, we have already begun to rewrite the story on nuclear for this country: we have begun construction at Sizewell C, we have agreed an extension to Sizewell B and we are due to sign the contracts on the UK’s first small modular reactor in Anglesey in partnership with Rolls-Royce. The Chancellor has also confirmed that we will legislate to implement the Fingleton review on nuclear and wider infrastructure in the next Session and has also written to industry and to regulators to get them to set out their plans to fast-track its implementation.

I was disappointed to see the noble Baroness indulge in some anti-EU rhetoric, which I know she does not actually believe. I think it makes absolute sense at this time of global instability that we deepen our economic relationship with our closest partners. It is clear that that is where maximum growth will come from for this country.

The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, spoke about the Competition and Markets Authority. It has stepped up its statutory monitoring of fuel prices and will publicly update on fuel pricing later this month. It is also working with Government to monitor the cost of household essentials, including groceries, for price rises and disruption. It has launched a market study into heating oil on top of its existing work to identify and tackle breaches of consumer law in the heating oil market. The Chancellor also announced this week that we are going further to make sure it has the bite it needs to detect and crack down on price gouging, bringing in a new anti-profiteering framework and considering time-limited targeted powers for the CMA and other regulators as needed. Yesterday, the Chancellor and the Business Secretary both met and convened the regulators’ council to discuss its work to protect consumers and small businesses, as the noble Baroness, Lady Kramer, mentioned.

On oil and gas, I agree with what the noble Baroness, Lady Neville-Rolfe, said. We will ensure the North Sea oil and gas plays an important role in our economy for years to come. Last week, the Chancellor met with the North Sea industry leaders to discuss their role in jobs, investment, growth and energy supply. The noble Baroness also mentioned energy security. She did not mention the fact that the last Government’s failure to invest in energy was a failure to protect our country. But, through determined long-term action, this Government are taking control of our own energy supply. We are investing in renewables, lifting the ban on onshore wind, streamlining grid connections, bringing the next renewables auction forward to this July and driving forward negotiations on the UK’s participation in the EU internal electricity market. We also ran the biggest ever floating offshore wind auction last year.

As I mentioned already, the noble Baroness, Lady Neville-Rolfe, welcomed nuclear, and we must guarantee that our domestic oil and gas industry can play a crucial role as well for years to come. So we are investing in tie-backs to make the most of existing production facilities. The Chancellor has also announced that she has instructed officials to develop plans to back critical energy projects with indemnities if their planning consent is challenged in the courts, so that we can build the infrastructure that we need.

The noble Baroness, Lady Neville-Rolfe, mentioned the OECD projections out this morning. As she knows, the war in the Middle East is not one that we started, nor is it a war that we have joined, but it is a war that will have an impact on our country. The OECD’s projections are highly sensitive to the duration of the shock and reflect the impact of higher energy prices, which the UK, as she knows, is more susceptible to. But, in an uncertain world, we have the right economic plan. The decisions we have taken have put us in a better position to protect the country’s finances and family finances from global economic instability.

Both noble Baronesses touched on the economic situation that we find ourselves in. The full economic impact of the conflict remains uncertain, but the spring forecast showed that the Government have the right economic plan, that we enter this period of global uncertainty with the fundamentals of our economy strong and that we are more prepared for a more volatile world. We have cut inflation, which now stands at 3%—a lower base than at the outset of Russia’s illegal invasion of Ukraine. We have prioritised growth to drive up living standards. The OBR forecast before this conflict showed that GDP per head was set to grow more than was expected at the Budget, with growth of 5.6% over the course of this Parliament. We have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP—its lowest level for six years and the fastest reduction in the G7. Of course, these forecasts predate the current conflict in the Middle East, but Britain today is in a stronger position to withstand whatever uncertainty comes our way.

The noble Baroness, Lady Noble-Rolfe, spoke about defence. We are delivering the biggest sustained increase in defence spending since the Cold War. The Chancellor has approved access to the Ministry of Defence to use the special reserve to deploy additional capabilities to the Middle East, meaning that the net additional cost of these operations will be funded by the Treasury. The defence investment plan will be published in due course. We are investing £270 billion over this Parliament, after years of our Armed Forces being neglected under the previous Government. We will increase defence spending to 2.6% of GDP from 2027, and we are increasing spending on defence by £5 billion in this year alone.

Finally, both noble Baronesses spoke about energy bills. The noble Baroness, Lady Neville-Rolfe, asked me what “responsible” means. It means that, as we respond to this crisis, we should learn from the mistakes of the past. The previous Government pushed up borrowing, interest rates, inflation and mortgage costs with an unfunded, untargeted package of support under Liz Truss that gave the most support to the wealthiest households. Between 2022 and 2024, under the last Government, households in the top income decile received an average of £1,350 of direct energy bill support. That left us with high levels of national debt—a cheque written then for a bill that is still being paid today. 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.