{"id":487475,"date":"2026-03-21T10:46:18","date_gmt":"2026-03-21T10:46:18","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/487475\/"},"modified":"2026-03-21T10:46:18","modified_gmt":"2026-03-21T10:46:18","slug":"uk-faces-threat-of-tax-rises-over-worst-energy-shock-in-history","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/487475\/","title":{"rendered":"UK faces threat of tax rises over ‘worst energy shock in history’"},"content":{"rendered":"

The UK faces the prospect of further tax rises later this year as Rachel Reeves grapples with what is being described as the \u201cgreatest energy security threat<\/a>\u201d of all time.<\/p>\n

The Chancellor\u2019s economic plans have been thrown into turmoil as a result of the conflict in the Middle East<\/a>, which has spooked markets and forced borrowing costs up to their highest level since the financial crisis of 2008.<\/p>\n

Economists are now warning that the impact of higher borrowing costs, the expected level of government support for consumer energy bills, and higher inflation will blow a hole in the Treasury\u2019s fiscal plans and increase the likelihood of more tax rises in the autumn Budget.<\/p>\n

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It comes as the head of the International Energy Agency warned that the conflict in Iran had already caused \u201cthe greatest global energy security threat in history\u201d. He said it could take six months or longer to restore oil and gas flows from the Gulf.<\/p>\n

A protracted energy crisis<\/a> of such a scale dramatically increases the likelihood of the Chancellor being forced to provide a support package for certain households, casting her fiscal plans into serious doubt.<\/p>\n

Treasury sources insisted Reeves stood by her fiscal rules, describing her commitment to them as \u201cironclad, steadfast\u201d \u2013 raising the chances of tax rises in the future to help balance the books.<\/p>\n

Susannah Street, chief investment strategist of Wealth Club, said: \u201dFresh tax rises do look possible at this stage given the Treasury is in an increasingly tight spot. With government borrowing costs rising to the highest level since 2008, it makes the challenge of balancing the books even harder.<\/p>\n

\u201cWith the Government\u2019s ability to trim spending curtailed by the threat of backbench revolt, ministers may be forced into another round of tax rises.\u201d<\/p>\n

The Institute for Fiscal Studies said higher inflation would mean increased welfare payments and greater pressure on public spending, while interest rate rises will risk further eating into the Chancellor\u2019s headroom \u2013 how much she can afford to spend without breaking her promise to control the public finances.<\/p>\n

Andrew Goodwin, chief UK economist at Oxford Economics, said there was a \u201csubstantial indirect risk\u201d to the Chancellor\u2019s headroom if she keeps to her pledge to deliver targeted support to households.<\/p>\n

\u201cIf markets don\u2019t like such a package \u2013 which would be likely given the current state of the public finances \u2013 then gilt yields will rise and the cost of servicing the government\u2019s debts will increase, narrowing the headroom,\u201d Goodwin said.<\/p>\n

The comments were echoed by Willem Buiter, a former member of the Bank of England\u2019s Monetary Policy Committee, who told The i Paper there was \u201clittle fiscal space\u201d for widespread energy support and the \u201cmarkets would react badly\u201d.<\/p>\n

Ed Jones, professor of economics at Bangor University, said: \u201cUnfortunately with any decision [to help with energy bills] there\u2019ll be a cost involved to the public finances, but we don\u2019t know the scale. <\/p>\n

\u201cIn terms of tax rises, that seems to be the most logical way to pay for it. But any extra tax rises threaten economic growth further \u2013 and it\u2019s already very slow at the moment.<\/p>\n

\u201cThe Government needs to think very hard on how to finance this.\u201d<\/p>\n

Without knowing the size of energy support package, it is impossible to determine the cost of any such intervention. <\/p>\n

But the \u00a3200 energy bill discount for all households in October 2022 was forecast by the Budget watchdog \u2013 the Office for Budget Responsibility \u2013 to cost the Government about \u00a36bn, which is slightly less than a 1p increase in the basic rate of income tax would raise for the exchequer per year.<\/p>\n

Reeves\u2019s refusal to tweak her fiscal rules comes despite growing voices within the Cabinet calling for a softening of her borrowing regime in order to protect households from the energy crisis.<\/p>\n

The fiscal rules dictate that Reeves cannot borrow for everyday spending, while making sure the country\u2019s debt is shrinking over time.<\/p>\n

Reports emerged this week that Culture Secretary Lisa Nandy told the Cabinet it was time to \u201crethink\u201d the borrowing rules to fund a potential energy bills package.<\/p>\n

If Reeves ended up having to opt for more tax rises, it it is hard to say which levers she would pull \u2013 but some Labour MPs and party figures have previously pushed for a wealth tax of 2 per cent on assets valued above \u00a310m. Critics of wealth taxes argue that these can drive investment away from the UK.<\/p>\n

The Chancellor has been considering a reduction in the energy profits levy, but this is looking less likely.<\/p>\n

Some MPs have also raised the prospect of revisiting \u201cabsurd\u201d levels of benefit spending<\/a> if the war derails the economy. <\/a><\/p>\n

Fatih Birol, executive director of the IEA \u2013 who was at the centre of Europe\u2019s response to the gas crisis in the wake of the Russia-Ukraine war \u2013 warned the Iran conflict had already caused the biggest global energy shock of all time.<\/p>\n

\u201cPeople understand that this is a major challenge, but I am not sure that the depth and the consequences of the situation are well understood,\u201d he told the Financial Times<\/a>.<\/p>\n

Downing Street insisted that it was \u201cfar too early to say what sort of response is needed\u201d to the energy crisis, adding that it was monitoring the situation.<\/p>\n

\u201cWe know that families are worried about the impacts on their finances, and that\u2019s why this government is facing working people\u2019s corner,\u201d the Prime Minister\u2019s official spokesman said.<\/p>\n","protected":false},"excerpt":{"rendered":"The UK faces the prospect of further tax rises later this year as Rachel Reeves grapples with what…\n","protected":false},"author":2,"featured_media":487476,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,156576,126979,2053,1394,1445,474,56,54,55],"class_list":["post-487475","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-energy-crisis","tag-iran-crisis","tag-labour-party","tag-politics-news","tag-rachel-reeves","tag-tax","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/487475","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=487475"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/487475\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/487476"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=487475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=487475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=487475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}