Analysts are sounding the alarm over potential tax raids from Chancellor Rachel Reeves as Britain braces for the “greatest energy security threat” from the US-Iran war.
Government borrowing has surged in response to the crisis as the Treasury now faces monthly debt interest payments of £13billion.
Based on figures from the Office for National Statistics (ONS), this represents an increase of £5.5billion compared with February 2025.
Market turmoil has thrown the Chancellor’s fiscal strategy into disarray, with economists cautioning that rising inflation, elevated borrowing expenses, and anticipated household energy support measures could make further tax increases at the autumn Budget increasingly probable.
Economists warn the US-Iran war could trigger further tax raids from the Chancellor
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Susannah Streeter, chief investment strategy at Wealth Club, warned that additional tax rises appear likely given the Treasury’s increasingly constrained position.
She said: “Fresh tax rises do look possible 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.”
The investment service analyst noted that ministers’ room for manoeuvre on spending reductions has been limited by the prospect of rebellion from backbench MPs.
Fatih Birol, the International Energy Agency (IEA) chief, has declared the crisis represents the “greatest global energy security threat in history”.
Rachel Reeves is under fire | PA
The IEA head cautioned that restoring oil and gas supplies from the Gulf region could take six months or longer. Such an extended disruption significantly raises the chances that the Chancellor will need to introduce a support package for vulnerable households.
Treasury officials have maintained that Reeves remains firmly committed to her fiscal rules, with sources describing her adherence to them as “ironclad”.
The Institute for Fiscal Studies (IFS) has warned that elevated inflation will drive up welfare payments whilst placing greater strain on public expenditure.
Rising interest rates risk eroding the Chancellor’s fiscal headroom further, limiting how much she can spend without breaching her commitment to sound public finances.
The Iran war has caused major disrupton across the globe | GETTY
Andrew Goodwin, UK chief economist at Oxford Economics, highlighted a “substantial indirect risk” should Reeves pursue her promised targeted support.
He said: “If markets don’t like such a package which would be likely given the current state of the public finances then gilt yields will rise and the cost of servicing the Government’s debts will increase, narrowing the headroom.”
Willem Buiter, formerly of the Bank of England’s Monetary Policy Committee, reinforced these concerns, stating there was “little fiscal space” available for comprehensive energy assistance.