What does Labour's budget hope to achieve for the worst-off in gloomy Britain?

Farmers protest before the UK budget announcement, outside the Houses of Parliament in London. Bloomberg

When politicians talk about “the economy”, it sometimes isn’t clear whose economy they mean. The economy of the nation? Your family’s earnings, savings and expenditure?

Two economies really matter. One is the economy we read about in newspapers, full of chatter about raising taxes, cutting spending, stock market bubbles and gloomy prophecies of a market crash. But for most of us, it’s our personal circumstances, salaries, bills and whether shopping and eating out is an affordable treat or a problem to be navigated. The macro and the micro are connected, but for all of us there is one overwhelming economic question that affects our lives. Do we feel confident about being richer or poorer in a year or two ahead?

In conversations with friends in Britain, it is difficult to avoid a sense of gloom. A successful businessman tells me one of his businesses will lose tens of thousands of pounds this winter. He is hopeful things will pick up in the spring. My friend is always hopeful because he is also creative and well-meaning, which is why his businesses usually are successful.

For example, when I suggested he could lay off employees to save wage costs until things improve, he shook his head vigorously. “They are good people,” was his response, and “if I let them go I probably won’t get them back”. Besides, making employees redundant in the run-up to Christmas is not something my friend would ever contemplate. He will take a financial hit and hope in the spring that the sun will shine again.

These are, however, leaden times for businesses across Britain, and my neighbourhood is no exception. At least three local high street stores have closed in recent months. Two sold cheap, cut-price items. The third was a niche retailer of inexpensive electrical products.

Another local business fell on hard times and has just been sold, although I suspect this leap of faith from the buyers that they can turn it round may not work. Another business in the hospitality industry has been up for sale for months without result. It has been unprofitable for a long time and the building in which it is housed looks grim and in need of repairs. Then there’s a small family-run restaurant that has been struggling for months and is now closing.

There is one overwhelming economic question that affects our lives: do we feel confident about being richer or poorer in a year or two ahead?

The list of gloom goes on, but perhaps there are clues as to the core problem. Most of the businesses that have closed were budget retailers. Their customers are generally not wealthy. Last week, I overheard a woman in front of me at a budget shop check-out queue telling the sales assistant that her entire Christmas present budget was just £40 ($53). In the world in which many of us live, spending has been squeezed by stagnant incomes and rising prices. But in the world we read about in the financial papers, Elon Musk is a trillionaire and stock markets, especially tech stocks, are going through the roof. A market correction, some commentators suggest, is overdue although a sudden outbreak of investor caution is not obvious at the time of writing.

All those macro- and micro-economic factors bear down on this week’s British budget. Back in 2013, the then prime minister David Cameron said governments have “no magic money tree”. They can raise taxes, borrow money or cut public spending. That’s it – the dismal science of economics in 10 words.

Chancellor Rachel Reeves is embraced by chief nurse Vanessa Sweeney on a visit to University College London Hospital after delivering her budget speech. Getty Images

Chancellor Rachel Reeves is raising some taxes – those on gambling, on the wealthiest home owners with homes worth more than £2 million and on drivers of electric vehicles. But she has not broken key government promises on raising income tax and, in a move hugely popular in her own Labour party, she has extended financial benefits for poor families with more than two children. She has also ensured higher future revenues by not increasing income tax bands in line with inflation.

Yet the real political question about this budget is whether, after almost 18 months in power, the Labour government of Prime Minister Keir Starmer can get a grip. It’s not just about the economy but also about Labour’s (and, therefore, Mr Starmer’s) at-times incoherent, troubled and lacklustre leadership. Calm in the economy should lead to calm in the politics of the Labour party itself. Moreover, budgets tell stories about leaders and the kind of government they want to lead.

This week’s budget story is of giving some money to the relatively poor, taking it from the relatively rich (including gambling companies) and trying to restore a sense of calm in what a Labour government is for. Stock market reaction suggests that after weeks of leaks and internal Labour party arguments, a degree of calm in British politics has been restored along with considerable relief in Downing Street itself.

A 2022 opinion poll suggested “boring” was an adjective many people use to describe Keir Starmer. Some may even use that same word to describe the British budget. Given the state of much of the world, I suspect many British people might be happy with a bit of boring for a year or two.

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