The view from Downing Street and the Treasury is that everything Labour has been doing on the economy is for the benefit of working people.
The reality is that the lower-paid seem to be the most badly affected, so far, by the Government’s policies.
Prime Minister Keir Starmer and Chancellor Rachel Reeves have cast a pall over businesses that serve the less well-off while middle Britain complains – but carries on spending regardless.
Britain still does retail, both in shops and online, quite well. Announcements from Primark owner ABF and Sainsbury’s show in different ways how confidence among ordinary working people is suffering at the hands of Labour.
Primark argues that its customers have been spooked by the Government.
The combination of glum talk about a rotten economic inheritance and swingeing tax rises of £40billion frightened off its shoppers in October and November. Christmas was a great deal better.
Budget misery: Keir Starmer and Rachel Reeves have cast a pall over businesses which serve the less well off in society while middle Britain carries on spending regardless
It is evident that no-frills shopping chains such as Primark, B&M and Poundland have been doing less well than those used by people with more money.
There have been stellar results from electronics group Currys, M&S and Next, all of which will have some struggling customers, but mainly cater to people with deeper pockets and higher credit card limits.
The message from Primark is that the mood music in Britain, as opposed to the actual state of the economy, has meant that its outlets at home are doing substantially worse than its operations on the Continent even though EU growth is more subdued than the UK. America is also doing fine, but that’s not a surprise.
There may be more misery to come. There is some hope at ABF that increases in the minimum wage will put more money in the pockets of lower-income consumers.
But it, like Sainsbury’s, faces additional challenges, notably the rise in employer National Insurance Contributions (NICs).
Retail also must confront the extra burden on the High Street of changes in the way business rates operate.
The loss of 3,000 jobs at Sainsbury’s, which is to close 61 of its in-store cafes and lose posts in senior management, may reflect deeper-seated changes.
Artificial intelligence (AI) could well be having deleterious impact on employment in larger firms. The search for cost-cutting doubtless has been speeded up by the impending NICs shock.
Trade unions, representing members’ interests, have understandably been advocating reforms to workers’ rights. That is all fine and dandy.
But with a heavy concentration of unions in the public rather than private sector, it is working people in firms such as Primark and Sainsbury’s who are more affected. Part-time jobs are in the firing line.
The paradox is that because most of the extra tax being raised is coming from NICs, there is no chance of the Government being able to do a reverse-ferret.
The extra payroll costs already are causing job disruption. Reeves has recognised that it wasn’t a brilliant idea to clamp down on non-domicile and inheritance tax loopholes, as thousands of richer residents head overseas.
Her message to the entrepreneurs of Davos is that there is still time to change the finance bill in their favour.
The bizarre miscalculation of the Budget is that some of the most vulnerable in society – part-time workers, shivering pensioners and shop workers, not very high up the income ladder – will pay the heaviest price for badly designed policy.
Banking on cuts
The last best hope for a more robust 2025 comes from the Bank of England.
The determination of the Government to stick with the fiscal rules come hell or high water and a further squeeze on public spending gives the Bank the chance to make a difference.
It could ease up on quantitative tightening, by slowing down sales from its trove of gilts, thereby easing indigestion on the bond markets. It could also be bolder in reducing the bank rate from 4.75 per cent.
Goldman Sachs is telling clients that it expects the Bank to ‘step up the sequential pace of cuts’ in response to weaker demand, with borrowing costs tumbling to 3.25 per cent by mid-2026.
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