The turmoil in the Tory party triggered by the fall of Theresa May will slam the brakes on her pledge to end austerity, a senior Treasury minister has admitted.

A three-year review of public spending promised for this autumn – the mechanism to end a near-decade of cuts – is now “unlikely to happen” on schedule, Liz Truss said.

Blaming the “goings-on within the Conservative Party”, she said big decisions on spending would be taken by the new prime minister, postponing the launch of the review planned for July.

“I would suggest that is unlikely to happen given the current timetable for the Conservative leadership election,” the chief secretary to the Treasury told a committee of peers.

Instead, government departments would be given a year-long extension to their existing day-to-day spending plans.

John McDonnell, Labour’s shadow chancellor, seized on the admission, saying: “This is a government in absolute paralysis. Yet again, the Tories’ promise to end austerity has come to nothing. This is no way to run a country.”

The promise to end austerity came at last October’s Conservative Party conference, when Ms May told her party it would come “at the spending review next year”.

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“A decade after the financial crash, people need to know that the austerity it led to is over,” she pledged.

The Treasury was expected to set out the overall spending envelope for the three years from April 2020, with allocations for individual departments known this autumn.

Responding to Ms Truss’s comments, Dawn Jackson, head of grants at poverty charity Turn2us, said: “The link between austerity and poverty is undeniable.

“Over the last decade we have seen poverty rise, along with food bank use and homelessness – it is no coincidence. The fact that we even see food banks as a normal part of society now is beyond shameful.

“Cut after cut after cut has decimated the support structures in our communities. Schemes like Sure Start centres were a lifeline for many families, but the ones that have survived can no longer afford to provide even a threadbare service.”

Ms Truss also cast fresh doubt on the huge HS2 high-speed rail project from London to Birmingham and beyond, which Tory leadership candidates are under pressure to axe.

“The final go or no go decision on HS2 will be due by the end of this calendar year,” she warned, making clear her preference for boosting cross-city transport rather than travel between cities.

Philip Hammond, the chancellor, pledged the spending review would be the moment the government would end austerity in the public sector when he delivered last autumn’s Budget.

Although spending is rising rise by 1.2 per cent from this current financial year, he acknowledged the extra £20bn for the NHS was gobbling up all the extra cash.

All other departments will only “keep pace with inflation” at best, while spending on the police, the courts and benefits is still falling until 2020, the Budget book showed.