A bold budget this week will deliver the business-friendly socialism Britain badly needs

There is little prospect of an early end to the standoff between Iran and the US over who governs the Strait of Hormuz. Whatever the results of the US midterm and Israeli elections, the near certainty is the conflict will intensify. The world economy has held up well so far – but it’s anyone’s guess just how depressing the impact will be. Meanwhile, France is reeling from a different attack – the bond market’s reaction to national protests – with plainly no effective political response.

I left Number 11 on Friday morning reflecting on the chancellor’s calm, if repeated, insistence that “volatility” is the hallmark of our times – and the background against which he is framing Wednesday’s budget. He is self-evidently right. Flying home from the IMF meetings in Bangkok, he said, he was gratified that Britain is not in the eye of the bond market storm. That dubious honour now falls to France. The chancellor defined his budget task as not risking Britain’s unexpected promotion to becoming the IMF’s poster child, sustaining the current economic momentum, which implies no significant spending cuts or tax increases – for the moment – while boosting economic resilience and the strength of our innovation economy.

But how to do all that given how tight the government’s fiscal position is? If, on the revenue calculus, higher taxes on capital are excluded and there are only limited increases possible from taxing, for example, the banks, there are only three options. Roll forward the aggregate public spending “envelope” for a year that he inherited from Rachel Reeves, not increasing it to allow for inflation, and ask the Office for Budget Responsibility to deliver its central borrowing projections on that basis.

Exploit any scope for increased borrowing for investment under the new public borrowing category of “net financial liabilities”. And run down the contingency “buffer” – as John Healey said, “use it when you need it, rebuild it when you can”. Not being France has allowed him to adopt all three – and probably escape any disagreeable attention from the bond markets. Inflation is making the planned spending totals increasingly implausible, with large implied real cuts in the future if they are not adjusted in the imminent spending review.

Related articles: Healey plans deep energy reforms to cut Britain’s bills France dodges Moody’s downgrade, but debt fears deepen But for the moment leaving the totals little changed is justifiable both by geopolitical uncertainty and the yet-to-be-announced result of the three welfare spending reviews on Neets (young people not in education, employment or training), care and personal independence payments. Sustaining growth and the innovation economy is to be done via earmarking, according to the FT , an additional £20bn over five years to the National Wealth Fund and British Business Bank (BBB) – the assets that both will create can be offset against public borrowing, so the government’s “net financial liabilities” will remain unchanged.

And strains will be absorbed by lowering the buffer. As Helen Miller, director of the Institute for Fiscal Studies, acknowledges, this may work for the moment – but the risk is that if the markets sense that by next summer it was all a ruse to escape hard choices, especially if growth starts to falter, the chancellor will then be overwhelmed by speculation about tax rises or spending cuts. The leaders of growing businesses want orders and capital as their overriding priority The leaders of growing businesses want orders and capital as their overriding priority So much depends on higher economic growth, and success on that hinges above all on curating and boosting the UK’s great economic success story – its innovation economy.

Britain possesses the largest venture capital industry in Europe, but it is increasingly dominated by American money – and US owners exercise immense pressure on our best companies to migrate there. The BBB has become a crucial line of defence, and it was worried that without extra resources next year it could not meet the demands placed on it. After the budget, it should be able to. Good news, but in order to be at the core of a vibrant UK venture capital ecosystem, it’s imperative the BBB has allies – with indigenous British capital supporting young companies, necessarily drawn from our pension funds.

Nor can that be enough: we need to revive the British stock market so that the halo effect of higher valuations of publicly quoted company profit flows buoys up the entire spectrum of business investment. Public companies are as much the story as private, high-tech scaleups. Acknowledging and building on these truths must be part of the planned 10-year strategy. Then buttress all of that with credible moves to lower energy costs – the proposed reforms to the energy markets look promising.

The National Wealth Fund must become the motor of a wave of infrastructure spending. Protect our research-based universities. Celebrate entrepreneurs – the mooted tax reliefs are an important signal. Take the fight to the British right, still harrumphing about tax cuts, deregulation and weakening support to Britain’s disadvantaged as the route to growth. Wrong. The leaders of growing businesses want orders and capital as their overriding priority.

Equally Britain needs collective spending – on defence, cybersecurity, education, health, care, training, science, support for its poor. Unashamedly make the case for funding this vital spending through taxation, which must include – because it is lightly taxed – higher taxation on personal wealth. Business-friendly socialism has the potential as a political philosophy not just to unite Britain’s centre and left – but as the alchemy to remake our economy and society for the better.

Healey has more arrows in his quiver than I had expected. Here’s hoping his budget fires them. Photograph by Henry Nicholls / AFP via Getty Images Politics Budget John Healey