The public sector pay squeeze means that austerity is back – but it’s different this time

No wonder, above all, that the chancellor shied away from setting out longer-term spending plans, writes John Rentoul

Rishi Sunak in the House of Commons (Reuters TV)

Austerity is back. Rishi Sunak, the chancellor, will be announcing the spending review next week – all that is left of an autumn Budget statement that has been shredded by one emergency fiscal event after another since the March Budget, which came on the day the country started to shut down because of coronavirus. 

Next week’s statement has already been pre-empted by two big announcements. One was the prime minister’s speech on Thursday setting out a four-year spending plan for defence, increasing in real terms over the period. The other was the leaking of a public sector pay squeeze, a cap on wage increases set at or below inflation, on the front page of Friday’s Daily Mail: “Pay blow for 5m to fill Covid black hole.”

What will be left for the chancellor to do on Wednesday is to publish the Office for Budget Responsibility’s independent forecast for the economy with the predicted effect thereof on taxes and public spending, and to give departments (apart from the Ministry of Defence) their spending allocation for the year ahead.