𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Britain faces a fresh economic crisis with soaring fuel bills and ballooning government debt if the Iran war continues. Tax revenues are likely to fall as panic in the stock market leads to lower share prices and declining capital gains tax payments, according to the Institute of Fiscal Studies.

But the Treasury will be forced to provide financial support to struggling households as the cost of energy rises, blowing a hole in Chancellor Rachel Reeves’s plans to control the nation’s debts. The gloomy scenario could be avoided if the conflict ends quickly, according to the think tank. But director Helen Miller warned: “If war in the Middle East drags on, that will be unambiguously bad news for all of us, including for the Chancellor.”

Recent rises in the price of oil and gas are expected to add around a percentage point to inflation, and £500 onto typical annual energy bills.

Prime Minister Sir Keir Starmer said the Government is watching the impact on households, while Ms Reeves has held meetings with energy firms.

Sir Keir told the House of Commons: “We will keep a very close eye on this. I do know how important it is for the British public.”

He added: “It is important that I emphasise the actions we’ve been taking urgently this week with our allies, with the energy agencies across the world, and the work we’re doing to make sure the safe passage for energy across the world. We will continue to do that.”

But the Prime Minister is already under pressure to act, after Liberal Democrat leader Sir Ed Davey demanded a “cast-iron guarantee” that the Government will not allow the Gulf conflict to push up energy bills by £500.

Scotland’s First Minister, John Swinney, called on the Government to scrap a windfall tax on North Sea oil and gas.

He said: “Now that we have the conflict in the Middle East, I think it is utterly essential that the energy profits levy is removed.”

Gas prices were up almost 80% compared to Friday. The FTSE 100 stock index rallied following sharp falls, but remains 2% down compared to last week.

Defence insiders admit the conflict is unpredictable and it is not clear how long it will last.

A Western official said: “Don’t rule anything out. This is a fast-paced situation. It’s developing every day, almost every hour, and could go for some time.”

Ms Miller said: “On the economic front, higher oil and gas prices and more economic uncertainty would drag on economic growth. Disposable incomes would fall as inflation rises. Higher inflation would likely mean higher interest rates. We should all hope that we are not facing a protracted conflict.

“If we do see a prolonged period of higher energy prices, there will undoubtedly be calls for the Government to step in to provide financial support to households.”

She added: “This kind of government support is a key reason that debt has been rising in recent years. And, partly because bad shocks keep coming along, and partly because we are aiming only to stabilise debt in the better times, debt keeps rising over time. That can’t go on forever.”

The National Institute of Economic and Social Research issued its own warning. It said the war could force the Bank of England to increase interest rates to 4%, up from 3.75% now, increasing mortgage costs and ending hopes of a fall in the cost of borrowing.