Iran war could leave every household £2,400 worse off

Iceland boss says jobs—not bailouts—offer the lasting answer

The war in Iran could strip £2,400 from the average UK household’s real income by the end of 2027, according to the Centre for Economics and Business Research. Lord Richard Walker, Iceland Foods’ chairman and the Government’s former cost-of-living adviser, argues that cutting business taxes and rebuilding the labour market would offer a more lasting answer than another round of short-term bailouts.

COST OF LIVING CRISIS TO COST HOUSEHOLDS £2,400

Iceland’s boss says the government is fighting the wrong battle.

The war in Iran is hammering UK households, with new forecasts from The Centre for Economics and Business Research (CEBR) show real disposable incomes will fall by £1,100 in 2026 and £1,300 in 2027, leaving families £2,400 worse off than they otherwise would have been.

Energy shocks, shipping disruption through the Strait of Hormuz, and surging petrol and diesel prices are driving inflation back up and households are bracing for another painful winter.

The boss of the supermarket chain, Iceland, who was the Government’s cost‑of‑living tsar, says ministers are focusing on the wrong problem. Lord walker says the Government should stop obsessing over the cost of living and start getting people back to work.

Fix the labour market

Walker’s argument is that the cost of living is being driven by global shocks (Iran war, energy prices, shipping disruption) and the UK can’t control those, but it can fix the labour market. He says getting people back into work will do more to stabilise the economy than short‑term price interventions.

Vacancies have fallen to their lowest level in over a decade outside the pandemic, and wage growth is slowing as firms cut hiring and investment. We have a labour market that’s weaker, smaller and less productive which is the environment in which small businesses struggle most.

The argument is that getting more people back to work means more customers with spending power. Households losing £2,400 of real income means less money for anything that might be classed as non-essential like restaurants or local shops. Microbusinesses feel those types of reductions in spending first and hardest. If the Government shifts focus to employment, disposable income rises and so does demand.

A stronger labour market makes it easier for small firms to recruit

Microbusinesses face fewer applicants, higher wage pressure, skills shortages, rising employer NICs and weak productivity.

A Government push to get people back into work, especially young people and long‑term inactive groups, expands the talent pool and reduces hiring costs, which is critical for microbusinesses that can’t compete with large employers on salary.

Higher employment adds up to lower business costs

When more people work wage inflation slows, staff turnover drops, training pipelines improve, productivity rises and demand stabilises. This is exactly what small firms need after the last 10 years in which business costs have risen by 70% because of government policy.

A bigger workforce means stronger supply chains

The Iran war has disrupted shipping, fertiliser supplies, refined oil products, logistics and food distribution and that probably isn’t a comprehensive list.

More workers in logistics, warehousing, transport and manufacturing means fewer bottlenecks and the lowers costs for small firms reliant on getting goods through those fragile supply chains.

A shift away from price controls means more stability for businesses

Lord Walker has warned petrol retailers not to “rip off households” after the Iran war pushed up oil prices. They robustly deny any such moves. He also argues that constant government firefighting on prices creates uncertainty. Small businesses need stability and certainty if they are to feel confidence to invest for growth. They need predictable energy costs, tax policy, wage rules and regulation and the business world have been plagued by years of volatility. A labour‑market‑first strategy reduces volatility and would increase certainty and confidence.

The risk

If ministers fail to control the cost of living and fail to rebuild the labour market, microbusinesses face a double blow from poorer customers with less to spend and therefore lower demand, and harder hiring leading to higher costs. It’s this that Lord Walker is warning the government about.

Fixing not firefighting

Not everyone will see things Lord Walker’s way. The cost-of-living crisis is real, and households will be around £2,400 worse off because of the Iran war’s inflation shock. Lord Walker says the Government must stop firefighting prices and start fixing the labour market.

Getting people back to work is one of the most effective ways to help the UK’s smallest businesses survive the cost‑of‑living storm because we have no control over the circumstances pushing up prices.