Your energy bill could jump £500 – and Reeves has no plan for it
As bombs rained down on key oil hubs in the Middle East, Chancellor Rachel Reeves delivered what she hoped would be a low-key Spring Forecast – essentially a nod to updated economic projections from the Office for Budget Responsibility (OBR).
But analysis by the think tank, the Resolution Foundation, warns that escalating conflict could slam British households with an extra £500 on annual energy bills, pushing inflation higher and derailing fragile living standards.
Drawing on the OBR’s latest forecasts, which were finalised before the Middle East war intensified, the report paints a picture of an economy teetering on the edge, with global turmoil threatening to upend even the most optimistic assumptions.
At the heart of the concern is the rapid spread of conflict, including attacks on Iran’s infrastructure and bombardment of Saudi Arabia’s oil city of Dharan, which unfolded even as Reeves addressed Parliament.
The OBR had baked in lower energy prices than previously expected, assuming inflation would hit its 2% target later this year and stay there. But with oil and gas markets in chaos, that’s looking increasingly unlikely.
“If [energy prices] were to remain at the highs they had reached by the time the Chancellor spoke, that would add around £500 to average energy bills and raise the inflation rate by at least one percentage point,” the think tank said.
It notes that lower-income families would feel the pinch hardest, as essentials like heating and fuel eat up a bigger slice of their budgets.
A spike in energy prices
Energy prices have already spiked in response to the fighting, and market jitters have driven up borrowing costs, potentially wiping out £4 billion in fiscal headroom the Treasury had gained from falling bond yields.
The Resolution Foundation warns that prolonged high prices could drag down disposable incomes, especially after a brief rebound expected in the coming financial year.
Reeves, who took pains to frame the forecast as a ‘non-event’ rather than a full-blown budget statement, emphasised stability and her “right plan for Britain.”
But critics, including the report’s authors, argue she’s flying blind on major risks like this energy shock.
The Chancellor mentioned no specific measures to shield households from bill hikes, such as expanded subsidies or targeted support, echoing the energy crisis triggered by Russia’s invasion of Ukraine in 2022.
“With global security and the world’s energy markets in tumult, there has to be a danger that her luck could run out,” the report notes, pointing out that Reeves has already spent most of the £10.2 billion in improved borrowing projections for 2029-30 on minor policy tweaks, like concessions on inheritance tax for farmers and extra funding for special educational needs.
Broader economic issues
Broader economic woes compound the issue. The OBR’s forecasts show weak growth persisting, with average incomes growing at a meager 0.5% annually from 2027-28 onward.
The Resolution Foundation’s analysis, focusing on after-housing-costs incomes for working-age families, predicts a strong uptick next year, lifting 480,000 children out of poverty thanks to the abolition of the two-child benefit limit, but then stagnation or even declines in the Parliament’s final years.
Middle-income households could see a 0.9% rise (£300) next year, while those in the bottom half gain 3.9% (£800). But by 2028-29, typical incomes might fall 0.5% (£150), with child poverty ticking up again. An energy bill surge would exacerbate this, hitting the poorest hardest and potentially reversing gains.
The Resolution Foundation’s full report is available here.
