A one-year spending review has been announced by the Treasury to “focus entirely” on tackling the coronavirus crisis – as official figures show borrowing records continue to be smashed.
The government said it would have liked to outline spending plans for the rest of the current parliament, as it had originally intended.
But a statement on the U-turn said the chancellor and prime minister had decided on a more targeted approach given the renewed threat from the pandemic, which has forced tougher restrictions on large swathes of the country and sparked bitter rows with local leaders over levels of government support.
Image: Rishi Sunak has hinted again that taxes will have to rise but not in the immediate future
The Treasury pledged to “continue to show flexibility and creativity in our response”, saying the review was expected to conclude at the end of next month.
The review, it added, would set departments’ resource and capital budgets for 2021-22 and the block grants for the devolved administrations over the same period as the pandemic places unprecedented peacetime demands on the public finances.
Figures from the Office for National Statistics (ONS) showed national debt had hit a new record of £2.06trn in September as the government continued to borrow big to fund its COVID-19 response.
The ONS said the sum represented the highest debt to GDP ratio – that is debt verses the size of the economy – since 1960.
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It is climbing because government tax receipts are falling at a time when its spending is through the roof.
The ONS said £36.1bn was borrowed in September – £28.4bn more than in the same month last year.
It took total borrowing over the first six months of the financial year to £208.5bn.
IMF boss warns against austerity
Chancellor Rishi Sunak has faced accusations from critics of being too cautious in his virus support packages as the furlough scheme ends.
They argue the Job Support Scheme that replaces it next month will fail to prevent a surge in unemployment.
The Bank of England expects the jobless rate to hit 7.5% by the year’s end. It is currently at 4.5%.
Mr Sunak said the spending review would include a focus on protecting jobs and provide “certainty” on budgets for the financial year ahead.
He said of the latest borrowing figures: “Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods.
“I’ve been clear that our enduring priority is to protect as many jobs and businesses as possible through this pandemic, which is the fiscally responsible thing to do.
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“Through our comprehensive Plan for Jobs we’re protecting, supporting and creating millions of jobs across the country.
“Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances.”