UK chancellor Rishi Sunak was facing cabinet unrest on Wednesday after he shelved plans to set out multiyear spending programmes for the rest of the parliament because of the chaos caused by Covid-19.
Boris Johnson, prime minister, had hoped to use the three-year spending review to map out his post-pandemic “levelling up” agenda, but reluctantly agreed with Mr Sunak that the exercise would have to be scaled back.
But Ben Wallace, defence secretary, said Britain needed to urgently set out its stall on the world stage, while another minister said the decision to axe the multiyear review was “a handbrake turn”.
“The world does not stop for our reviews, our adversaries will not halt [in] the absence of our strategies, and the UK’s defence can never be paused in the face of financial uncertainty,” Mr Wallace told a defence conference.
Mr Johnson and Mr Sunak argued in the run-up to the planned three-year review over spending on capital programmes, with the prime minister pushing for more money.
“It was classic Number 10 vs Number 11 tension,” said one person briefed on the discussions. The Treasury is unimpressed with some of Mr Johnson’s pet projects, including a mooted bridge from Scotland to Northern Ireland.
But Downing Street said the decision to abandon the multiyear review in favour of a one-year allocation to Whitehall departments — to be set out at the end of November — had been “mutually agreed” with Mr Sunak.
Both sides said the decision — revealed by the Financial Times on Tuesday evening — was taken because of the coronavirus pandemic, not disagreements over spending. “It was 100 per cent Covid,” said one ally of Mr Sunak.
The decision to drop the three-year spending review caused surprise and frustration across Whitehall; ministers were told to submit long-term plans to the Treasury by September 24 ahead of final decisions next month. The cancellation of the review was not mentioned at a meeting of Mr Johnson’s cabinet on Tuesday.
“While the government would have liked to outline plans for the rest of this parliament, the right thing today is to focus entirely on the response to Covid-19 and supporting jobs,” the Treasury said.
Mr Sunak confirmed some areas of public spending “crucial to our economic recovery” would have longer term settlements. They include specific projects such as the HS2 rail line and new hospitals.
The Ministry of Defence has been in close discussions with Downing Street about both the spending settlement and the connected integrated defence and security review — a major study of threats and UK capabilities.
Mr Wallace on Wednesday warned security threats would not wait while UK budgets were allocated.
“In an area of constant competition, a global Britain has no choice but to step up,” Mr Wallace told the Atlantic Future Forum on board HMS Queen Elizabeth, one of Britain’s two new aircraft carriers.
But there is still widespread confusion over whether the integrated review will be published this autumn as planned, given the delay to the spending review.
Michael Clarke, former director-general of the Royal United Services Institute think-tank, said: “Delaying big spending decisions sends completely the wrong message to our allies.”
Paul Johnson, director of the independent Institute for Fiscal Studies, said the Treasury’s decision not to hold a full spending review was “sensible” because there was far too much uncertainty over the economic outlook.
£246bn
Amount central government spent above what it collected in first six months of financial year
The uncertainty over the outlook for the public finances was demonstrated by the latest public finance figures showing that central government spent £246bn more than it collected in revenues during the first six months of the financial year, three times higher than the worst outcomes since equivalent records began in 1984.
For local authorities, the Treasury’s decision would reinforce “the squirrel-like nature of finance officers”, according to Tony Travers, professor of government at the London School of Economics, making them extremely cautious about spending for fear they might run out of money.
Siva Anandaciva, chief policy analyst at the King’s Fund, a health think-tank, said that given the current economic volatility, a three-to-four year NHS settlement would likely only have to be revised downwards in any case.
He could see the rationale for delaying long-term funding certainty for social care, because the government had yet to lay out its reform plan, but lamented the lack of a more assured multiyear settlement for both NHS capital and education and training.
Victor Adebowale, chair of the NHS Confederation, a body which represents NHS providers, said the chancellor must re-examine the £20.5bn extra that the health service is due to receive up to 2023/24, arguing that the pandemic had imposed “significant extra costs”.