Sajid Javid has promised the largest increase in public spending in more than 15 years as he outlined a £13.8bn package ahead of a possible general election.

Announcing departmental budgets for next year, the chancellor committed the government to a 4.1% increase in expenditure from 2019-20 to 2020-21, in a bid to draw a line under the era of austerity.

'We are down to the bone': reaction to Sajid Javid's plans Read more

Javid said he was in a position to announce an increase after the annual spending deficit – the difference between government income and expenditure – had fallen to 1.1%, well below the 2% target set by the Treasury. Under his plans, no department will experience real-term cuts in funding next year and the chancellor said this protection “is what I mean by the end of austerity”.

Announcing the spending review in the House of Commons, he said the cost of government borrowing had fallen to historic lows, giving the government further room to increase annual budgets. “We will bring about a decade of renewal. We will build a global Britain where we will walk tall,” he said.

During the statement, Javid was interrupted twice by the Speaker, John Bercow, and ordered to limit his speech to the spending review after the chancellor devoted the early parts of his appearance to attacking Labour’s policy on Brexit.

But Javid quickly came under fire from Labour for exaggerating the impact of spending increases after nine years of budget cuts. The shadow chancellor, John McDonnell, said: “The government seems to be spending the money they said was needed to cope with a no-deal Brexit. This is just another stunt and doesn’t in any way show the government is involved in long-term planning.”

The Institute for Public Policy Research accused the government of using a “mirage of figures” that would fail to reverse austerity. The left-leaning thinktank said: “The public shouldn’t be taken in by today’s spending review. It does not reverse a decade of austerity and chronic underinvestment in our society and economy.”

The tax and spending thinktank the Institute for Fiscal Studies (IFS) said that once health was excluded from the calculation, the extra funds barely reversed a quarter of the cuts to spending departments since 2010.

The IFS director, Paul Johnson, also accused the chancellor of making commitments using out-of-date economic forecasts by the Office for Budget Responsibility, the government’s independent forecaster, that dated back to the spring and which had since worsened.

He said: “By making major spending decisions without having the most up-to-date forecasts for the economy and public finances, the chancellor is taking a gamble. As it stands, there looks to be a very real risk of having to choose between tax increases or missing his current fiscal targets come the budget later this year– even with a smooth departure from the EU.”

Javid said a combination of a £11.7bn increase in inflation-adjusted day-to-day spending and a £1.7bn rise in capital spending would push up public budgets next year by £13.4bn. If some 2019-20 funding to prepare for a no-deal Brexit is included, it shows that the government is planning to increase day-to-day budgets across the two financial years by £13.8bn. The spending increase in percentage terms is the biggest since 2003-04.

Some of the government departments hardest hit by 10 years of austerity will receive a boost next year, including the Ministry of Justice, which will receive a 5% increase, and further education, which was allocated an additional £400m.

An additional £2.2bn for the Ministry of Defence was also outlined, handing the military a 2.6% increase in real terms.

He said the government would set aside £2bn in addition to the £6bn already allocated for preparations related to leaving the EU without a deal. There will be an extra £6.2bn next year for day-to-day spending on the NHS.

Other increases include: an extra £1.8bn for education; a rise of £1.1bn in the annual police budget by 2021-22, including £750m on new police officers next year; and a rise in local government funding of £3.5bn next year, including £1.5bn extra for social care, though councils must fund some of the increase through a 2% council tax rise.

The review comes against a backdrop of a weakening domestic economy and falling exports. Recent surveys have shown that a contraction in GDP of 0.2% in the second quarter could be followed by another in the third. Two consecutive quarters of negative growth mean that the economy is officially in recession.

Briefing journalists after the chancellor’s statement, Treasury officials insisted that the spending round had been carried out within the government’s fiscal limits. “This spending round is delivered in line with our existing fiscal rules, and the existing forecast from the OBR. We said we would do that, and we have delivered that. In the coming months, we will review the fiscal framework, ahead of the budget.”

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An official pointed out that at Philip Hammond’s final budget earlier this year, he set aside “headroom” of £27bn against the rules, and the uplift in spending set out by Javid was £13.8bn.

However, £12bn of student loans must be included in government borrowing from this month, and Hammond made clear that the cushion would be more than used up in the event of a no-deal Brexit – which Boris Johnson insists remains an option – on 31 October.

Hammond said in June that he had “no doubt whatsoever” that all of that money and more would be needed to respond to the immediate impacts of the disruption caused by a no-deal exit. “And that will mean that there is no money available for longer-term either tax cuts or spending increases,” he added.