Middle East: Economic Update
Debate between Rachel Reeves and Caroline Nokes(2 weeks, 6 days ago)
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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.
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 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?
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.
Public Spending: Inheritance
Debate between Rachel Reeves and Caroline Nokes(1 year, 8 months ago)
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Daisy Cooper (St Albans) (LD)
The legacy of the Conservatives’ new hospitals programme is dire, but the Chancellor will know that there is also a cost to delay. We have life-expired buildings that will continue to need to be patched up until they are replaced, so I urge the Chancellor, as I urged the Secretary of State for Health and Social Care last week, to give the go-ahead to those projects that are ready to go and involve life-expired buildings. Will she review the outdated rules, and allow hospitals to spend more of their capital funds on helping with repairs and rebuilds?
Rachel Reeves
I welcome you to your place, Madam Deputy Speaker. My right hon. Friend the Secretary of State for Health and Social Care will meet with people affected. We were promised a new hospital in Leeds that has never been built, so I understand the concerns that right hon. and hon. Members have about the hospital programme. However, there is a £22 billion in-year overspend, which means taking incredibly difficult decisions. They are not the decisions that we would want to make, but they are responsible ones in the circumstances, given our dire inheritance from the Conservative party.
Rachel Reeves
My hon. Friend is welcome on the Government Benches with his expertise. Everything in our manifesto was fully costed and fully funded, including 40,000 additional NHS appointments every single week, which will be funded by cracking down on tax avoidance and ensuring that people who make their home in Britain pay their taxes here. We will finally deal with the terrible situation of non-doms claiming that they do not live in Britain for tax purposes, despite making their home here. Those people should contribute to the public purse; under Labour, they will.
Sir Julian Lewis (New Forest East) (Con)
Congratulations on your election, Madam Deputy Speaker.
I cannot hope to match the splendid double entendre of the hon. Member for Walthamstow (Ms Creasy), but I may I say to the Chancellor that one effect of being here for a long time is a realisation that no one party has a monopoly on wisdom? Given the impartial assessment by the Library that covid cost this country between £310 billion and £410 billion, is she willing to at least concede that the previous Government did a pretty good job in getting inflation down to 2% less than two years after the pandemic?
Rachel Reeves
First, it is an extraordinary omission that the previous Government did not set affordability criteria for the independent pay review bodies, which meant that they were able to come back with these recommendations. It would be almost without precedent not to accept recommendations from an independent pay review body. If the hon. Gentleman wants to go to the doctors, nurses, teachers, police officers and those in the armed forces in his constituency and say that they do not deserve a pay increase in line with private sector wages, that is up to him, but I believe that those public sector workers deserve those pay increases.
On pensions and the winter fuel payment, this is not the decision I wanted to make and it is not the decision I expected to make, but we have to make in-year savings, which is incredibly difficult to do. Without doing that, we would put our public finances at risk. We are ensuring that everybody who is entitled to pension credit—the poorest pensioners—continue to get the winter fuel payment, and we will work with the Department for Work and Pensions, local authorities and charities to boost the take-up of pension credit.
Rachael Maskell (York Central) (Lab/Co-op)
Thank you, Madam Deputy Speaker, and welcome to your place.
I thank my right hon. Friend for her forensic approach to the nation’s finances. As she digs deeper, she will see that York, the city I represent, is at the bottom of many of the matrices for the funding formulas. Will she look at the funding formulas before the Budget so that we can see the distribution of funding? The last Government handed out, for pet projects, much of the money that she is trying to get control of now, but will she look at how that is distributed across the country?
Rachel Reeves
I can see, on behalf of the hon. Gentleman’s constituents, the frustration and anger that he feels at the previous Government letting his constituents down so badly by not funding the hospitals that they promised. I commit to my right hon. Friend the Health Secretary meeting everybody affected. We also have a workforce plan, to invest in the future workforce in our national health service, and we are announcing today that we are accepting in full the recommendations of the independent pay review bodies to pay properly our doctors, nurses and others who work in our NHS.
Torsten Bell (Swansea West) (Lab)
Congratulations on your new post, Madam Deputy Speaker.
