What will Britain’s new sanctions on Israeli settlements actually target?

Britain's Foreign Secretary Ed Miliband announced the country's strongest package of sanctions against Israel’s illegal settlements on Tuesday, targeting the trade, finance and services that sustain their expansion across the occupied West Bank.

In a speech to parliament, Miliband said ethnic cleansing is happening in the occupied West Bank.

The UK will now ban the import of goods from Israeli settlements in the illegally occupied Palestinian territory, Miliband announced in parliament.

The foreign secretary added that the UK will also "take action" against companies and individuals that provide services, such as construction or finance, for settlement expansion.

"You will face the full force of UK sanctions," he said, adding that the advertisement of illegal settlements will also be banned in the UK.

Miliband also announced new restrictions on arms sales, in addition to the more than 30 arms licences for equipment used by Israel in Gaza that have already been suspended - which he said remains "fully in place".

He added that the UK will now also refuse all licence applications for arms and other exports that "materially contribute to the occupation". Miliband called this "a double lock against arms sales".

The ban on such exports will remain in place as long as the occupation persists, he said.

Pro-Israel groups have condemned the sanctions, although the Labour government has said they will not affect Britain’s wider trade, military and security relationship with Israel.

The US ambassador to Israel and a supporter of the occupation, Mike Huckabee, lashed out at the proposals on Tuesday and threatened that “without a doubt” Washington would respond.

Middle East Eye first revealed in early August that Miliband was preparing measures against Israel’s settlement enterprise.

Israel’s decision in August to invite tenders for more than 1,200 homes in the so-called E1 settlement, in a strategic part of the West Bank, triggered the announcement.

Successive British governments from both main parties have largely avoided broad sanctions and sought to restrict them to individual Israeli settlers responsible for violence against Palestinians.

The latest package reportedly goes further by targeting the goods, services and financial networks that sustain the settlements.

Targeting a lucrative economy

With these measures, the UK aims to restrict the settlement economy, raise the cost of activities that entrench Israel’s occupation, and increase the reputational cost of doing business in the occupied territories.

Reuters reported that UK-Israel trade was worth about £6bn in 2025.

Measures against the settlements are expected to affect only a small proportion of that relationship.

It is difficult to measure the economic output of Israeli settlements or determine exactly how much Britain imports from them. Israel, for its part, does not publish figures on settlement economic activity.

A UN Conference on Trade and Development (Unctad) study published in February estimated that settlements in Area C of the occupied West Bank and occupied East Jerusalem generated $53bn for the Israeli economy in 2024.

Unctad put the settlements's cumulative economic output over the 24 years from 2000 to 2024 at $832.7bn, equivalent to more than $1 trillion once the earlier years are adjusted for inflation.

Will British banks and pension funds be affected?

In July, Chris Bryant, the then UK trade minister, told parliament that the government was also considering restrictions on services.

The new government has now confirmed that annoucment. A ban on financial and professional services could have a significant impact on the settlement enterprise.

US officials threaten retaliation against UK over Israeli settlements sanctions

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The 2024 Don’t Buy into Occupation report found that the UK was one of the most important sources of financing for 58 companies involved in Israel’s settlement economy.

It found that at least $49.3bn in loans and underwriting were provided between January 2021 and August 2024.

The UK is not just one of the world’s leading financial centres, it is also a key node in assisting other lenders - and the settlements rely on an extensive web of investment, mortgages, insurance, construction and marketing.

If the UK government moves towards restricting services, it could require banks, pension funds and asset managers to divest from companies operating in settlements.

It could also stop financial institutions from providing mortgages, insurance and other services that support the ecosystem of settlement activity.

The uncertainty surrounding operations in the occupied territories could persuade some companies in the UK and internationally that doing business in Israel is not worth the headache, while increasing scrutiny and reputational risk.

British charities face restrictions

A number of Jewish charities in Britain have helped finance Israeli settlements and promoted events selling homes built on occupied Palestinian land.

The foreign secretary has now announced bans and restrictions on charities promoting settlements.

Some of those organisations benefit from the Gift Aid tax exemptions scheme, meaning British taxpayers subsidise part of the fundraising that feeds into the Israeli settlement enterprise.

Financing the settlements through organisations presenting themselves as charities could become another target of the government’s measures.

In August, the Charity Commission opened an investigation after Labour MP Melanie Ward said at least 32 charities registered in England and Wales had transferred more than £28m to Israeli settlements.

The investigation followed growing scrutiny of British organisations accused of channelling money into settlements.

Middle East Eye previously reported that ministers had considered banning charitable donations that support settlement activity.

Such a ban could also prevent organisations from using Gift Aid to secure taxpayer support for donations that help entrench Israel’s occupation.