Caroline Nokes
Main Page: Caroline Nokes (Conservative - Romsey and Southampton North)Department Debates - View all Caroline Nokes's debates with the HM Treasury
(1 day, 10 hours ago)
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The Chancellor of the Exchequer (Rachel Reeves)
With permission, Mr Speaker, I will make a statement about the Government’s preparedness and economic response to the conflict in the middle east. Let me begin by paying tribute to our armed forces, and by expressing my concern and sympathy for the British citizens whose lives have been disrupted by the conflict so far. I understand the anxiety felt by families and businesses during these incredibly uncertain times. This conflict affects us all, and we must respond to it.
As I have demonstrated time and again, I will take the necessary decisions to help families with the cost of living and protect the public finances. I am clear-eyed about my response to the current situation. My economic approach will be both responsive to a changing world and responsible in the national interest. The economic impact of the situation in the middle east will depend of course on its severity and its duration. The movements we have already seen are likely to put upward pressure on inflation in the coming months, but I also want to confirm to the House that our financial markets are functioning and that I am in regular touch with the Governor of the Bank of England.
This afternoon, I spoke with G7 Finance Ministers, setting out my priorities for the international co-operation needed. First, we are calling for immediate de-escalation and a return to the diplomatic process. Secondly, we must guarantee the security of vessels passing through the strait of Hormuz. Thirdly, I stand ready to support a co-ordinated release of collective International Energy Agency oil reserves. Fourthly, the UK will play its part as the global hub of maritime insurance. I am meeting the chair of Lloyd’s of London later today, when we will discuss how best to support the continued passage of maritime trade.
I want to assure the country that the fundamentals of Britain’s economy are strong. Every step that I have taken since the election has built our national resilience: stability in the public finances; investment in infrastructure in both defence and energy security; and reform to our economy. Last week, I updated the House about our progress in delivering that plan. We have cut inflation so that it is now at 3%, a lower base than at the outset of the Russia-Ukraine conflict. I have prioritised economic growth to drive up living standards and I have stabilised the public finances. We have already reduced the deficit by £20 billion since last year, from 5.2% to 4.3% of GDP. We are due to reduce borrowing more over the rest of this Parliament, and by more than any other G7 economy, and I have increased our financial buffers, confirmed last week by the Office for Budget Responsibility.
I know that families and businesses will be concerned about the impact of this conflict on them, so I want to set out the action we have already taken and will take to protect them. I am prioritising energy security, investing in clean, home-grown energy. Our contracts for difference are already protecting consumers, ensuring that generators of low-carbon energy pay money back into the system when the wholesale prices are high, shielding bill payers from fossil fuel price shocks. I can confirm to the House that, in the coming days, we will publish the Government’s response to the Fingleton review of nuclear regulation to build nuclear power more quickly.
Our energy system is now more secure than it was at the outset of the Russia-Ukraine conflict. In 2025, the UK imported 17% less gas than we did in 2021. While gas generation is estimated to have set the wholesale price of electricity in Britain around 90% of the time in the early 2020s, that has now fallen by around a third. As a result we are less reliant on and less exposed to volatile international energy prices than we were at the outset of the Russia-Ukraine conflict, and that is welcome.
I recognise the role that North sea oil and gas will play in our economy for years to come. Last week, I met North sea industry leaders to discuss their role in jobs, investment and growth, and in energy supply. The energy profits levy currently remains in place and the electricity generator levy will also be activated if prices remain at high levels. I have set out the details of our successor regime to the energy profits levy, the oil and gas price mechanism, balancing providing certainty to business with fairly taxing windfall profits from energy companies.
I have also taken direct action on energy bills. Our supercharger discount on business electricity is increasing next month, cutting costs for around 500 of the most energy-intensive businesses by an additional £420 million per year. We are supporting the lowest-income families by investing £15 billion in our warm homes plan to improve the energy efficiency of people’s homes and reduce their bills, and, through the warm homes discount, taking £150 off bills for 6 million of the lowest-income households—a doubling of the number of people who will receive the warm home discount compared with the plans the previous Government had. That is in addition to the £117 drop in the price cap that Ofgem has confirmed from next month, thanks to the wider action on bills I took in the Budget.
