Five things in John Healey’s budget, including a reality check

I f anyone round the cabinet table was still crossing their fingers for a budget of sweetness and light, John Healey killed that notion at Chequers on Monday. The chancellor did little to hide the gloomy financial numbers that loom over his preparations for October 28 as he addressed colleagues on their “away day” at Andy Burnham’s country retreat. Most commented 1 Time for Zelensky to go, Trump tells Ukraine in diesel row Russia-Ukraine war 1,133 comments 2 Tiger kills man who ‘jumped’ into pen at Yorkshire Wildlife Park 484 comments 3 Christa Pike discharged from hospital after botched execution US news 137 comments 4 Forget fragile defending, I’d much rather glorious attacking than a 6-3 Rugby union 28 comments 5 How John Swinney’s public sector plans revealed deep splits in SNP Scotland 16 comments “Despite a difficult global backdrop, the British economy has shown real resilience this year. But oil prices have risen by around 40 per cent and wholesale gas prices by more than 140 per cent since the spring, putting further pressure on families and businesses,” Healey told the group. “We have important strengths to build on, and our job now is to turn that resilience into stronger growth while maintaining the fiscal discipline that underpins economic stability.” Top stories 1 Starbucks ‘explores takeover’ of Chipotle Mexican Grill US business Read the words carefully. Painful jumps in prices. Households and firms feeling the squeeze. The need for “fiscal discipline” ruling out a spending spree. These are phrases no chancellor likes to utter. The downbeat messaging came with a further sting in the tail for those present: ministers requesting cash for new priorities, Healey noted pointedly, were expected to find the money by cutting their existing budgets elsewhere . Advertisement The draughty corridors of the 16th-century Buckinghamshire manor house where the prime minister had gathered his political nearest and dearest must have been feeling a lot less cosy than the last time they had been together. Top stories 1 Mortgage rates dip after weeks of painful rises Mortgages Burnham’s rousing speech to the Labour Party conference a week earlier had left the cabinet, and watching delegates, hoping again . Healey’s reality check snapped them back to the here and now. Downing Street knows the budget, coming on the 100th day of the Burnham premiership, will offer the biggest proof point yet of whether the prime minister’s cheery rhetoric can be matched with action. Andy Burnham during his speech to the Labour Party conference in Liverpool Richard Pohle for The Times Pollsters see in the modest 8 percentage point jump in Labour’s vote share an electorate instinctively warming to Burnham but awaiting proof that he can deliver where it matters. The big picture for the budget has been set by a pair of conference speeches that suggest the political battleground is returning to the economy along lines that have a ring of familiarity. A Labour leader supporting public control of utilities, pouring praise on trade unions and railing against Thatcherism. A Tory leader championing home ownership while promising to make people richer by slashing taxes. Are the 2020s the new 1980s? Advertisement “The legacy of the Eighties is relevant,” says Lord Kinnock, a Burnham predecessor and ally who was taking the fight to the Conservatives in that decade. “The rapid de-industrialisation without preparation or compensation, the effects on communities and individuals of high unemployment and subsequent desolation, privatisations without adequate regulation or accountability, massive loss of affordable housing because the government prohibited the use of sales revenues for new or refurbished housing …” Lord Kinnock PA The list for Kinnock, whom Burnham declared a “legend” in his first speech as Labour leader, goes on and on. “We are therefore seeing a return of the argument: the state as an encumbrance versus the state as an accountable enabler.” The Eighties echoes are detected too by one of Kemi Badenoch’s predecessors. Lord Howard of Lympne, who went on to lead the Conservatives between 2003 and 2005, was serving on Margaret Thatcher’s front bench as she took on Kinnock’s arguments. He remembers vividly what came before her arrival. “I think the most extraordinary thing about Burnham’s approach is he seems to have completely forgotten what the 1970s were actually like,” Howard says. “They were absolutely dire. We had to go cap in hand to the IMF. There were a record number of strikes. The trade unions were rampant. People couldn’t bury their dead … For Burnham to want to take us back to that period seems to be absolutely madness.” Kemi Badenoch with her husband Hamish at Conservative conference last week. Below, Margaret Thatcher delivers her closing speech in 1984 Getty images Bettmann Both former leaders noted differences too — not least that Labour is now in power. But the back-to-the-future vibe from conference season was striking. Advertisement So how has this changed the thinking in No 11? Badenoch’s promises — extending free childcare to those earning more than £100,000 and scrapping inheritance tax on the family house regardless of value — have not altered budget planning, according to Treasury insiders. Their concerns revolve more around a perception, captured by the Tories’ “ Birmingham Tapestry ”, a mocking version of the Bayeux Tapestry depicting Labour’s first two years in office and hung at the Tory conference, of Healey gleefully ordering a volley of arrows heading for the eyes of taxpayers. A message emerging universally from all corners