Rachel Reeves is to promise free summer bus rides for children and cut tariffs on some food imports, as part of a package of measures aimed at easing the costs of the Iran conflict.
The chancellor will give a statement in the House of Commons on Thursday, outlining her latest plans for cushioning the blow to consumers from an expected rise in inflation later this year.
The offer of free bus rides for children aged 15 and under during August will form part of what she is calling the “Great British summer savings scheme”.
Before the speech, Reeves said: “My number one priority is protecting households from rising costs. This summer I want every family to be able to enjoy themselves, that’s why we’re launching the Great British summer savings scheme, and why we’re helping kids with free bus travel throughout August.”
It comes after Keir Starmer announced that the government will postpone the planned increases in fuel duty that were due to take effect in September and December, and give lorry drivers free vehicle tax.
Speaking at prime minister’s questions on Wednesday, Starmer said: “We are giving our hauliers a 12-month vehicle tax holiday, helping to keep prices down, and we are backing drivers by extending the freeze in fuel duty for the rest of the year.” Duty on the red diesel used by farmers will also be cut by a third.
The decision on fuel duty was criticised by thinktanks including the Resolution Foundation, which pointed out that high-income households will benefit most.
Jonathan Marshall, its principal economist, said: “Come the autumn, low-income families – who are still £1,800 poorer than they were before the last energy price shock – will be worst affected by another round of rising food prices and energy bills. And yet the support announced today will primarily benefit those who are better off, with the richest fifth of households gaining more than twice as much as the poorest fifth.”
The Treasury said the cost of the package for motorists, including postponing the 5p rise and the discount on red diesel, was expected to be about £400m, and the chancellor will set out more details on Thursday about how it will be funded.
The Treasury has not made clear whether the full 5p increase would be expected to go ahead in January, saying the timing of any future move will be announced at the autumn budget.
Reeves will also outline plans to remove tariffs on imports of a list of foods, including biscuits, chocolates and dried fruits, in the hope of cutting prices for consumers. The Treasury will consult on the details.
A more ambitious plan to persuade supermarkets to announce set cheap prices for basic foods foundered after it was widely criticised by retailers, with the boss of Marks & Spencer calling it “completely preposterous”.
The Treasury had hoped to announce a voluntary deal on cut-price staples, such as eggs and milk, in exchange for the government removing additional burdens on retailers such as new packaging regulations.
The M&S chief executive, Stuart Machin, said: “I don’t think government should be trying to run business. They should try to understand business better. There is so much in the government’s control. My advice is to try to reduce tax and regulatory burden and free us up in a very competitive market.”
Reeves’s hopes of an economic upturn – evidenced in strong data for the first quarter of the year – have been dashed by the Iran conflict, which is widely expected to slow growth and push up inflation.
Nevertheless, with Andy Burnham hoping to challenge Starmer for the Labour leadership if he can win next month’s Makerfield byelection, the chancellor is keen to press home the argument that she has “the right plan” for the economy.
Her team said UK inflation fell to 2.8% in April, despite rising fuel prices as a result of the closure of the strait of Hormuz, because of measures Reeves took in the budget to reduce household energy bills.
She is expected to say more on Thursday about how she will approach the challenge of rising utility bills this winter. Treasury sources stressed that it is still unclear how dramatically bills are likely to increase, as this will depend on when the strait is reopened to marine traffic.
Reeves has repeatedly made clear that she will not be delivering an across-the-board rescue package, as Liz Truss did in 2022 when the Ukraine conflict pushed up energy costs and household bills.