I want to be clear to families at home that despite the movements we have seen in energy prices in the last few days, the price cap for domestic bills for April will not change, giving families immediate certainty on their bills until at least the end of June. However, I recognise that households who use heating oil face unique challenges, so I have asked the Financial Secretary to the Treasury to lead discussions with officials and rural and Northern Irish MPs to explore further action we can take. Those meetings will happen on Wednesday.
The current conflict only increases the importance of the action I took at the Budget to reduce energy bills. A rapid de-escalation in the middle east remains the best way to protect us from rising energy bills, but as the situation continues to unfold my priorities will continue to be helping families with the cost of living and protecting the public finances. I am also taking action to ensure that people pay the lowest possible price at the pump. In November, I extended the 5p per litre cut in fuel duty for a further five months and ensured that fuel duty will not increase in line with inflation this year. Petrol is more than 8p per litre cheaper today than it would have been under the plans we inherited at the election. That discount increases to 11p per litre next month once that extension takes effect.
The new cheap fuel finder that I confirmed at the Budget is currently being delivered, helping consumers find the cheapest price for their fuel. Almost 90% of petrol retailers have already registered for this and last week I instructed my officials to accelerate the integration of the cheaper fuel finder with map applications. This week, I am meeting petrol forecourt operators and I will not hesitate to call out retailers who fail to provide data to the fuel finder. I am clear that the best way to keep prices at the pump low is rapid de-escalation, and I will continue to monitor prices as the situation develops. I have also asked the Competition and Markets Authority to be vigilant across prices, including essentials such as road fuel and heating oil. Let me be absolutely clear: I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.
I am proud to be the Chancellor who is delivering the biggest uplift in defence spending since the end of the cold war. I am committed to giving our military the resources they need. That is why I can confirm today that I approved access for the Ministry of Defence to the special reserve to deploy additional capabilities in the middle east, meaning that no net additional costs of these operations will be funded by the MOD, but instead will be funded by the Treasury.
We do not yet know how long the conflict will last or what further action will be required, but it is my duty to be responsive in an uncertain world and responsible in the national interest to protect the public finances and help families with the cost of living. That is what the Prime Minister is doing and that is what I will continue to do. I commend this statement to the House.
Rachel Reeves
I thank the shadow Chancellor for his questions. The Government believe that the best way that we can protect families and businesses from this conflict is through de-escalation. We heard nothing in the shadow Chancellor’s response about what the Conservatives’ view is on de-escalation. We believe that it is important that we get back to the negotiating table and do not escalate this conflict, but I am not sure that that is the view of the Conservatives.
We know that commitment to greater energy security can help guard against shocks. After inaction and delay from the Conservatives while they were in government for 14 years, this Labour Government are committed to investing in and building new nuclear. That is why we are backing Sizewell C and small modular reactors— neither of which were funded by the previous Government, but both of which were funded at the spending review, because this Government are backing Britain’s energy security. This Labour Government are backing the industries of the future, such as carbon capture and storage—not funded by the Conservatives, but funded in the spending review, because we back Britain’s energy security. Through the National Wealth Fund, we are investing in floating offshore wind and our docks—not funded by the Conservatives, but funded in the spending review, because we back Britain’s energy security.
In 14 years the Tories did nothing. They failed when we needed new nuclear. They stood by and allowed the loss of gas storage facilities at Rough. They failed to fix the broken planning system to enable us to build renewables, and they had an effective moratorium on onshore wind, which is the cheapest form of energy. We are taking a different approach in the interests of our economy and energy security.
