Rachel Reeves was accused of being “tone deaf” on energy prices as she tried to offer assurances on the impact of Donald Trump’s war with Iran on Britain and insisted Labour’s economic plan was “right”.
Delivering the annual spring statement, the chancellor defended her fiscal policy, saying the government was in a “better place” to deal with gas and oil price shocks than it was after the last general election amid growing tensions in the Middle East.
But she was challenged by Labour and opposition MPs over the need to have a plan to cap energy bills if the war escalates further.
It came as the Office for Budget Responsibility’s report painted a grim picture, warning that economic growth forecasts are down, unemployment is set to rise even higher and net migration is set to go up.
Ms Reeves was at pains to put a positive outlook on the figures, claiming it showed the government “has the right economic plan for our country, in a world that has become yet more uncertain”.
She took aim at Reform UK and the Green Party and gave a warning to critics in her own party, cautioning against any “change of course”.
Following a highly politicised spring statement, the OBR also said that:
- Borrowing is forecast to fall to 4.3 per cent of GDP but still well above the 2 per cent target
- Real GDP growth is expected to slow from 1.4 per cent in 2025 to 1.1 per cent in 2026
- The unemployment rate will rise from 4.75 per cent in 2025 to a peak of 5.33 per cent in 2026
- Wage growth is forecast to slow to around 3.5 per cent in 2026 and then average 2.25 per cent a year
- In better news, the main rate of inflation will fall from 3.4 per cent in 2025 to 2.3 per cent in 2026
While the figures were based on projections from the middle of January – well ahead of the US and Israel’s attack on Iran over the weekend – Ms Reeves sought to address the growing crisis as MPs demanded measures to cap fuel bills and energy costs.
The UK’s benchmark gas price leapt by 54 per cent on Monday and Brent crude, the global benchmark oil price, was up about 9 per cent as a result of disruption to shipping routes in the region.
Ms Reeves said: “With the unfolding conflict in Iran and the Middle East, it is incumbent on me and on this government to chart a course through that uncertainty, to secure our economy against shocks and protect families from the turbulence that we see beyond our borders.”
She said she was in regular contact with the governor of the Bank of England, with international counterparts and with key affected industries and would meet North Sea bosses on Wednesday to discuss the implications they face “and work with them to manage this uncertain period”.
Her planned meeting could prompt speculation that their tax burden could be under consideration, amid heavy lobbying from the sector to axe the windfall tax.
But she offered no proposals to cap energy bills or prevent a hike in fuel costs.
She also boasted about being the chancellor “to provide the biggest uplift in defence spending” since the last Labour government but offered no timetable on when the 3 per cent of GDP spent on defence target would be met.
Hailing her record in the Treasury, Ms Reeves said: “This government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain.”
She added: “The new forecasts from the Office for Budget Responsibility confirm that our plan is the right one – inflation is down, borrowing is down, living standards are up and the economy is growing.”
The chancellor said the changes in GDP forecast took account of a fall in net migration and said average growth across the next five years was “largely unchanged” despite this year’s downgrade.
“But I am not yet satisfied with these forecasts,” she added, acknowledging “the economy is not yet working for everyone”.
Among those challenging Ms Reeves on energy bills was Labour MP Graeme Downie, a member of the Commons energy select committee, who asked: “Can I ask her to make sure she keeps an eye on that situation with energy bills and to make sure we are investing wherever possible for our future energy security but also to help people in the short term.”
SNP economy spokesperson Dave Doogan described the spring statement as “a 40-minute self-aggrandising monologue” and challenged Ms Reeves.
He asked: “Does the chancellor have any clue how her tone deaf monologue will have landed in the real economy, where growth has been downgraded, where unemployment is soaring, and where the cost of energy has just spiked?
“Nothing in her statement about what she intends to do on a strategic level, about when energy goes to the price it was during the height of the Ukraine crisis – nothing in there.”
And Conservative former chancellor Sir Jeremy Hunt told the Commons: “Her Budget promise to reduce household energy bills by £150 is going to ring hollow for many people.”
Her update was also lambasted by Tory shadow chancellor Sir Mel Stride, who asked whether her lack of new measures was to protect herself from future U-turns.
He branded the spring statement a “surrender statement”, and accused the government of giving up on the British people.
He said: “Is that it? What utter complacency, a chancellor in denial. She speaks of stability… what planet is [the chancellor] on?
“She has lurched from putting up taxes to destroying growth, to destroying headroom, to coming back to putting up more taxes, more growth destroyed. Round and round we go, like a fiscal twister ripping up everything in its path.”
Liberal Democrat deputy leader Daisy Cooper said the spring statement showed the country was “stuck in a doom loop of low economic growth”.
Ms Cooper called on the government to take a series of steps, including getting a better trade and security deal with Europe, to “get Britain growing again”.
