An oil crunch more serious than the financial crisis threatens to strike Britain within five years, Sir Richard Branson and other business leaders have warned.

Richard Branson

As a result of an 'Oil crunch', Consumers face a spike in costs for heating, transport, food and other goods, according to the report entitled ''The Oil crunch - a wake up call for the UK economy''.

It said the challenges facing the UK would exceed those presented by the financial crisis and said the poorest in society were most vulnerable to potentially significant increases.

The report said Government must acknowledge the risks to the economy and to produce contingency plans for transport, retail, agriculture and alternative power.

'Unless we do so, we face a situation during the term of the next government where fuel price unrest could lead to shortages in consumer products and the UK's energy security will be significantly compromised,'' it said.

The report was compiled by the Industry Taskforce for Peak Oil and Energy Security, a group of private British companies whose members include Sir Richard, Brian Souter, chief executive of Stagecoach, Scottish & Southern Energy boss Ian Marchant and Philip Dilley, chairman of consultancy firm Arup.

Virgin Group founder Sir Richard - whose airline and rail businesses are sensitive to volatility in the cost of crude - said businesses and Government should work together to prepare the economy.
''UK competitiveness will be hampered unless we can develop viable, affordable and secure long term sources of alternative energy,'' he said.
While the report did not address climate change directly, it stressed ''massive areas of overlap'' between the issues of depleted resources and pollution.

It said transportation was particularly vulnerable to rising oil prices, with businesses from supermarkets to manufacturers reliant on delivery networks.

The group said alternative methods of powering vehicles - for example electrification of the railways - should be explored and infrastructure developed before an Oil crunch occurs.

It recommended removing the current £9 billion tax break on fuel for domestic airlines and using the money for public transport investment, while also encouraging a shift away from car travel.

''The UK's freight network, cars and public transport systems are almost entirely dependent on oil,'' Mr Souter said. ''The twin threats of the oil crunch and climate change make that unsustainable.''

Mr Marchant warned economic growth ''will be endangered'' as price rises hike the cost of raw materials and deplete consumers' spending power.

''There is the danger of creating a social recession as the poorest households get hit the hardest by higher prices,'' the Scottish & Southern Energy boss said.

Government was also urged to plan for food price hikes, as agriculture relies on oil-related products like fertilisers.

The report comes amid general fears about future energy security and costs in the UK.

Energy watchdog Ofgem has warned electricity and gas may become unaffordable for an increasing number of households unless drastic action is taken to secure power supplies.

Oil prices have been particularly volatile in recent years, spiking at $147 a barrel in July 2008 before plummeting to $32 a barrel that December amid the financial crisis and onset of the economic downturn.

It climbed again to around $70 to $80 late last year and has stayed relatively static as many world economies remain under pressure.

Global economic woes have pushed the ''oil crunch'' point - when global demand will use up stocks faster than they can be replaced by new production - back by two years and given governments and firms more time to work out how to act.

But oil prices are still predicted to climb to a sustained level above $100 a barrel within the next five years. The UK is seen to be particularly vulnerable to price fluctuations as it increasingly relies on energy imports.

Sudden supply shocks would ''quickly reverberate throughout the UK's supply chain'', according to Dr Robert Falkner of the London School of Economics, who compiled part of the report.

''Air travel and road haulage are now the key reasons behind our dangerous addiction to oil,'' he said.

The widely expected de-coupling of gas and oil prices should ease the pressure on household energy costs.

''Nevertheless, a rise in living costs - in the form of higher travel and transport costs and consumer prices - is firmly on the agenda,'' he added

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