On energy bills, I urge the shadow Chancellor not to scaremonger. The £150 cut to energy bills that I announced in the Budget will continue, as has been confirmed by Ofgem. We removed the failed energy company obligation scheme, and we removed a number of levies from bills. On heating oil, those conversations will happen this week, and we are working closely with MPs and colleagues in Northern Ireland to make sure that things are working well. The Minister for Energy at the Department for Energy Security and Net Zero met the heating oil sector on Friday and spoke this morning to the Competition and Markets Authority. There is not currently a problem with supply, but if Members have individual issues around supply, they should make sure that they get in contact with DESNZ.
The shadow Chancellor asked about fuel duty. Fuel duty would have risen by 8p if I had used the plans that I inherited from the Conservatives. We have had two Budgets in which the freeze on fuel duty was extended, and both times it was voted against by all Opposition parties. It is a little rich for the Tories now to say that they want to reduce fuel duty when they voted against Budgets that froze it.
On the energy profits levy, the shadow Chancellor must have a short memory, because he was in the Cabinet that introduced the energy profits levy. It was introduced for a reason. Windfall profits were being made by the energy companies and there was a need to help consumers with bills, which is exactly what we have done.
On the public finances, I am not sure the right hon. Gentleman listened to my statement last week or my statement today. The deficit has reduced from 5.3% to 4.2% of GDP. This is the first time in six years that the budget deficit has been less than 5% of GDP. In fact, in the 14 years that the Conservatives were in office, borrowing was higher than the G7 average; it is now lower than the G7 average, and it is coming down in every year of this Parliament. On inflation, I will not take any lessons from the party whose policy took inflation to more than 11%.
The right hon. Gentleman, as a former Work and Pensions Secretary, says that we should be spending less on welfare. Well, it would have been nice if he had done something about it when he was in charge. We are reforming the welfare system, which the Conservatives broke.
On Fingleton, we commissioned the Fingleton review because we are determined to build nuclear power, unlike the Conservative party. On oil reserves, we have reserves equivalent to 90 days of oil imports. As the G7 confirmed today, we will be making further announcements on that. On gas reserves, it was the Conservative party that closed the storage facilities at Rough. National Gas has confirmed today that our gas reserves are at a comparable level to last year and the year before that. The numbers that are being reported are utterly misleading, because gas comes from a number of sources—interconnectors, liquid natural gas and our storage facilities—so I would really rather the Conservative party did not scaremonger when people want certainty.
On money laundering, of course we have the very strictest rules. On the special reserve for defence, of course we will ensure that the Ministry of Defence has all the money it needs to provide support for our armed forces.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
My right hon. Friend is right to focus on the cost of living and de-escalation in the middle east. I am pleased to hear her confirm again that there is money for the Ministry of Defence and access to the special reserve to deploy additional capabilities to the middle east. Can she give us a figure or a range for how much money the Treasury is providing to the Ministry of Defence to deploy?
Rachel Reeves
It would not be right to disclose that sort of information. As I said, we will provide all the support that is needed for our operations in the middle east.
Daisy Cooper (St Albans) (LD)
I am grateful to the Chancellor for advance sight of her statement, but it does not include a single concrete announcement, and in itself will not provide the reassurance that householders and businesses are looking for as they hear reports that energy bills are about to escalate. Last week, the Liberal Democrats asked the Chancellor whether she would consider scrapping the planned 1p increase in fuel duty, due in September. Will she confirm that that option is still on the table and has not been ruled out?
Last autumn, we Liberal Democrats called for a new energy security bank to roll out low-interest loans to households and small and medium-sized enterprises. We welcomed the Government’s warm homes plan in January, but will the Chancellor confirm that it could be extended from five to 10 years and that it will have a greater emphasis on home insulation? Could small businesses’ investment in energy-saving measures be excluded from business rates calculations?
In the long term, we need energy market reform. I urge the Chancellor and her Government to intervene to stop these unpredictable fluctuations in the gas market. We need urgently to develop a plan to delink gas and electricity prices, and move expensive old renewable subsidies from the renewables obligation to the much better and cheaper contracts for difference model.
