Oil prices may have retreated after US president Donald Trump claimed to have struck some kind of peace deal with Iran, but the danger hasn’t passed. Far from it. Even if Trump and some mystery Ayatollah were pictured embracing in matching MAGA baseball caps, it wouldn’t instantly restore global energy production. The damage has been done. The International Energy Agency has issued a terrifying warning. It says the energy shock could rival the twin oil crises of the 1970s combined AND Russia’s invasion of Ukraine.
As Gulf energy sites are smashed the world has lost 11million barrels of oil per day and 140 billion cubic meters of gas. Even if the conflict ended this minute, supply would take months or years to recover. This isn’t just about petrol prices. Price shocks will ripple across the entire economy. Oil feeds into fertilisers, which means food production takes a hit. Transport costs rise too. Even helium production has been smashed, and you can’t make computer chips without it. If the conflict drags on, which is likely, it will trigger a full-blown economic meltdown. And all we have standing in its way is Chancellor Rachel Reeves.
Reeves is a weapon of mass economic destruction in her own right. GDP flatlined in January and barely moved in the second half of last year. Her record tax hikes have destroyed profits, businesses and jobs, and she’s still borrowing more money than ever, another £13.4 billion in February. That’s more than doubled the amount expected.
Incredibly, that’s still not enough for the left. They want her to tax more and spend more. When Reeves bowed to pressure and scrapped the two-child benefit cap, they didn’t say thank you. They simply moved onto the next spending demand. Now they see a massive opportunity in the current crisis.
PM Keir Starmer has pledged to pull “every lever” to cushion the coming inflation shock. That could mean measures once considered extreme, including lower speed limits, petrol rationing, fewer flights and warm lager in any pubs that haven’t gone bust. That won’t be enough though. Pressure on Reeves is building from all sides. But from the left, the message is clear. More tax.
Professor Tony Travers of the London School of Economics says the crisis will force Labour to tear up its manifesto and increase taxes. Personally, I thought Labour’s tax pledges had already been shredded, to the tune of £66billion. Now Starmer and Reeves will toss the remnants on the fire.
Reeves cannot borrow more because the bond market doesn’t trust her. We already face the highest borrowing costs in the West, with gilt yields flying past 5%. If Reeves relaxes her supposedly “iron-clad” fiscal rules, that would only alarm bond investors further. She can’t cut spending either. The left won’t let her. Also, her splurge is the only thing keeping the economy out of recession.
So the tax hikes will come. And the left will love it. The Guardian is already salivating at the thought of taking more of working people’s money. No doubt the Green party’s Zack Polanski is too. And he’ll demand Labour grab even more tax. It could even spell doom for the state pension triple lock.
The next Budget could be even more brutal than the last two. The question is no longer whether our taxes will rise, but which ones, and by how much. And once they go up, does anyone seriously expect them to come back down again?