IT'S been only 24 hours since Rachel Reeves announced she had to make some “incredibly hard choices” as she withdrew investment from English public infrastructure and removed the winter heating allowance from millions of pensioners.

As you would expect, every political and economic commentator has given you their thoughts. Richard Murphy, as usual, summed up things wonderfully, suggesting that rephrasing a famous Keynes quote (he said "anything we can do we can afford") was the least of Reeves’s economic crimes.

The "darling" of many a Scottish and UK politician, Paul Johnson, director of the “independent” IFS, wrote on Twitter/X: “Getting rid of Winter Fuel Payment. That is a saving of £1.5bn. A sensible choice”. Maybe the SNP will now think twice about framing the IFS, a deeply orthodox think tank, as the authoritative economic voice?

With all that already behind us, I wondered how we could address the unfolding return to austerity without rehashing what others have said. I decided to zoom out on this first step back on the austerity treadmill.

Most people think that the austerity project started in the UK and across Europe as a response to the 2008 bank bailouts. If you are one of those, you are a little bit off—by around 85 years.

American economist Clara Mattei spent tireless months trawling the archives of the Bank of England and the Bank of Italy to unearth the birth of austerity as a political reaction to the alternative economic models that blossomed across Italy and the UK after the end of the First World War.

Following the horror of the war, the British and Italian governments promised to build more new homes, introduce universal education, and support worker involvement and ownership of production. Austerity was created to take back control. As Clara writes, austerity “is capitalism's protector’.

And who leads the charge? Economists like Rachel Reeves.

(Image: Sarah Caldecott)

Hiding behind “objective economic science,” our Chancellor and the Government she serves can frame deeply political decisions as some kind of economic fact. There is a hole to fill, so we have to cut our cloth/spend within our means/make difficult decisions, etc, as if this is the only option. However, this is a complete fabrication of our economic reality.

Austerity was, and still is, medicine only for the poorest in society. At no point in its 100-year history has austerity meant we were all in it together. In her book, The Capital Order, which I highly recommend, Clara explains that austerity takes three forms: Fiscal, industrial, and monetary. Each reinforces the other to reduce the consumption and power of workers while re-establishing the wealth and power of the wealthiest in society. And we see this unveiled by our new Chancellor.

A reduction in welfare (fiscal), cancelling infrastructure projects (industrial) and maintaining high interest rates (monetary). A playbook that is more than a century old.

This time, it plays out under the guise of "fiscal rules". The UK’s totally unscientific and totally arbitrary fiscal rules say that government debt should fall as a percentage of GDP in the final year of a five-year forecast, and the annual budget deficit should not be more than 3% of GDP over the same time period. There is also a particular nefarious welfare cap, which almost guarantees that is where the axe falls first.

These are the rules of the game, and they completely alter the way you manage the economy. They are also only supported by one bunch of economists. They are dismissed by many economic schools of thought.

If you understand the impact of the rules – most commentators and politicians don’t – you are almost guaranteed austerity unless the UK experiences significant above-trend real economic growth, which is not going to happen, as we detailed here, or the UK miraculously turns into a trading powerhouse. So, it's far from a caveat.

Austerity is assured because the Government is trying to create a surplus or at least a balanced budget: This is the point of the rules. Let me say it as clearly as I can: Fiscal rules = austerity.

If you support fiscal rules that lead to a government surplus or a balanced budget over a five-year period, you support austerity. Our representatives will have a hard time acknowledging this, especially those calling out “austerity” while supporting fiscal rules. Here’s looking at you, Scottish Government!

The Building a New Scotland: A Stronger Economy with Independence paper includes this line: “We would set out clear fiscal rules”. This means austerity in exactly the same way as we will experience under Labour or the Tories as part of the UK.

All the comments by Scottish politicians around austerity fail to notice this economic fact. I hesitated to use this phrase, but this is an accounting identity: Foreign Balance Private Sector Balance Public Sector = 0. So if one goes up, the others must fall. Here is the UK’s sectoral balances. The Government deficit allows the foreign and private sectors to run a surplus.

(Image: Scotonomics)

When you understand that a government deficit creates a private-sector surplus, you can not fail to notice that a fall in government spending equals a fall in the private sector's assets. High interest rates protect the assets of the already wealthy, so the axe falls on the rest of us.

I have tried to depoliticise Rachel Reeves’s comments in a way that I think is useful. Labour, Tory and the SNP support fiscal rules. We can argue about the stupidity of saying “read my lips” or who said what and when. The main takeaway is that we aren’t discussing surely the most important point. How all fiscal rules lead to austerity.

Fiscal rules = Austerity. The terminology may be different, but the end goal is the same. Clara Mattei wrote: “Call it the austerity effect: The inevitable public suffering ... in the name of economic solvency and private industry.”