John Healey on brink of Budget disaster – even Rachel Reeves didn’t cross this line

Former chancellor Rachel Reeves knows how he feels. Both of her Budgets walked a similar knife edge, and both ended in chaos and controversy. Reeves bequeathed an even bigger mess than the one she inherited from the Tories. Now Healey could be forced to do the one thing even she didn’t, and make everything even worse.

In a bid to boost her credibility, Reeves famously set herself two rigid fiscal rules. The first was that day-to-day public spending must be covered by revenues. The second was that public sector debt must start falling as a share of the economy.

That’s why, when Reeves broke down in tears in Parliament, the bond market panicked and gilt yields shot up. Investors feared that if she went, her rules would vanish too, and the next Labour chancellor would go to town. Eventually, both Keir Starmer and Reeves did fall, but her fiscal rules remained, like twin pillars of a collapsed desert temple. Healey inherited those dusty relics, and says he’ll stand by them too.

Many in Labour are furious, because they’d rather he told the bond market where to shove it and went on a spree. But Healey’s hopes of abiding by those rules are slim because every time boss Andy Burnham opens his mouth, a new spending pledge comes out.

Even when Burnham got tough by pledging to scrap the state pension triple lock, he instantly spent the savings (and more) on his plan for a National Care Service. With Burnham at the helm, no chancellor alive could balance the books.

The Iran war isn’t helping, as it drives up the oil price, inflation, interest rates and gilt yields. That makes servicing our £3trillion national debt even more expensive. Reeves left Healey with around £24billion of fiscal headroom. Some estimates now put it as low as £7billion.

Goldman Sachs and JPMorgan have warned it could soon be wiped out altogether. Even Reeves didn’t drive the UK economy over that particular cliff. If Healey does it could have disastrous consequences for all of us.

Healey may need to raise anything up to £12billion or £20billion in his Budget. One way of doing this is to cut spending. But that would destroy Andy Burnham’s honeymoon in a heartbeat. When Starmer tried to shave a modest £5billion off welfare, backbench MPs forced a humiliating U-turn.

The other option is to hike taxes, something Labour governments are much better at doing. But that won’t be easy, because Healey can’t hike the big ones like income tax, national insurance or VAT due to Labour’s manifesto pledges, and businesses can’t take much more strain.

He has another option. Do nothing. Avoid making any big decisions in the Budget and hope something turns up. The risk is that this makes him look weak, and the bond market panics.

Healey has one final option. Fiddle those fiscal rules. Plenty on the left are urging him to do that. Those rules are political targets, not laws of nature. Healey could tweak definitions, extend timelines or some other sleight of hand.

There are two problems with this. First, it would make him look worse than Reeves, and no politician wants that. Second, it might panic bond investors and trigger a Liz Truss-style post-Budget meltdown. Healey won’t fancy that either.

Reeves has just been voted the worst of the past five chancellors, according to an AJ Bell survey. If Healey breaks her fiscal rules, he could inherit that unwanted title. So what will he do? We’ll find out on October 28. It’s going to be a close run thing.