Last week a Times headline proclaimed that “Austerity is Over” in the UK. It may have been an exaggeration, but the headline captured the spirit of the time.

Labour’s anti-austerity rhetoric played well with voters during the election campaign. The Conservatives, who ran their 2010 and 2015 election campaigns on the need to reduce public debt, have gone quiet on austerity. As Torsten Bell at the Resolution Foundation notes, the deficit got a mere three mentions in the 2017 Conservative manifesto, down from 17 in 2015.

The hard grind of austerity started in 2010 and most of the progress in cutting public borrowing has come from squeezing public spending. It is a sign of how tough this process has been that after seven years of austerity the UK is borrowing more each year, as a share of GDP, than any EU nation, including Greece, Italy or Portugal. So far austerity in the UK has been about slowing the rate of growth of government debt, not reducing debt levels.

The task of deficit reduction has been made harder by sub-par growth and stagnating incomes. Average pay is still below where it was in 2008. Those on low pay have suffered the twin effects of weak earnings growth and a reduction in the real value of most state benefits. A one percent cap on pay rises in the public sector has left earnings for over five million public sector workers lagging behind inflation.

Labour’s solution is to raise public spending funded through £50 billion of tax rises and a slower pace of deficit reduction.

Borrowing has clear attractions. It avoids the political pain of tax rises. Borrowing costs are low, with markets willing to lend to the UK government for ten years at an annual interest rate of 1.0%. Nor is there any clear or fixed constraint on public borrowing. Relative to GDP, Japanese government debt is 50% higher than UK debt levels but Japan’s borrowing costs are less than a tenth UK levels.

For all this public borrowing is not risk-free.

The ultimate constraint on debt-financed spending is the willingness of the markets to lend; a limit that was reached in the case of Greece in 2010 when it was forced to turn to the International Monetary Fund for loans. Before this constraint is reached a government faces growing pressure from higher borrowing costs. Today interest rates on Greek or Portuguese government debt are many times higher those for German or Dutch government debt.

The euro crisis demonstrates that markets swiftly change their minds about the creditworthiness of governments.

In an ideal world governments would build up buffers in the good times to provide the scope to borrow in the event of recession or national crisis.

Levels of government debt fluctuate, with wars and recessions being the big upward drivers. The ratio of UK government debt to GDP spiked during the Napoleonic war and the First and Second World Wars. After each major spike it took decades of peace and growth to reduce debt. Today we are seeing a fourth, lower spike. At 88% the UK’s debt ratio is at the highest level in half a century. The financial crisis has led to a near tripling in the UK’s public indebtedness.

Periods when GDP growth is running at, or above, trend levels, and the economy is close to full employment, are the obvious time to reduce levels of government debt. Today, with the UK into its eighth year of recovery, and unemployment at a 40 year low, prudence would suggest that the UK should be moving towards a budget surplus and repaying debt.

The fact that the UK is borrowing the equivalent of over 2.0% of GDP each year at this stage in the economic cycle illustrates a wider point. The perception that the government is unyielding in its pursuit of austerity is wide of the mark. The target for deficit reduction under the previous Chancellor, George Osborne, slipped significantly between 2010 and 2016. In the short time Mrs May has been Prime Minister the UK has seen a further easing of the pace of deficit reduction and austerity.

Almost unnoticed, the Chancellor, Phillip Hammond, has watered down his predecessor’s targets for the deficit and has created headroom for increased public spending. The Chancellor could meet his new target for deficit reduction and announce high profile increases in public spending, matching Labour pledges on social security, health, schools and public sector pay.

So there is scope for the government to spending materially more consistent with its commitment to reduce the deficit – albeit on a slower timetable than planned by Mr Osborne. And while, during the election campaign, Labour talked of ending cuts and austerity, in practice its policies would still allow for a gradual reduction in the budget deficit.

Separate from the debate about spending on government services, pay and welfare benefits, it is not hard to make the case for debt-financed public investment. Between the late 1940s and the early 1980s UK government spending on infrastructure averaged about 5.0% of GDP a year. Since then it has averaged around 1.5%, a change which has left the UK languishing in international league tables of infrastructure provision. Borrowing at current, low interest rates to fund infrastructure which contributes to future growth has obvious attractions.

It seems highly unlikely that any government will give up on the idea of reducing the level of the deficit from current levels. In this respect austerity has further to run. It would be unwise to ignore potential constraints on public borrowing, even though those constraints are not binding today.

Of course the UK could finance a large increase in the size of the state from taxation. Much of Continental Europe follows this higher tax, higher public spending model. Labour’s pledge to raise taxes on corporates and higher earners in the election seemed to resonate with the public.

Yet is hard to see how the UK could finance a large increase in public spending solely through taxing business and “the rich”. If we want a materially bigger state we will all need to contribute. The public may be suffering austerity-fatigue. The real question is whether they are prepared to pay higher taxes to end austerity.

Ian Stewart is  Deloitte’s Chief Economist in the UK. The full version of his Monday Briefing can be subscribed to here.