WEDNESDAY is Budget Day when we will hear what Chancellor Jeremy Hunt has in store for us. This is actually Hunt’s first official Budget, as his earlier efforts last year were emergency interventions to sort out the Liz Truss economic disaster.

However, as the political name of the game under Rishi Sunak is to be as boring as possible – aka “restoring confidence” – don’t expect too many fiscal fireworks from Hunt this week. Hence the peculiar absence of government leaks that usually precede any Budget offering.

That said, there is a big headline to be noted in advance of the Chancellor getting to his feet. This Budget represents a return to a standard meme in right-wing economics: austerity with a capital A.

Liz Truss and (to a degree) Boris Johnson proposed a wholly different economic strategy. The pro-Brexit wing of the Tory Party was set on junking EU regulations – fiscal and industrial – in favour of reconfiguring the UK as an offshore, low-tax, free-booting investment zone. They had no qualms about borrowing hand-over-fist, the better to cut taxation and give billions in contracts to political friends.

Not that any of this largesse was destined to “trickle down” to the rest of us. Liz and Boris wanted to party, big time.

However, the financial markets took fright. By “markets” I mean the conglomeration of investment banks – Sunak is an ex-investment banker like France’s President Macron – and global fund managers who buy government debt (bonds) on their own behalf or for wealthy clients.

The unfunded borrowing spree unleashed by Johnson and Truss threatened to depress bond values and wreak chaos on the fragile global financial system.

Besides, could the UK actually afford to pay the interest on this new debt mountain? Rattled markets instantly charged the UK humongous interest rates on the new (and old) borrowing, effectively wrecking the public finances and threatening the mother of all recessions. So goodbye Liz and hello Jeremy and Rishi.

The result was a return to old-fashioned austerity of the kind introduced by Tory chancellor George Osborne in 2010. Hunt raised taxes and (with a lag) promised significant spending cuts.

Combined with raging inflation, this indicated the biggest cut in real household incomes since the Great Depression of the 1930s. Fortunately for the Tories, the onset of the Russo-Ukraine War provided a useful scapegoat on which to blame the return of Dickensian brutality.

However, we need to add a wee caveat which has major implications for what Hunt might reveal on Wednesday. Effectively, Hunt’s emergency retreat from the Truss fiscal debacle was too dramatic and cut too deep. He and Sunak were trying to impress their friends in the investment banks – but they overdid it.

As a result, six months on, the UK economic picture is looking less black. Interest rates on public borrowing are well down, the fall in gas prices has reduced government subsidies for consumers, and a rebound in the global economy has boosted Treasury tax income.

All told, Chancellor Hunt is borrowing and spending less than he expected last November while tax receipts are higher than forecast. Which gives him a bit of unexpected wriggle room come Wednesday.

Expect Hunt to use this wriggle room to dress up his Budget. In particular, he is promising more cash for childcare (something of a necessity given the fact that half a million workers have gone AWOL since the pandemic).

Also there will be an extension (of sorts) to helping consumers with their gas bills. And I‘d predict a new (if less generous than present) incentive scheme to boost business investment.

We might even get some remission on rises in fuel and other duties. Doubtless the Tory back benches will cheer loudly when Hunt sits down on Wednesday.

BUT do not be fooled. Any seeming moderation in austerity is a smokescreen. For if you compare taxation, spending and interest rates (especially on your mortgage) since this time last year – not November – then the Big Austerity Squeeze remains almost as tight as before. And looking forward a few years, things are only going to get worse.

For starters, the Bank of England has issued a new medium term forecast for growth in the British economy. This measures “potential supply growth”, or the rate of growth the economy can safely sustain without triggering higher inflation. Higher inflation leads to more poverty, higher interest rates and ultimately an economic downturn.

The Bank of England thinks that UK “potential supply growth” has fallen to below 1 per cent. In other words, if a government tries to accelerate the economy above 1 per cent growth, it hits a brick wall. This low rate is because industry and productivity have so shrivelled that Britain’s economic motor is clapped out. There’s no acceleration left under the bonnet.

Apart from the fact we are all going to stay poor for a long time, this finding has consequences for the Chancellor. Jeremy Hunt has promised the financial markets that he will have public debt falling as a share of national income within five years – this is the technical definition of “austerity”.

But the latest Bank of England forecast shows that achieving this is a dream. Unless Hunt ramps up austerity even higher – higher taxes, lower spending – slow growth will cause government debt to mushroom as a share of the economy. The UK is caught in a doom loop of austerity, where the more Hunt cuts, the more the economy slows – the more the Chancellor has to cut again.

Don’t expect a Labour Government to change this prospect materially. Shadow Chancellor Rachel Reeves (ex-HBOS) has promised to keep “an iron grip” on public finances. If anything, I’d expect a Starmer government to try and out-austerity the Tories. Starmer is no Tony Blair.

He has taken Labour farther to the right than Blair, who essentially was a centrist trying to build an alliance of working-class and middle-class voters. Starmer, on the other hand, is no social democrat but a closet technocrat. The coming 2024 General Election will see two technocratic visions of a future UK fighting it out as to which can deliver the financial markets the “tough love” of yet more austerity.

Doubtless, if Chancellor Hunt finds some extra cash down the side of the Treasury sofa on Wednesday, there will be the usual Barnett consequentials for Holyrood. The Tories will trumpet this. Again, the reality is very different.

The Barnett formula gives the UK nations the same relative rise or fall in public spending as occurs in England. As austerity bites over the coming decade, the Barnett system could turn into a veritable vice, squeezing real public spending in Scotland.

Yes, Holyrood now has some degree of fiscal autonomy but far less than it needs. A Starmer government might be tempted to throw Holyrood greater fiscal autonomy, knowing that Scotland’s lack of full economic control will leave us unable to reverse austerity.

Scotland has a limited time to seize independence before the austerity shutters come down.

Sadly, the depth of the crisis still has to be taken seriously by the three contenders for the SNP leadership. Perhaps Wednesday’s Budget will cause a change of heart.