As President Donald Trump’s Iran conflict rattles global markets, Britain is staring at yet another massive energy shock. The IMF warns we’re facing a repeat of the 2022 crisis at the very least, when Russia’s war in Ukraine sent bills soaring and pushed inflation into double digits. Oil has almost doubled from around $60 a barrel to almost $120. Gas prices are climbing just as quickly, and with 26million UK homes relying on boilers, we’re more exposed than most.
Back in September 2022, PM Liz Truss tried to shield households by capping average energy bills at £2,500. The scheme was expected to cost up to £150billion, funded by borrowing. It helped blow up the bond markets alongside her mini-Budget chaos. Truss was gone after 49 days. In the end, the final cost was closer to £27billion, but we can’t even afford that today. With national debt now almost 100% of GDP, another blanket bailout is simply not on the table.
This isn’t all down to Reeves. Britain’s debt surge was driven by the 2008 financial crisis and the massive borrowing during the 2020 pandemic. But she’s needlessly made things worse by killing growth and sentiment with her tax-and-spend blitz in the last 20 months.
Under her watch the economy has flatlined, barely growing in the second half of last year and dying a death in January. Despite pushing taxes to record highs, she’s still spending £150billion more a year than she raises. Debt interest alone is costing £112billion a year. We simply cannot afford more borrowing.
UK borrowing costs are already the highest in the G7, with 10-year gilt yields recently topping 5%. Reeves once had around £23.6billion of fiscal headroom. That’s now effectively vanished, for the third time on her watch. Any extra spending risks pushing borrowing costs even higher.
Labour must act, but PM Keir Starmer is asleep at the wheel. He’s having loads of meetings, but never makes an actual decision. Energy secretary Ed Miliband has seized the controls, and made the incredible call to ban new North Sea and gas drilling during an energy shock. Miliband is slamming his foot down on the net zero charge, and driving us into a ditch.
In an attempt to calm nerves, education secretary Bridget Phillipson told households yesterday to “carry on as things are”. She gave the impression of her rabbit staring at a pair of fast-approaching headlights.
Rather than take responsibility, Reeves has pointed the finger at supermarkets, retailers and shipping firms over prices, despite limited evidence of profiteering. Strangely, she ignores the impact of her own tax rises.
The crisis may offer her one benefit, by driving up revenues from fuel duties and energy taxes, including the windfall levy on oil and gas firms. They could total around £12billion. Unfortunately, our higher borrowing costs threaten to swallow that whole.
And if Reeves does splash that windfall on bailouts, she’ll look even more reckless with the public finances, panicking the bond market and driving gilt yields even higher.
She needs to reverse her disastrous £26billion jobs tax, cut red tape and get the economy moving. Basically, U-turn on everything she’s done since the election, but of course he’s not going to do that. She’s completely run out of road. And we’re all heading over the cliff with her.