A think tank has proposed that the UK should reduce speed limits for vehicles as part of a broader strategy to mitigate the effects of the ongoing conflict in Iran on consumers. The Institute for Public Policy Research (IPPR) suggests implementing a maximum speed limit of 20 mph in urban areas and 60 mph on motorways to decrease fuel consumption and address the rising oil prices exacerbated by the war.
According to the IPPR, the government should also consider a temporary reduction of fuel duty by 10 pence and establish a new energy price cap set at £2,000 annually to assist consumers. They cautioned that inflation could rise to as high as 5.8% if proactive measures are not taken.
William Ellis, a senior economist at the IPPR, emphasized the urgency of the situation, stating, “The UK cannot afford to remain passive while another energy crisis leads to inflation surges and economic damage.” He noted that the ongoing conflict in Iran is likely to severely impact the UK economy and public finances, regardless of governmental intervention.
The think tank described the proposal to lower speed limits as a “dual win,” asserting that it would not only reduce fuel demand but also promote safer streets, encouraging more people to shift from short car trips to walking or cycling. They recommended pairing these measures with guidance on more efficient driving techniques, as well as promoting remote work and carpooling.
Implementing such changes could be contentious. In 2023, Wales lowered its default speed limit to 20 mph, which faced opposition from over half of the population in a BBC poll conducted earlier this year, despite a notable decline of over 10% in road casualties in the following 18 months.
The International Energy Agency has already urged its member states, including the UK, to contemplate reducing road speeds and imposing restrictions on vehicle usage as part of emergency measures similar to those enacted during the COVID-19 pandemic in response to the conflict in the Middle East.
The IPPR researchers estimated that without a support package, the Treasury could incur losses of up to £8 billion annually due to increased debt payments and decreased tax revenues attributable to slowed economic growth.
The proposed fuel duty reduction would remain in effect until spring 2027, while the new energy price cap would be set above the current £1,641 quarterly limit established by Ofgem, the energy regulator for Great Britain. This cap would activate automatically if Ofgem’s quarterly assessments exceeded that amount, with gas and electricity costs potentially rising to nearly £2,000 annually for average households by July.
Although the suggested policies could incur costs of up to £5 billion each year, researchers believe this figure is significantly lower than the £76 billion response to the 2022 energy crisis initiated by Liz Truss. Chancellor Rachel Reeves has already indicated that any support provided this year will focus on those most in need.
The proposed measures could also reduce peak inflation by as much as two percentage points, potentially lessening the necessity for the Bank of England to raise interest rates—its primary tool for controlling inflation—a move many analysts anticipate may occur later this year.
Last week, the Bank maintained its interest rate at 3.75%, cautioning that the UK may need to prepare for rate increases in the near future. Bank Governor Andrew Bailey remarked, “The longer this issue persists and the longer energy supply disruptions continue, the more challenging our situation will become.”
Ellis concluded, “The government has the capacity to take immediate action where the Bank cannot, through a thoughtfully crafted policy that caps prices in the most detrimental circumstances. At the very least, this could balance out costs, but if it prevents permanent damage or significant interest rate hikes, it could ultimately save money.”
