Yesterday, I argued that U.S. fiscal policy is heading in the wrong direction, toward the economics of austerity. If you want to know where this path can lead, look across the Atlantic to poor old Blighty. For almost three years now, since the election of a Conservative-Liberal coalition, the British government has been slashing government programs and raising taxes, supposedly to reduce a big budget deficit. As I’ve written previously, the results have been pretty disastrous—both for ordinary Britons and for the public finances.

Just how disastrous was made clear yesterday by a new report from the Institute of Fiscal Studies, a London-based think tank that is widely regarded as independent and nonpartisan. In the “Green Budget,” its lengthy and detailed annual review of the U.K.’s finances, the I.F.S. pointed out that the budget deficit, far from being eliminated, was still so large that next year the Chancellor, George Osborne, will have to borrow about sixty-five billion pounds more than he had anticipated. (That’s about four per cent of the U.K.’s G.D.P.) Indeed, the hole in the public finances is so big, the I.F.S. said, that the government might well be forced to introduce a series of tax hikes following the next general election, which is expected to take place in 2015.

Even some commentators who have supported the austerity program appear dejected. “This is a truly desperate state of affairs that demands swift and decisive action,” the Daily Telegraph’s Jeremy Warner wrote in his column following the release of the report. And he went on: “We seem to have the worst of all possible worlds, with nil growth, some very obvious cuts in the quantity and quality of public services, but pretty much zero progress in getting on top of the country’s debts.”

That’s a pretty accurate synopsis. When Osborne and his boss, David Cameron, took over in May, 2010, and committed to an unprecedented program of austerity measures, the economy was slowly recovering from the Great Recession. By the final quarter of 2011, it had fallen back into a recession, from which it has yet to emerge. In the third quarter of last year, the London Olympics gave the economy a temporary boost, but in the fourth quarter G.D.P. fell again, at an annualized rate of more than one per cent. Whether this should be categorized as a “double dip” or a “triple dip” is a matter for debate, but the fact remains that Osborne promised growth and instead delivered a lengthy slump.

In one thing, the Chancellor has succeeded: he has delivered cuts to programs. By the fiscal year 2014, he will have slashed more than ten per cent from overall spending by U.K. government departments, according to the I.F.S. While some departments—including the National Health Service, overseas aid, and part of the education budget—are protected from the economic measure, others have seen savage budget reductions. But this hasn’t led to the improvement in the government finances that Osborne and his supporters predicted. As a result of the renewed slump, tax revenues are lower than expected and spending on benefits for the unemployed has risen. Overall government spending has continued to rise; the budget deficit has remained stubbornly high. And that’s why Osborne still will need to borrow so much money.

In short, the U.K. experience shows how austerity policies, when applied without regard to the state of the economy, often lead to more government borrowing and debt creation, not less. In the past few years, we’ve seen pretty much the same thing happen in other European countries: Greece, Ireland, Portugal, and now Italy and Spain. Still, though, many proponents of austerity refuse to acknowledge their errors.

Osborne is one of them, which is only to be expected: he’s an unpopular politician, with his career on the line. It might be hoped that international organizations tasked with purveying economic wisdom, such as the International Monetary Fund and the Organization for Economic Coöperation and Development, would be more open to reappraising their views. Not so, apparently. The I.M.F. remains staunchly behind Osborne’s policies, and, in a statement released yesterday, the O.E.C.D. said the U.K.’s “fiscal stance remains appropriate.”

However, there are some signs of glasnost—or weaselling, anyway—on the part of the austerity hawks. “If growth significantly underperforms expectations over the coming months,” the statement from the O.E.C.D. continued, “the flexibility of the fiscal framework should be utilised.” That appears to be code for refraining from further cuts in spending (especially on unemployment benefits and other so-called automatic stabilizers), borrowing more money in the bond market, and allowing the deficit to balloon further. A shorter way to put it: when you are in a hole, stop digging.

Photograph: AP