The first, unavoidable task of any Chancellor is to stand before the despatch box and lament the state of the books. We will hear all the familiar notes: the cupboard is bare, the nation’s credit card is maxed out, and tough choices are the only medicine. Rachel Reeves, a woman steeped in Treasury orthodoxy, will play this part to perfection.

We are told she must hunt for “unfunded” liabilities and find new taxes to plug a gaping “black hole.” The entire Westminster discourse is trapped in this narrative, a narrative that frames the state’s finances as identical to that of a prudent household. It is a powerful fiction, and it is one that Ms Reeves seems perfectly content to leverage.

But we should ask what is really happening here. The ritualistic panic over gilt yields and the deficit obscures a more fundamental truth of our monetary system, one that HM Treasury understands operationally even as it denies it rhetorically.

The United Kingdom government is the issuer of the pound sterling. It is, as some economists describe it, the “constitutive architect” of the monetary system, not just another user of it. It cannot run out of the currency it alone creates. When the government spends, it does so by crediting bank accounts. This spending is not, and has never been, operationally dependent on receiving tax revenue first. The state is, for all intents and purposes, self-financing.

The endless question of “how will you pay for it?” is, therefore, the wrong one. The government’s ability to “afford” new hospitals, schools, or green energy infrastructure is not a financial question. It is a question of real resources.

This is where the true purpose of taxation reveals itself. Taxes are not a “funding” mechanism. Their vital economic function is to create demand for the state’s currency and, crucially, to free up real resources from the private sector so they can be provisioned for public use without causing inflation.

If the new government wishes to invest heavily in, say, a national insulation programme, the only real constraint is the availability of building materials, engineers, and construction workers. If these resources are already fully employed building luxury flats, the government’s new spending will simply bid up prices.

This is the code that may explain the Chancellor’s true strategy. Ms Reeves does not need to raise general taxes to “find the money” for her spending plans. She needs to raise those taxes to reduce the private sector’s claim on the very resources the government’s public programmes will require. She is not balancing a spreadsheet; she is managing a real economy.

Now, what could have given rise to this idea of an ulterior motive? Well, while trotting out the well-worn lines, former Labour minister Jonathan Ashworth, now working for Labour Together, accidentally let the cat out of the bag:

What I would say though is if I was still involved in political strategy, … I would be urging the cabinet to make an argument about what this increase in taxation is going to do for the future. In other words, make a traditional social democratic argument. … it needs to be an argument about [how] this increase in taxation is going to fund productive public investment. It’s going to fund, hopefully, an expansion in skills provision in R&D, in health services, both in terms of ensuring we have a healthy population, which is good for productivity, but funding medical science and so on.

This, then, may be the great sleight of hand. The Chancellor will bow to the “tiresome iteration” of the household analogy. She will dutifully “find” the money by raising taxes, satisfying the media and her political opponents that her sums add up.

But by playing this game, she achieves her real, unstated objective: reallocating the nation’s productive capacity (its people, its factories, its raw materials) from private wants towards public purpose. The debate over the “black hole” is a shadow play, distracting from the real and far more significant battle over resources.

Come spring, the Estimates will lay it bare: will the government truly redeploy resources for the productive public good, or have they been fully consumed by the folly of fiscal fiction?

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