In 2009, as the UK’s budget deficit surged in the wake of the financial crisis, the Conservatives prescribed a simple remedy: austerity. Only by slashing public spending, it was said, could Britain hope to avoid a Greek-style debt emergency.

A decade later, the social cost of this project is clear. Rough sleeping in England has increased by 165 per cent since 2010; life expectancy in the UK has stalled for the first time in more than 100 years; and the number of people in poverty in working families has reached a record high. Average real wages only returned to their 2008 peak at the end of 2019 – a lost decade for living standards.

Though annual government borrowing was reduced from a peak of £158.3bn (10.2 per cent of GDP) in 2009-10 to £38.4bn (1.8 per cent) in 2018-19, the economic shock triggered by coronavirus means it will now surge once more. The Office for Budget Responsibility has projected a deficit of £273bn (14 per cent) – the largest since the Second World War – should the lockdown last for three months. The national debt, meanwhile, is forecast to surpass 100 per cent of GDP.

The UK, which enjoys ultra-low borrowing costs and retains its own currency and lender of last resort (the Bank of England), can afford to increase public spending without fear of a new financial crisis. But according to the Conservatives’ past logic, austerity must eventually follow.

Though the Chancellor, Rishi Sunak, has avoided any explicit mention of future cuts, he has warned that taxpayers’ money will “need to be paid back at some point” and has spoken of “chipping in together to right the ship”. Is this a guarantee of future austerity and, if so, what are the alternatives? Sunak does indeed appear to be preparing the ground for austerity, but his project may not mirror George Osborne’s.

Osborne’s programme depended heavily on spending cuts (though some taxes, such as VAT, were also increased). Sunak could place a greater emphasis on tax rises to generate revenue. Corporation tax in the UK was 28 per cent in 2010 but has since undergone a series of cuts that the Institute of Fiscal Studies has said cost the UK at least £16.5bn a year. It is now, at 19 per cent, the lowest rate in the G20. New or revised property and land taxes could further raise revenue — council tax bands, for example, have not been revised since 1991. The top rate of income tax could be raised from 45p, a measure that has precedent in times of crisis — both the UK and the US had top rates of over 90 per cent during the Second World War. Most of the £21.2bn a year the government foregoes through pension tax relief is claimed by people earning more than £50,000 a year.

There are some signs of an appetite for more taxation: the Chancellor has already warned that the self-employed could be forced to pay higher National Insurance rates in return for state support.

However, while services such as the NHS (“the closest thing the English have to a religion”, in the words of Nigel Lawson) will be protected, it would be unsurprising if Sunak chose to impose a less generous spending settlement on other departments.

In view of recent debates, it would be easy to assume that austerity is the only means by which to reduce the national debt. But previous governments also depended heavily on growth (to maximise tax revenue) and inflation (to reduce the cost of servicing debt). After the Second World War, the national debt stood at 250 per cent of GDP, but it was steadily eroded through a “golden age” of growth, falling to 45 per cent by 1973. However, while measures such as higher infrastructure investment could maximise growth, the rapid breakdown of the environment, growing trade protectionism and the threat of future pandemics mean the UK would be reckless to bank on a new era of prosperity.

For these reasons, more radical and novel solutions are being debated. One option is for the UK to exploit the ultimate magic money tree: the Bank of England. The central bank has already taken the emergency step of creating (or “printing”) new money in order to directly finance government spending. (Though the UK state is still able to borrow from the bond market at ultra-low rates.)

Having broken this taboo for the first time since 2008, the Treasury has emphasised that measure is “temporary and short-term”. Economists have long warned that such intervention threatens central bank independence and risks hyperinflation.

But the possibility of the Bank funding government spending for a sustained period – the dream of Modern Monetary Theory advocates – is no longer fantastical. In an era of stagnation, most economists view inflation as a distant fear. And quantitative easing, under which the Bank of England creates new money to buy government bonds, has already compromised the bank’s independence since 2009.

Such was the harm inflicted by austerity in the post-2008 era that even the IMF, a traditional bastion of free-market thought, warned that spending cuts do more harm than good. On the day he announced £350bn of combined support for the economy, Sunak declared: “This is not a time for ideology and orthodoxy.” The Chancellor will need to honour that commitment if he is to avoid repeating the errors of his predecessors.