Trussonomics is dead and deficit reduction is back. That was Jeremy Hunt’s message to bond markets. The government’s volte-face on most mini-budget measures will now raise taxes by over 1 per cent of GDP alone. The risky, expensive household energy price guarantee subsidies are now assured for only six months. When it comes to further spending cuts, the chancellor is keen not to box himself in by ruling anything else out. He even implied he wanted to hit Rishi Sunak’s target to fully balance non-investment spending with tax revenues.

How serious is he about that goal? His new Economic Advisory Council includes Rupert Harrison, an adviser to George Osborne and an architect of the “austerity” of the 2010s. Tory MPs who loved Boris Johnson’s big spending are bereft. Their ambitions for industrial policy and regional rebalancing are neutered with austere budgeting, which is why they claim the market blow-up was a reaction to “ideological”, “unfunded” tax cuts. Hunt knows that with high inflation and interest rates rising, too much red ink was the problem. That applies to “unfunded” spending, too.

His U‑turn on taxes has lowered borrowing costs already. That doesn’t mean it’s painless. The International Monetary Fund’s pre-mini-budget forecasts show Britain was already reducing budget deficits more quickly than the eurozone, the United States and Japan. Austerity, the book written by Alberto Alesina, the economist, shows private sector austerity — that is, tax hikes — to be worse for GDP and jobs than government spending cuts. Growth, in other words, has already been deprioritised.

Raising corporation tax from 19 per cent to 25 per cent is an error, diminishing the incentive for foreign direct investment and raising the cost of capital for business. Yet it became inevitable. Markets demanded swift rectification on borrowing and Tory MPs opposed cutting real-terms welfare benefits, suspending the triple lock and more to keep corporation tax low. Without offsetting cuts, maintaining it became unsustainable. So now recent market turmoil has ushered in Austerity 2.0. Balancing day-to-day books need be no barrier to prosperity (see Switzerland), but the pain of getting there must be minimised. The slow growth accompanying Osborne’s “austerity” provides lessons for how.

First, the composition of deficit reduction matters. Investment spending cuts or yet more incentive-destructive tax rises are worse for long-run growth than cutting programme spending. “Bang for the buck” should be prioritised. The 2010 spending review cancelled, deferred or placed under review road projects with economic benefit cost ratios averaging 3.2, 4.2 and 6.8, respectively. It gave a green light to HS2 and public transport schemes with estimated benefit cost ratios of 1.2 and 1.8. These choices amounted to economic self-harm.

Second, simply squeezing efficiencies via tough departmental budget settlements is not sustainable. It’s better to eliminate low-value programmes to fully insulate core services, rather than salami-slice unprotected budgets, hope service quality holds and then get forced into increasing spending again later.

Finally, and ironically, a new era of deficit reduction makes Truss’s supply-side growth measures imperative. Living standards would be higher in a world of people living where they are more productive, accessing flexible and affordable childcare and paying less for housing, energy and infrastructure.

Osborne prioritised fiscal prudence over economic growth. He avoided financial calamity, but productivity stagnated. MPs could help to square the circle by removing barriers to housebuilding, energy exploration and infrastructure projects, alongside tax reform to promote work and investment. Whether today’s prime minister could navigate this through parliament is another matter.