I am glad that the Chancellor has written to the Competition and Markets Authority about keeping an eye on petrol pump prices, but last autumn I wrote to the Secretary of State for Business and Trade and asked him to instruct the CMA to investigate bad practices in the energy market that affect hospitality businesses and small businesses. The Federation of Small Businesses and UKHospitality have also asked for that investigation but, six months on, it still has not happened. Will the Chancellor please confirm that she will speak to the Secretary of State for Business and Trade?
Finally, on rural homes, we know that off-grid homes rely on oil, and they are already seeing prices go up as panic buying spreads. I am grateful that the Chancellor indicated that there will be a meeting on Wednesday. Will she confirm that an announcement will be forthcoming by the end of this week?
Several hon. Members rose—
Madam Deputy Speaker (Caroline Nokes)
Order. I am planning to run this statement only until 5.45 pm, so I ask Members and the Chancellor to please help each other by making the questions very short.
John Grady (Glasgow East) (Lab)
The root cause of this issue in Britain is our excessive reliance on gas. That is why consumers in Glasgow East pay much more for their energy. The Conservatives had an offshore wind auction with no bids and an onshore wind moratorium, and the SNP is against any new nuclear power stations. Does my right hon. Friend the Chancellor of the Exchequer agree that we must double down on nuclear and on onshore and offshore wind to attack the root cause of our energy costs?
Rachel Reeves
The energy profits levy is still in place, and the higher prices go, the more windfall tax is paid. There is also the electricity generator levy, whereby if electricity prices go up because they are, in some cases, outside of contracts for difference and linked to gas prices, we will recoup money there. That is obviously important because if the situation goes badly, we will need to be able to better support consumers. That is why the EPL and the EGL were brought in in the first place, and why they are important parts of the architecture we have.
Sir Edward Leigh (Gainsborough) (Con)
When we are in the middle of a war, I am not sure that it achieves much to be overtly party political. The past is where we were; we are now in the present. Just to be helpful, I agree with the Chancellor on de-escalation and on defending our interests, not pursuing regime change, but the fact is that we have the highest energy costs in Europe. We are now in a crisis and potentially a war economy. I saw the Energy Secretary sitting next to her earlier. Whatever the good intentions on net zero, will she listen to the shadow Chancellor on North sea oil, because we are in this crisis now and have to meet it with every tool in the toolbox?
Simon Hoare (North Dorset) (Con)
As heating oil and petrol prices go up in rural North Dorset, my constituents are hearing the Chancellor echo one of her predecessors in effectively saying, “Crisis? What crisis?” She needs to actively get a grip on this issue. Motorists in rural areas use their cars because they have to. The vast majority of my constituents are off grid and have no alternative to keep warm other than using heating oil. This is a crisis in costs taking place today that meetings with and letters to the CMA will not help or address. She has mentioned that this meeting has been organised on Wednesday and that invitations have gone out for it. [Interruption.] We do not need the hon. Member for Swansea West (Torsten Bell) gesticulating like some—
Rachel Reeves
I have huge respect for the hon. Member. As the former Chancellor of the Exchequer, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt), says, it is too early to know what the impact of this crisis will be. That is why I met with G7 Finance Minister colleagues today, which I am sure the hon. Member for North Dorset (Simon Hoare) welcomes. We discussed the release of the International Energy Agency’s strategic oil reserves, for example. What is needed to contain prices for all our constituents is to ensure that we have the oil and gas on the market that we need. That is why we are prioritising diplomatic routes to de-escalate this crisis.
Several hon. Members rose—
Madam Deputy Speaker (Caroline Nokes)
Order. I thank the Chancellor for her statement. I appreciate that a lot of Members will be disappointed not to have been able to ask their questions. I will try to prioritise them during the next statement if that is at all possible.