First of all let me say that this is a hill I’m willing to die on. In fact, when I hit “publish” and Starmer’s thought police inevitably come knocking on my door, I will proudly tell them that I regret none of what I’m about to write.
My goal with this article is to divide my readers into two groups: the ones who love austerity (most of you will fall into this category by the time I’m done brainwashing you) and the ones who never have, and never will, understand the intricacies of primary school maths.
Let’s start with a definition: what is austerity? Austerity is a broad term used to refer to policies that reduce the deficit/debt of a country, either via spending cuts, increased taxation, or both. The objective is to drive the deficit (and ultimately the debt) down, something that can hardly be argued is a bad thing to do, especially in countries that face the challenges of a rapidly ageing population. Quick note for everyone: the deficit is the difference between what the state spends and what the state raises with its unfair, unjustifiable, unethical, tyrannical taxes in a single year. The debt is what the state owes in total, i.e. whatever deficits from previous years have left behind.
Pursuing austerity means, in other words, forcing the state to live within its means: if what you raise in taxes is £100 billion, you shouldn’t be spending £200bn, or £110, or £105. It should be £100bn at most, and less if possible. You see, it really isn’t that hard: if the state doesn’t have the money for something, it has three options:
increase taxation so that more money comes in
cut spending somewhere else, and divert the money to what it wants to do
be honest and say “we won’t do this”.
The fact that “creating debt” is always being used as option four is concerning, and it is how politicians in many countries have had a great political career (we’ll do this! And that! And more!) but left their countries on the brink of collapse. The problem with creating debt is that although this is always done with the excuse that “if we invest in our country, it will make GDP grow and actually reduce the debt! This is good debt!” this is never the case. Ever. Politicians love to think that whatever they do, unlike whatever their predecessors have done, will not increase the debt. Surely they are much smarter than the politicians from the past and they will not repeat the same mistakes: when they create debt, it is good debt. The kind of debt that just goes away on its own, somehow, at some unspecified point. Maybe.
I propose a radical solution to the problem of the never-ending piling up of hilariously self-proclaimed “good” debt: austerity. This doesn’t mean that the state shouldn’t make any big investments: it simply means that in order to do them, it should FIND THE MONEY for them. It really is simple: do you want to hand out money to public employees? Hand out higher salaries to NHS doctors? Invest in a big, stupidly useless infrastructure project? Sure, you can do that, just raise taxes. Raise taxes, and see how voters react. See if voters are still in favour of your vanity projects and electoral handouts after 70% of their paycheck goes to HMRC. Be my guest, by all means.
Unfortunately, it’s been far too easy for politicians to hide the true cost of their decisions by creating debt – effectively delaying having to pay for their mistakes to an unspecified date. The other consequence is, of course, that repaying debt will eventually come with interest, and the total cost of anything will dwarf the initial cost had it been paid upfront (or over a limited, calculated, number of years). As of FY2025/25, the UK is projected to spend £104.9 billion on interest payments alone: that is 8% of the total spending for the year, and 3.7% of GDP. This is before Rachel Reeves this week announces her new (newer than the ones in Autumn 2024, and newer than the ones in March 2025) spending plan. May God be with us all.
There is one European country that has successfully avoided much of the debt-building policies we’ve seen in the West in the past 30 years: Germany. Germans were smarter than everyone else smart enough to create a constitutional debt brake, essentially a mechanism that prohibits governments from creating non-minimal amounts of deficit. This legally binds governments of all colours to pretty much stick to austerity: if a government wants to spend more, it has to raise tax. The only way to create more deficit is to get two thirds of parliament to agree to suspend the debt brake for the fiscal year, something that has been done in exceptional circumstances (like the Covid pandemic).
Unfortunately for austerity fans like me, Germany too has recently succumbed to populism and has amended its debt brake, making it less stringent than before in order to invest more in defence and climate-related projects. This is a mistake (like I said in the beginning, I will die on this hill), but it won’t be a problem anytime soon due to Germany’s exceptional reputation as a reliable debtor – a reputation that was obviously helped by how quickly the debt brake has made Germany’s debt fall over the years.
So when is all of the debt the West has created going to collapse? Well, Rachel Reeves has already tried to trigger this collapse twice in the past year, but with a bit of luck and some Bidenomics her third attempt on Wednesday might just be what the markets need to melt down once and for all: the dollar has been unusually volatile, US treasuries are losing their lustre thanks to Musk having a ketamine-induced moment of clarity the president trying even harder than Rachel to blow up the debt market, and Japan’s prime minister has said that their 235% “good debt”-to-GDP ratio is “worse than Greece” (it is).
