Ever since Hamas’s 7 October attack in 2023, there has been a serious possibility that Israel’s war with Iran’s various proxy militias might boil over into an actual war with Tehran itself. Given the recent exchange of fire between the two countries, this looks more likely than ever; and it could have serious implications for Britain, not least economically.
A serious conflict in the Middle East could seriously disrupt global supplies of oil and natural gas, as well as threaten critical international shipping lanes through the Gulf of Aden. One need not be a signed-up neoconservative, looking to wage war to “spread our values”, to see the critical importance of that part of the world to Britain’s core interests. Britain has already deployed a Royal Navy warship to assist the Americans against the Houthis, and the Government’s redeployment of RAF forces follows the same logic.
What is baffling, however, is that despite this conflict being a serious possibility, Rachel Reeves has made absolutely no allowances for it when drawing up her spending plans. This isn’t just about defence spending, although the Chancellor did scrap the previous government’s cash commitment to the Armed Forces to help fund her post-election spending spree. It’s about the complete lack of any sort of safety margin in the overall budget.
Time and again, since entering Number 11 last year, Reeves has spent right up to the margins of the most optimistic forecasts from the Office for Budget Responsibility, and made no allowance for the potentially significant downside risks on the international horizon.
As such, her proposals have amounted to a series of bets: that Donald Trump wouldn’t be re-elected, that he wouldn’t go ahead with his promised tariff reforms, and most recently that Israel’s war in Gaza wouldn’t boil over into a larger conflict. And every time there’s a new global shock, the growth forecasts are adjusted downwards and she has to come back for more tax rises and cuts.
There is little doubt that the Government is entirely sincere when it says its priority policy in the Middle East is “de-escalation”. Britain already has an ailing economy, a cost-of-living crisis, and the highest energy costs in Western Europe: it is anything but well-positioned to endure a serious external shock.
Nor have voters historically been forgiving to governments which preside over a worsening economic situation, even when the immediate cause of the crisis has been rooted in developments overseas, such as during the oil shocks of the Seventies — and the 21st century is shaping up to be a century of shocks.
Yet Reeves has left herself no political space. In order to justify her U-turn on the winter fuel allowance — made purely because the cut polled badly — the Chancellor had to claim that Labour had “fixed the economy”. It hasn’t, and there will be more cuts and tax rises to come; but voters will remember her saying it.
That’s before even getting on to the particularly acute political problem a war in the Middle East poses for Labour. If one counts Jeremy Corbyn, there are already five “Gaza independents” in the House of Commons, and last year several other high-profile Labour MPs, including Wes Streeting and Jess Phillips, came close to losing their seats to similar independent candidates.
Clearly, Britain has a direct interest in at least parts of any Middle East conflict. It would also be hugely damaging to the country’s international standing if the UK were peeled away from its international alliances by a government trying to appease a small but well-organised minority of voters. But, with the economic outlook only likely to get bleaker between now and the next election, will Labour be able to resist them?
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