Ever since bond vigilantes around the world decided it was time to offload their holdings in sovereign debt, Westminster has assumed that tax rises are inevitable. It makes sense. Yields have soared, the market has priced in multiple interest rate hikes and earlier this week the Office for National Statistics (ONS) revealed that the government has overshot its borrowing forecasts.

There are 23 Bloomberg Terminals across the Treasury, the Office for Budget Responsibility (OBR) and other agencies and their users will have been poring over them over the last couple of weeks to turn market reality into fiscal forecasts. We’ve been attempting the same for Reality Check and the results are pretty clear: at least £10 billion wiped off the Chancellor’s headroom against his main fiscal rule.

That’s not only led Burnham and Healey to turn gloomy and warn challenges lie ahead but has also led to incredible briefings that they were not aware of how bad Britain’s books were looking before they hopped on the West Coast main line to London. We can only hope that whoever briefed that line to newspapers was lying because it is ridiculous to imagine that anyone with even a passing interest in British politics – let alone senior involvement within it – was not aware of the deteriorating picture.

Anyway, the conventional wisdom within Westminster has been that Healey would feel he has no choice but to use tax rises – since Labour backbenchers won’t stomach spending cuts – to restore that fiscal headroom to the low £20 billions compared with the roughly £12–13 billion most estimates predict it sits at.

But as Tim Shipman and I discussed on Coffee House Shots last week, conventional wisdom is not always right. It is not some cast-iron law of economics or Westminster convention that the Chancellor must restore his headroom to that left by his predecessor. As long as the headroom against the main fiscal rule – that day-to-day spending is matched by taxes – is at or above zero, then it has been complied with.

So if Healey and Burnham really want to kick the can down the road there’s nothing stopping the Chancellor standing up in the Commons on 28 October – glass of water in hand – then sitting straight back down again. It would leave official headroom much reduced at closer to the £10 billion mark but it would avoid Labour having to add to the more than £70 billion of tax rises they’ve already inflicted on the nation since the general election.

Last night, the Financial Times reported that this plan of action is indeed being considered within the Treasury and Downing Street. Speaking in New York, the PM told the FT: ‘We have had two Budgets in 2024 and 2025 and we have to be conscious of the extent to which we have raised revenue.’

As Tim explained on last Wednesday’s Shots, some in the City think that though bond markets would not like to see seriously reduced headroom they may accept a buffer of around £15 billion. That was confirmed by a survey of traders for the FT’s report.

The issue has not been settled and is being actively debated within the Treasury. And there is good reason to believe that those who want the fiscal buffer restored in full to more than £20 billion will win the day. Not least because, as I revealed before the last Budget, the Treasury was persuaded by a view that increasing the headroom would be rewarded with a half a percentage point reduction in gilt yields which would in turn save £5 billion annually from government debt servicing costs, setting off what Oxford Economics described as a ‘virtuous circle’. That’s what Reeves duly did.

So Healey is facing a choice. Raise taxes – assuming serious cuts are a non-starter – to buy himself a decent buffer and hope market conditions improve it even more in time for his second Budget. Or he can say enough is enough: the tax burden has been maxed out and a smaller margin for error is the price we’ll pay. That would be an almighty booting of the can down the road and not a trick likely to be available twice but it must surely be tempting.