Middle East: Economic Update

Baroness Kramer Excerpts

Tuesday 28th April 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the International Monetary Fund, in its latest World Economic Outlook, has warned that the energy shock stemming from the Iran war will hit the United Kingdom harder than any other advanced economy, notably in terms of growth and inflation. It is also the case that UK borrowing costs are higher than those in other comparable OECD countries. In short, the prospects are depressing in the extreme. What, we ask ourselves, are the Government proposing to do about it?

We read one apparent answer in today’s newspapers: freeze rents; in other words, adopt a policy which has always failed everywhere that it has been tried. Can the Minister tell us when we will be told the details of this latest whizz idea, or will he be willing to rule out the ridiculous idea definitively from the Dispatch Box, given the adverse effect on the share prices of some property companies today?

I turn a much more serious subject: defence. The world situation is becoming more worrying by the day, which makes the much-delayed defence investment plan even more important and the funding shortfall of £28 billion ever more disturbing. A responsible Government would act with vigour to progress matters. Experts are unanimous in the view that our capabilities are woefully short of what is necessary. What have the Government done about this unhappy situation? The answer is: very little, unless delay constitutes action. Can the Minister tell us when the defence investment plan will finally be published?

I turn to North Sea oil and gas, where there are possibilities that would help our economic situation by increasing output, increasing well-paid jobs and improving our balance of payments. But the Jackdaw and Rosebank decisions do not seem to have moved from the desk of the Secretary of State. His ideological prejudices are well known, though difficult to understand in the circumstances that now face us. When we last debated the Middle East, the Minister seemed warmer to North Sea exploitation than I had expected. But, in short, we are still seeing more delay.

We know that the Government face very difficult circumstances, many of which are exogenous and they can do little about, but what action they have taken has tended to make matters worse, and what they have left undone is significant. Will the Minister urge his ministerial colleagues to get serious, to avoid economically damaging ideas such as freezing rents, and to take those decisions which need to be taken as a matter of urgency?

The truth is that the Government’s position on energy is woeful, as we heard during today’s PNQ. Let us take the Jackdaw gas field: it is ready, the infrastructure is in place, the operators are prepared; it could supply enough gas to heat 1.4 million homes by the autumn, and more cleanly than much of the gas we currently import; and it would strengthen our energy resilience by 6%. So why, in the face of rising global instability, with energy security more critical than ever, are the Government not bringing the Jackdaw field online? Equally importantly, why is the industry so fearful that the Government will not approve the Rosebank field? Is it right?

From an energy perspective, Britain could scarcely be entering this crisis in a weaker position. We face the highest industrial energy costs in the developed world, crippling our manufacturing industries and making life very difficult for our SMEs—and consumer prices are not far behind. This is a dangerous position to be in, and I gently say to the Minister that the public will not thank the Government for ideological gestures. They will expect, and they deserve, practical action to secure our energy future.

What unites each of these issues is the absence of domestic resilience. The war in the Middle East has exposed that weakness, but it did not create it. So the question for the Government is a simple one: will they now act to strengthen the resilience of this country, restore credibility to their economic and energy strategy, and provide the certainty that our Armed Forces, our businesses and our households all need—or will they continue to rely on hope when what is required is action? The time for hope has passed, and the time for decision is now.

[Baroness Kramer (LD)]

My Lords, the impact of the Iran war has made previous economic forecasts pretty much redundant. We talked last week about warnings from the IMF and the OECD, repeated today by the noble Baroness, Lady Neville-Rolfe, which essentially assess that the UK would suffer more than any other G7 economy. This conclusion is being reinforced by recent inflation and unemployment numbers. The Government’s response has been limited and very much a “wait and see”. Uncertainty is a reason for resilient action, not a reason for inaction. We need to see action now from the Government.

Each day, as an ironic consequence of the war, the Treasury is taking in some £20 million more in taxes, including VAT and the electricity generation levy, so why are the Government not using this money proactively to help people with spiralling living costs? That money could be reducing petrol prices at the pump through a temporary cut in fuel duty. It could be used to cut rail and bus fares or to reduce the price of home EV charging. Families need help now—they need early reassurance on the energy price cap after June and a cancellation of the 5p duty rise due in September.

We strongly support reform of the energy pricing system. Our manifesto made a clear commitment to break the link between gas prices and electricity prices—ours was the only manifesto that had that in black and white—so we are glad that the Government have taken up that approach and that they are moving to a contracts for difference model. But we are still concerned about energy costs for individual households; for small businesses, including hospitality; and for the food and agricultural sector, which has such an impact on the cost of living.

So will the Government now work with the banks to introduce a scheme of low-interest loans for householders who want to adopt energy-saving measures but need a way to finance the upfront cost? Will the Government press Ofgem to investigate the broken energy market, which is in effect blocking small businesses and hospitality from accessing good energy deals? My colleague in the other place, Daisy Cooper, met last week with Ofgem, and it is absolutely clear that there is a case for the energy retail market to answer here in dealing with small businesses and specifically with hospitality. Will the Government recognise the particular need to act on costs in the food and agribusiness sectors, which are being so impacted by this war? That impacts clearly and directly on the cost of living for ordinary people.

