Rachel Reeves will hike taxes on working people or increase borrowing to address the “significant” economic impact of the Iran war, it has been suggested. Shadow Chancellor Mel Stride warned that Ms Reeves has left herself with “very little room for manoeuvre” to fix Britain’s “fragile” economy in the wake of the Middle East conflict. It comes as oil and gas prices rocket amid Iran’s ongoing stranglehold on the Strait of Hormuz, a major global shipping route.

Mr Stride said: “The way this government operates whenever there’s a squeeze on its fiscal position or a requirement to step in and help out in some way, is it turns either to borrowing or to taxing people even more. I fear that what the Chancellor is going to be doing is coming back for yet more tax or increasing borrowing at a time when she’s created a very fragile economy, a very high level of debt that, I’m afraid, isn’t going to really be able to provide much firepower when it comes to helping people out.”

He argued that the Government should instead be controlling spending, including by “getting the welfare bill down, getting people off benefits and into work”.

Oil prices have soared to as much as $120 a barrel in response to the Iran conflict, costing UK drivers more than £300 million in more expensive fuel, according to analysis by the RAC Foundation.

The Chancellor warned that economic challenges from the war may be “significant” on Tuesday, pledging to offer energy bill support for “those who need it most”.

She told MPs: “Contingency planning is taking place for every eventuality so that we can keep costs down for everyone and provide support for those who need it most, acting within our iron-clad fiscal rules to keep inflation and interest rates as low as possible.”

“This is not a war that we started, nor is it a war that we joined … but it is a war that will have an impact on our country,” she added.

“The challenges may be significant but I promise to do what is right and fair, being responsive in a changing world and responsible in the national interest.”

Conservative leader Kemi Badenoch said scrapping taxes on energy bills would be “much better” than offering targeted support in shielding UK homes from the expected cost hikes.

Ms Reeves announced plans to increase fuel duty by another 5p, starting with a penny in September. Ms Badenoch said: “It’s completely crazy to be increasing fuel duty at this time, and let’s drill our own oil and gas in the North Sea.”