Philip Hammond has told ministers that the Treasury's multi-billion pound boost for the NHS will leave them with no extra money to spend on their own policy areas.
Key cabinet figures including home secretary Sajid Javid and defence secretary Gavin Williamson have been urging the Treasury to loosen the purse-strings in recent months, amid fears that key public services are feeling the strain after years of austerity.
But the chancellor reportedly told the Cabinet yesterday that a newly-unveiled £20bn-a-year boost for the health service by 2023 has left the government with little wiggle room.
One Cabinet minister told The Times: “The atmosphere was quite muted. Ministers could see the implications are going to make life quite difficult. Any sense that the taps are about to be turned on were dispelled.”
Ministers were reportedly told that the NHS boost was an “extraordinary” one-off outside of the usual spending review process.
“Having done it once doesn’t mean it’s going to happen again,” the Cabinet was told.
The move will dash hopes of a wider rethink of the Treasury's hawkish fiscal policy, despite recent public pleas from both Javid and Williamson for a rise in police and military spending.
Javid reportedly responded to the presentation by reeling off the other areas of public spending where the “pressures will be greatest”, while housing secretary James Brokenshire is said to have given his own warning about Britain's growing housing crisis.
But Boris Johnson, the foreign secretary and key Brexiteer who launched a campaign bus pledging £350m-a-week extra for the NHS during the EU referendum, was said to have been absent from the meeting.
“The bus was without its driver,” a Cabinet source told the paper.
Justice secretary David Gauke reportedly suggested that the NHS budget boost could provide help in other areas related to health, such as funding for the treatment of prisoners’ mental health.
The warning from Hammond comes amid questions over how the Treasury will fund the extra NHS cash, which will see spending rise by 3.4% a year on average over the next five years.
Theresa May has promised to partly meet the pledge using a so-called “Brexit dividend” of money no longer paid into the European Union after the UK leaves.
But independent think tank the Institute for Fiscal Studies has poured cold water on the dividend claim, saying a downturn in the economy, the cost of the Brexit ‘divorce bill’ and post-Brexit payments to the EU had swallowed up any extra cash.
May confirmed yesterday that taxes will also go up to fund the NHS cash boost, saying: “As a country we will need to contribute a bit more.”
Labour's deputy leader Tom Watson has meanwhile reported the prime minister to the Advertising Standards Authority over her Brexit dividend claims.