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UK chancellor Rachel Reeves has set out a sweeping package of measures to help businesses and families through the economic fallout of the Iran crisis, funded by closing a tax loophole used by oil companies.
Reeves said she would raise “hundreds of millions of pounds” from the energy sector to be spent on schemes from cutting energy bills for chemicals companies to subsidising café meals for children.
In an overtly political statement aimed at winning back lost voters and reassuring businesses in Labour seats, Reeves said she would do what she could to ease pressures caused by the “mistake” of the Iran war.
Reeves announced a £300mn “Great Summer Savings” scheme, cutting the rate of VAT from 20 per cent to 5 per cent for attractions including fairs, zoos and museums during school holidays, alongside free bus travel for children.
The chancellor also announced that she would reduce the cost of restaurant and café meals for children, cutting the rate of VAT from 20 per cent to 5 per cent.
Children’s tickets for soft-play areas, cinemas and concerts will also be covered by the discounts, which she said would support the hospitality sector during the cost of living squeeze.
Reeves said she would fund the package by ending a practice where some oil and gas groups that operate overseas through foreign branches had “structured their tax affairs in such a way that they pay little or no corporation tax on UK energy trading profits”.
She said this meant they paid little or no corporation tax in the UK. “I am putting an end to that practice,” she said, claiming that the reform would fund the measures in her speech and would raise “hundreds of millions of pounds a year”.
According to analysts, BP and Shell’s traders made more than $3bn in extra profit in the first three months of this year after the war in the Middle East caused huge volatility in energy markets.
Both companies employ thousands of traders in hubs across the world, including Singapore, Houston and Dubai, and book a share of their profits locally.
BP said in its last results that while its profits had more than doubled, its tax rate had fallen from 43 per cent to 32 per cent because of “changes in the geographical mix” of its profits. Neither company immediately responded to a request for comment on the move by the chancellor.
Reeves also announced £350mn for a “chemicals resilience fund” to help companies with big energy bills, including £120mn for the ceramics sector to help it switch to lower energy use.
The package included a previously trailed plan to scrap a planned increase in fuel duty later this year and help for hauliers and farmers. The tax-free mileage rate for workers will be increased by 10p, a move that Reeves said would help people “from care workers to plumbers”.
The chancellor did not mention her efforts to persuade supermarkets to agree a voluntary price cap on essential goods. Marks and Spencer chief executive Stuart Machin had said the idea was “completely preposterous”.
Instead, Reeves announced targeted cuts to agrifood tariffs, which the Treasury said would lead to lower prices for products including baked beans, marmalade, crisps, margarine, biscuits, chocolate and tomato ketchup.
She said she expected supermarkets to pass on the savings “in full”.
The Treasury said the expected benefits to consumers would be more than £150mn a year. The figure is a tiny fraction of the £40bn that Britons spent on groceries in 2025, according to UK government statistics.
Reeves also outlined a plan to help the poorest households with their energy bills — expected to be targeted at people who receive welfare benefits — but that support will not kick in until October.
Ministers have been relieved the price cap on British households’ energy bills is set to rise less than they had initially feared.
Cornwall Insight, an energy consultancy, forecasts the cap will rise to a level that would see typical households paying £1,850 a year, up from £1,641 at present, during the July to September period. Ministers had feared bills could have exceeded £2,100 by now.
Reeves’ supporters said she could survive at the Treasury even if Sir Keir Starmer is replaced as prime minister later this year, because she has credibility with markets.
Some Labour MPs argue this is unlikely but her Commons speech was a clear signal that she wants to continue in her role. She insisted her economic plan was working, with economic growth outperforming forecasts in the first quarter.