Rishi Sunak has dropped his ‘whatever it takes’ approach to coronavirus – a public spending squeeze is coming

The chancellor's clampdown will come in a government-wide spending review this autumn – a big event, as the first to set departmental budgets for three years ahead since 2015

“We will not be responding to this crisis with what people called austerity,” Boris Johnson declared five weeks ago. True, he is not going to announce yet another U-turn and shout “we want cuts, when do we want them? Now!” from the Downing Street rooftop.

But it is dawning on cabinet ministers that a big squeeze on public spending is fast coming down the tracks, and heading ominously in their direction unless they are called Matt Hancock.

The health budget will be protected because of the continuing coronavirus crisis, and Rishi Sunak will also have to find money to cushion the long-delayed reform of social care. However, some in government are anxious to see a quicker return on the £10bn allocated to the test and trace system last month. It remains inadequate, and ministers are getting twitchy about delivering their promise for all pupils to return to school in England in four weeks’ time.

To prevent a rise in the R number (the average number of people infected by someone with the virus) to around 1.5, they might well have to extend the ban on people from two households meeting in parts of the North to the rest of the country. Fearing a parents’ backlash, ministers do not want to offer only part-time attendance for older pupils (who are more likely to spread the virus than younger ones), which the former government adviser Neil Ferguson suggested might be needed on BBC Radio’s Today programme this morning.

Sunak has quietly dropped his “whatever it takes” soundbite on coronavirus; instead, he is warning ministers of “hard choices”. Yet it might be premature to end the furlough scheme in October amid growing evidence of a second spike in infections and the mounting toll of job losses. He should extend the furlough in the worst hit sectors; although he is strongly resisting the idea, events might yet force him to do so.

Sunak, a fiscal conservative cast in the unlikely role of a spendthrift chancellor, has his eyes on balancing the nation’s books in the medium term. He has (also quietly) scaled down promises in his March Budget to raise spending by 2.8 per cent each year on top of inflation to a much vaguer pledge of some growth.

The chancellor has a formidable media operation and we shouldn’t underestimate its capacity to win good headlines even in hard times. He grabbed front-page treatment for a generous pay rise for 900,000 public sector workers this year, but then slipped out the cold reality for future years in the small print of a press release warning that “we must exercise restraint in future public sector pay awards.”

His clampdown will come in a government-wide spending review this autumn – a big event, as the first to set departmental budgets for three years ahead since 2015. When I watched Steve Barclay, Sunak’s deputy as chief Treasury secretary, deliver his first speech in the job, he disclosed plans for the Treasury to attach targets before approving spending bids; departments will have to say what they will achieve before getting the money.

Barclay told the Onward think tank the new targets would be agreed “at the centre”, meaning the power triangle of Number 10, the Cabinet Office under Michael Gove and the Treasury – or, in shorthand, Dominic Cummings. Barclay acknowledged that targets were not always a silver bullet, saying that setting the wrong ones meant you “hit the target [but] miss the point.” He argued that the four-hour maximum wait in accident and emergency units pushed problems upstream.

Targets are not a new idea. Tony Blair set up a delivery unit, believes it drove up performance, and the approach was copied round the world. But his initial flurry of 600 targets was later cut to 120, with about 20 top priorities.

Barclay wants the civil service to perform permanently with the creativity and speed it has shown during the coronavirus crisis – a rather more honest assessment of its performance than the scapegoating from Downing Street.

He and Sunak know that, after 10 years of austerity, a further spending squeeze will not deliver a big enough reduction in a deficit likely to approach £350bn in the current financial year. Some tax rises will also be needed. Tory MPs are divided over on whose shoulders they should fall. Johnson will want to protect his new working class voters in the red-turned-blue wall in the North and Midlands. But Tories representing more affluent areas do not want the party’s traditional supporters to be soaked.

Funnelling infrastructure projects into the blue wall seats will not be enough. Many will take years, despite efforts to speed them up. Johnson’s new voters will be more interested in cost of living issues – Sunak’s “jobs, jobs, jobs” mantra rather than Johnson’s “build, build, build.” They will also need good public services. But Johnson’s problem will be that, despite his rhetoric, it will not feel as if austerity is over.