IPPR proposes emergency speed limit cuts and energy caps to shield UK from Iran conflict inflation
Policy recommendations include a temporary 10p fuel duty cut and a £2,000 annual energy price cap to prevent peak inflation reaching 5.8%
The Institute for Public Policy Research has advised the UK government to implement immediate traffic and fiscal measures to mitigate the economic fallout of the conflict in Iran. The thinktank argues that capping legal speeds at 20mph in towns and cities and 60mph on motorways would directly reduce fuel demand and combat soaring oil prices triggered by the regional instability.
Alongside the speed limit proposals, the IPPR recommends a temporary reduction in fuel duty by 10p and the introduction of a new annual energy price cap of £2,000. These interventions are designed to protect consumers from rising household bills, which researchers warn could approach nearly £2,000 a year for average households from July. The institute estimates that without such a support package, inflation could peak at 5.8%, causing significant damage to the economy and public finances.
The proposed policy package aims to lower peak inflation by up to two percentage points, potentially averting the need for further interest rate hikes by the Bank of England. While the Bank of England has kept rates unchanged at 3.75%, its governor Andrew Bailey has indicated that the scenario remains difficult as long as energy supply disruptions persist. The IPPR suggests that government action now could save money by avoiding the sharp interest rate rises that analysts expect later in the year.
The cost of the proposed support package is estimated at up to £5bn annually, a figure the thinktank notes is significantly lower than the £76bn cost of the government's response to the 2022 energy crisis. The fuel duty cut would apply until spring 2027, while the new price cap would sit above the current quarterly cap set by Ofgem and trigger automatically if estimates cross the £2,000 threshold. William Ellis, a senior economist at the IPPR, stated that the UK cannot afford to sit back and let another energy shock drive up inflation regardless of whether the government intervenes.
The speed limit proposal draws on international precedent, aligning with advice from the International Energy Agency to member countries to consider lowering road speeds as emergency measures. However, the measure may prove controversial domestically, as Wales reduced its default speed limit to 20mph in 2023 and faced opposition from more than half of residents despite a subsequent fall in road casualties. The IPPR suggests packaging the speed limits with advice on efficient driving, increased home working, and carpooling to support the shift towards walking and cycling.
The Institute for Public Policy Research warns that failing to act could see the Treasury lose up to £8bn a year from higher debt payments and lower tax revenues resulting from reduced economic growth. The chancellor, Rachel Reeves, has previously indicated that any support this year will be targeted at those most in need, but the IPPR argues for a broader approach to prevent permanent damage to the economy.