is that No 10 and No 11 do not want to raise taxes on the same scale as was done by Rachel Reeves. The former chancellor announced a £41.5bn tax increase in her 2024 budget and followed it up — despite having promised no repeat — with a £26bn raid in 2025. “They don’t want to pull the lever marked tax,” said one Whitehall source familiar with current budget talks. Not fully rebuilding the £24bn of fiscal headroom Reeves left her successor will ease pressures here. The Trendline newsletter The numbers you need to make sense of modern Britain, written by our award-winning data team. Sign up with one click You’ve successfully signed up to the The Trendline newsletter Explore our newsletters An error occurred. Please use the link below. The Trendline newsletter Explore our newsletters City of London folks are predicting an overall tax rise of between £3bn and £10bn. Certainly, Labour wants to avoid the “triple whammy” narrative teed up by Reform UK’s Robert Jenrick in a speech on Friday which foretasted a third massive tax increase in a row. Advertisement There will be goodies. Downing Street wants the feel-good optimism Burnham has been projecting to survive the budget and beyond. Giveaways and interventions in five areas are coming. 1. Energy Both the prime minister and chancellor want to give people “breathing room” on prices. That means taking the edge off a 16 per cent jump in energy bills due in January, meaning £276 more on average annual costs. Support will largely be targeted. A more generous warm home discount, which goes to six million needy households, is being considered. Some universal moves could be made; at some point a decision on whether to extend the VAT cut on energy bills that ends in April is needed. But no Liz Truss mega intervention is coming to freeze bills: Treasury analysis shows it forced up debt and interest rates. 2. Fuel duty In his Sunday Times interview last month, Healey hinted the effective 6p increase due in the new year would be delayed. Campaigners want him to go further. 3. The cost of business Healey and Burnham have been championing the high street and will act this month. The Institute for Public Policy Research, a left-leaning think tank, last week proposed a 2 per cent online sales tax that could raise £1.5bn, suggesting the money could fund business rate cuts for retail, hospitality and leisure firms. Treasury interest is unclear but the think tank has good connections with Labour ministers. A rearguard action has emerged this weekend, with the bosses of John Lewis and Marks & Spencer sounding alarm via newspaper columns. Their argument: modern high street firms with big online presences also get hit with warehouse taxes, not just overseas internet giants. One Healey ally cautioned against assuming he will hit warehouses with more tax. Advertisement 4. Jobs there will be help for the “Neets”, the million young people aged 16-24 not in employment, education or training. A new version of Labour’s Future Jobs Fund and Boris Johnson’s Kickstart scheme, under which the government paid to reduce the cost of hiring young workers, is being explored as part of welfare reforms, though possibly for after the budget. Sitting under all these moves will be Burnham’s self-declared mission to devolve power out of Whitehall. A proposal being pushed by Lord Khan of Tooting, the mayor of London, for mayors to retain 20 per cent of their business rates revenue is being considered for October 28. 5. The sting in the tail Tax rises are being worked up, however determined Downing Street may be to avoid that big tax lever. The approach being taken by the Treasury is a small number of tax rises that can be robustly justified — a deliberate attempt to avoid the Reeves blunder of raiding mini pots of cash that proved politically disastrous, such as farmers’ inheritance tax. A bank tax rise of some form appears the most nailed-on of the raids publicly floated to date, given higher interest rates have increased revenues. Smoke signals from No 11 have left banking bosses braced for the move. A rise in the banking “surcharge”, a different corporation tax rate for banks that was eight percentage points higher but became three when the overall rate was increased in 2023, is one obvious route if action is coming. Politics newsletter Get our daily insider’s guide to Westminster, plus a rundown of PMQs every Wednesday. Sign up with one click You’ve successfully signed up to the Politics newsletter Explore our newsletters An error occurred. Please use the link below. Politics newsletter Explore our newsletters There appears to be less appetite for returning to the oil and gas windfall tax, despite prices soaring with the Iran-US conflict, given Burnham’s rhetoric about a new “pragmatic” approach to the North Sea. It also looks as if Tory predictions that the farmers’ inheritance tax will be scrapped are yet to be locked in, though 17 days of wrangling remain. It can be revealed that the Treasury has gone cold on lowering the threshold for the incoming mansion tax from £2m to £1.5m. It is welcome news for the owners of 130,000 properties that would have been dragged into the levy, due to kick in from April 2028. Where else could the bite be felt? Private wealth managers believe Treasury officials are on their side over warnings that capital gains tax increases could force more billionaires to flee overseas. Investment bank researchers are loosely floating applying national insurance to landlords as another idea. Healey painted the backdrop — a bleak one — on Monday. Now he needs to colour in the details and hope the public, once his masterpiece is unveiled, do not ask for their money back.