There can be reasonable political debate across the House about the total levels of public spending—there was a lot of that during the election campaign, with our calling for higher levels of public investment—but there should be complete agreement about the need for the Treasury to ensure that public money is well spent. At the top of that is making sure that the policies and commitments of every Department match their budgets. We hear from experts right around the country today that they do not match those budgets, so can the Chancellor reassure this ex-Treasury official, this House and my Swansea constituents that this will never happen under this Labour Government?
Rachel Reeves
I thank my hon. Friend for that question and welcome him to his place in this House—he speaks powerfully, based on his previous experience. I will fix the mess that we have inherited, but it is a terrible mess: a £22 billion in-year gap between what was forecast to be spent and what was actually being spent by the previous Government. We will get a grip on our public finances; that requires tough choices, but that is the role of Chancellor, and it is the role of Government. These are choices that the previous Government ducked and diverted, but we will make the difficult decisions to get our public finances back on a firmer footing.
Madam Deputy Speaker (Caroline Nokes)
We could do with some masterclasses in short questions and short answers.
Nick Timothy (West Suffolk) (Con)
Earlier, the Chancellor quoted Paul Johnson of the Institute for Fiscal Studies, but she omitted the end of his comments. He said that half of the spending hole she claims is public sector pay
“over which govt made a choice”.
That is the truth, is it not? The Chancellor does a good shocked face, but she chose to create her own spending hole, did she not?
Rachel Reeves
There is nothing pro-growth about making commitments that we cannot afford. There is nothing pro-growth about having £22 billion of unfunded commitments. We saw that when Liz Truss did her mini-Budget less than two years ago, and right hon. and hon. Opposition Members would do well to learn that lesson.
Rachel Reeves
Yes, page 5 of the “Fixing the foundations” document that we have published today sets out the pressures on public spending. On rail services:
“Pressures have emerged on rail finances, primarily due to the weaker-than-expected recovery in passenger demand”,
as well as the cost of industrial action, have led
“to a pressure of £1.6 billion”
in this financial year alone.
Christine Jardine (Edinburgh West) (LD)
I would also like to welcome you to the Chair, Madame Deputy Speaker.
Much of what the Chancellor says I welcome—no fresh income tax, national insurance or VAT—but I am sure the Chancellor will recognise the concern that many pensioners, particularly in the coldest areas of the country, will be feeling at the announcement of the withdrawal of winter fuel payments. Although she is saying that she will work on bringing more people forward and encouraging them to sign up for credits, can she tell us how she is going to do that if she is also going to cut the Government communications budget?
Rachel Reeves
If our economy had grown at just the average rate for OECD economies over the past 14 years, it would today be worth £140 billion more. That would have been worth £5,000 for every family in Britain and would have meant an additional £58 billion for our public services, without increasing tax by a single penny. That shows how important economic growth is, which is why getting our economy growing is the No. 1 mission of this Government.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
Thank you and welcome to your place, Madam Deputy Speaker.
The estimates day provisions presented by the Chancellor to the House last week included a capital departmental expenditure limit of £12.655 billion for the Department of Health and Social Care. We know that it included the funds for the new Hillingdon hospital, which was granted planning permission and where work has already started. Does the Chancellor of the Exchequer stand by what she told the House in the estimates day debate, on which we all relied when casting our vote? Can she therefore assure my constituents that that hospital project, which was fully budgeted for and where work has already started, will be delivered by this Government?
Rachel Reeves
I can fully understand why the hon. Gentleman’s constituents are so angry with the previous Government for leaving this mess and making unfunded commitments. I assure him that projects that have already started, such as the station he mentions, will go ahead.
Jim Shannon (Strangford) (DUP)
Still the strongest legs in the Chamber, Madam Deputy Speaker. Thank you for calling me to ask a question.
I am very pleased to hear the Chancellor’s statement. The clear financial predicament is one that all the United Kingdom of Great Britain and Northern Ireland is in together. Will she confirm that, in light of the budget gap and the welcome announcement of the junior doctor pay offer, savings will be made in ways that do not affect required pay increases at the expense of our health staff, but that they will focus on cutting back on unnecessary quangos, on the estimated £500 million of taxpayers’ money that has been spent on issues such as diversity and inclusion—although important, they do not deserve priority in public spending—or on vanity projects such as Casement Park in Northern Ireland?