In private, the Chancellor is making difficult choices. Here’s what we know

John Healey is a man who enjoys a greasy spoon fry-up, but only if it comes with a large dollop of HP Sauce on the side. Over bacon and eggs, the Chancellor has been known to turn his nose up at generic brown sauce and to whisk out the branded bottle, which lives permanently in his bag for condiment crises. But as Healey mulls his Budget next month, he’s thinking not so much about what is on his plate, but more about how he can help the café owners. Central to his Budget planning is driving down the cost of doing business to boost growth, mindful of how Labour’s 2024 manifesto committed to replacing the business rates system to level the gap between online giants and high streets. Within days of becoming Prime Minister in July, Andy Burnham announced that pubs, clubs and live music venues were set to receive a 20 per cent cut to their business rates bills, saving the typical pub an estimated £1,100 next year. Now, Healey is understood to be considering how he can extend business rates relief to other small businesses such as café owners, hairdressers and florists at his Budget next month. Such a move would undoubtedly be popular among those who saw Burnham’s targeted focus on pubs and clubs as unfairly skewed towards one end of the hospitality industry, perhaps even an early attempt to pick winners in a sector already buckling under former chancellor Rachel Reeves’s hike in employers’ national insurance contributions. In his first keynote economic speech last week, Healey made clear he wants “to get things done”, but the longer the Middle East conflict persists – a point he is likely to make when he addresses MPs on 28 October – the more his fiscal position deteriorates. That gives this Chancellor very few significant tax and spending levers. In lieu, he appears determined to pull as many little levers as possible, to clear what he described as the “thicket” of regulatory brambles. He’s asked businesses for advice on how to cut red tape and slash administrative burdens by at least a quarter by 2029, but upfront help on business rates would be a signal of his determination to bring down costs too. On Monday, hundreds of hospitality businesses, backed by celebrity chefs including Angela Hartnett and Heston Blumenthal, asked the Government to lower VAT for the sector. More than 800 businesses wrote an open letter to Burnham, as part of the #VATsTheProblem campaign, to warn that without a “fairer tax burden for hospitality” there will be further closures and job losses, and fewer opportunities for young people. But helping small businesses inevitably comes with a price tag. And so, Healey is yet to rule out a windfall tax on both banks and oil companies. The UK’s four largest lenders, HSBC, NatWest, Barclays and Lloyds Banking Group, have generated £200bn in pre-tax profits over the past five years, largely off the back of rising interest rates. JPMorgan chief executive Jamie Dimon has been the most vocal opponent of a windfall tax on banks, making the case in a phone call with Healey last month and an in-person meeting last week with Healey and Burnham that a higher levy could hit jobs. But Treasury insiders speak of irritation at Dimon’s persistent public lobbying; all his conversations with ministers are briefed to the press. Instead of dialling down the idea, this lobbying is reminding ministers that such a move could be highly popular politically to a nation sick of being taxed. “His lobbying against something is pretty bizarre, he just keeps bringing up bank taxes and talking about them whenever he can!” a source said. And while Healey may have the big banks haranguing him in London, he is about to go into conference season, where the views of The Labour Party and trade unions will be the strongest voices ringing in his ears. TUC general secretary Paul Nowak is just one of many voices on the left pushing hard for a new bank tax. Healey will have to spend some of his time during the party’s gathering in Liverpool working on the Budget, which falls only a month after his keynote address to delegates. He has already had regular meetings with Burnham on the Budget, both with officials and one-to-one. The pair talked about the Budget last Thursday at No 10 North in Manchester. Both men are facing a grim backdrop. The Office for Budget Responsibility is currently preparing its forecasts, with analysts predicting that half of March’s £23.6bn buffer against the fiscal rules has been wiped out by higher government borrowing costs following disruption in the Strait of Hormuz. Healey is understood to want to keep “decent” headroom to insulate against future shocks, an aim that only adds to his current fiscal headache. Meanwhile in London, a tight hold is being kept on the digital copy of the Budget’s so-called Red Book. Healey, the former defence secretary, has imposed a military-style security system. Treasury officials must now sign in to their parts of the document and can’t access the sections they are not working on.Last year’s leaks and pitch-rolling rattled bond markets and fed a narrative of Treasury dysfunction. Treasury insiders suggest the cost to the economy could have been in “the billions” because of public fears about Reeves’s Budget. Briefing that she was planning to cut or scrap the 25 per cent tax-free pension lump sum triggered a wave of precautionary withdrawals. By the time he stands up in the House of Commons, Healey needs to finalise funding for Burnham’s electricity VAT cut and find £4.7bn for the funding gap in the £15bn Defence Investment Plan. That’s even before he starts answering the 2027 spending review exam question of how the UK reaches a defence spending target of 3 per cent of GDP. Limited by his constraints, this Budget looks likely to be heavy weather. But like many chancellors, Healey has a talisman on his desk at the Treasury. Former chancellor Rishi Sunak had a £180 “smart” coffee mug. Reeves usually had a cup of Earl Grey on the go. This Chancellor, naturally, has a bottle of HP Sauce.