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The UK government is poorly positioned to cushion the blow to households from surging energy prices given the mountain of public debt it is trying to manage, a top economist has warned. 

David Miles, a senior official at the Office for Budget Responsibility, said this week’s jump in oil and gas prices driven by the war in Iran was “unambiguously bad” for a major energy importer such as the UK and that it would be “understandable” if there was public pressure for the government to intervene if energy costs continued to spiral upwards.

But he added that it came at a “particularly difficult time” given that the government had been attempting to bring borrowing down and stop the debt-to-GDP ratio from continuing to rise.

“You would not want to be doing that when you have to start from here, in terms of the size of government borrowing we have seen in recent years, the stock of debt, gilt yields have moved up,” Miles told a conference hosted by the Resolution Foundation think-tank on Wednesday. 

Public sector net debt jumped to 85 per cent of GDP in the first year of the Covid-19 crisis, compared with 76 per cent in the previous fiscal year, as the government supported the economy. It subsequently increased further, fuelled in part by UK measures intended to respond to the energy price surge that followed Russia’s full-scale invasion of Ukraine in 2022. 

The OBR’s latest forecasts show public debt, excluding the Bank of England, on track to rise from 91 per cent as a share of GDP now to more than 95 per cent by the end of the parliament. 

It comes a day after chancellor Rachel Reeves vowed to “reduce pressures on the cost of living” in her spring forecast. Referring to the war in Iran, the chancellor said she would “secure our economy against shocks” as well as “protect families from the turbulence that we see beyond our borders”.

Helen Miller, head of the Institute for Fiscal Studies, said that the UK had “become accustomed” to governments propping up household incomes when shocks come along, such as Covid and the war in Ukraine.

“While there can obviously be benefits to this, protecting household incomes in this way is not costless,” Miller said, noting it was “a key reason that debt has been rising in recent years”. 

She added: “That can’t go on forever.”   

Miller argued that if the government did choose to help households with energy bills, it would be better to target support towards those with the lowest incomes and the highest energy costs, and to deliver help in a way that still incentivised people to save on energy use. 

In 2022-23, when the previous Conservative government stepped in to cushion households from the increase in energy costs, Miller said it had spent £35bn without managing to target those most in need, for want of accurate data on incomes and energy use.

OBR forecasts on Tuesday showed the safety buffer against Reeves’ main fiscal rule had increased since November to £23.6bn on the back of improved tax receipts and lower borrowing costs. 

But it warned that Britain’s economy could face a “very significant” hit from the war in Iran, as the conflict threatened to derail Reeves’ promises to deliver economic stability.