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

My Lords, I am grateful for the questions and comments from the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. The noble Baroness, Lady Neville-Rolfe, started her comments by focusing on the IMF’s revised forecasts that were published last week and that we discussed briefly in this House then. As both noble Baronesses know, the IMF reduced its expectations for GDP growth in the UK and increased its expectations of inflation. Both of these build on its judgment that the UK is more exposed to energy price shocks than our counterparts—a problem that the previous Government, as I have pointed out before, failed to address over 14 years. This builds on the IMF’s observation, following the last energy crisis, that the UK had higher inflation than other countries in the aftermath of Liz Truss’s disastrous mini-Budget and the previous Government’s untargeted and unfunded support package, which contributed to a more persistent rise in inflation and interest rates in this country than elsewhere.

I noticed, though, that the two noble Baronesses did not mention the positive economic news that came out last week. The latest GDP figures show that the economy grew faster than expected in the three months to February and that growth for the three months to January was upgraded. Last week’s data releases also showed unemployment coming down, real wages continuing to rise and borrowing in the year to February falling by £20 billion compared with last year. Neither noble Baroness mentioned any of those figures in their comments.

The noble Baroness, Lady Kramer, said that previous forecasts are now redundant and that we have no resilience. Previous forecasts are not redundant because they show that, going into this crisis, Britain was well placed to weather this conflict. At the time of the spring forecast, inflation was at 3% and set to fall to target; that compares with 11% at the start of Russia’s illegal invasion of Ukraine. We were in a much stronger position at the outset of this crisis, in terms of inflation, than we were then.

The spring forecast also showed that borrowing was set to fall more over this Parliament than in any other G7 economy. GDP per capita was forecast to rise by 5.6% over this Parliament, compared with a fall of 0.2% in the previous Parliament. We had increased headroom to more than £23 billion, making the right decisions to make sure that we had the necessary fiscal buffers to weather this conflict. As a result, we are well placed.

Some of the figures that came out last week, which neither noble Baroness mentioned, show that our economic plan was indeed working, but no one denies that we must do more on economic security so that the UK does not continue to be more exposed to energy price shocks than our counterparts. Since the election, we have invested in clean, homegrown energy, in renewables and in nuclear. Last week the Chancellor announced steps to go further: harnessing our domestic supply of oil and gas production in the North Sea, which the noble Baroness, Lady Neville-Rolfe, mentioned; further removing barriers to new renewables investment; and reforming our energy system by further weakening the link between high gas and electricity prices. I am grateful to the noble Baroness, Lady Kramer, for her support for that measure. I believe our economic plan was the right one before the war started; it is even more essential now in a world that is even more uncertain.

The noble Baroness, Lady Neville-Rolfe, spoke about defence spending. We are delivering the biggest sustained increase in defence spending since the Cold War. The Chancellor has approved access for the Ministry of Defence to use the special reserve to deploy additional capabilities in the Middle East, meaning that the net additional costs of these operations will be funded by the Treasury. 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. In answer to the noble Baroness’s specific question, the defence investment plan will be published in due course.

The noble Baroness, Lady Neville-Rolfe, mentioned oil and gas in the North Sea. As she knows, I agree with much of what she said on that point. Oil and gas production from the North Sea is an important and valuable resource, and its workforce is a vital asset for this country. That is why we are harnessing our domestic supply by managing existing fields for their entire lifetimes, including by allowing tie-backs for those fields to ensure that they remain viable. Last week, in advance of legislation, we published further details on tie-backs, which external analysis has predicted could result in tens of millions more barrels of oil being available for UK supply. Last week’s announcement also gives industry greater clarity to support investment in these projects and maximise the supply of our existing sites to support our energy security. The Government will legislate to introduce these changes in due course.

The noble Baroness asked specifically about Jackdaw and Rosebank. Development proposals are a matter for the North Sea Transition Authority and the Offshore Petroleum Regulator for Environment and Decommissioning. I am not able to comment on the specifics of any individual project while the regulatory process is under way, or on the investment decisions of individual operators. The Secretary of State for Energy Security and Net Zero will make a decision regarding the environmental impact assessments for these projects in the coming months.

The noble Baroness, Lady Kramer, asked about action to tackle energy bills. As she knows, we do not yet know what the full impact of this conflict will be, so we must be agile in responding appropriately at each moment. It remains the case that the best way to protect families and businesses is rapid de-escalation of this conflict. She knows that we have taken action already in a previous Budget, when we reduced energy bills by £150. We also froze rail and bus fares, as she asked, and we froze prescription charges, so we have done many of the things that she is calling for. She knows, too, that the price cap is giving households certainty on their bills until July, ahead of the winter months when people use 78% of their gas.

It is important to point out, as we respond to this crisis, that we must 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. Both noble Baronesses mentioned the importance of inflation; we must absolutely learn the lessons of the past. We are planning for every eventuality so that we can keep costs down for everyone and provide support for those who need it most, acting within our fiscal rules to keep inflation and interest rates as low as possible.