In the simplest terms, austerity is when a government cuts back on spending to try and reduce a budget deficit.
In practice, the term is most frequently used when the government reduces spending, or raises taxes, during a period of recession or weak economic growth.
Other things that might be considered “austerity policies” include government spending which is not increasing as expected, or the re-assignment of funds away from investments (for instance, if funds are re-allocated to pay benefits, rather than being invested in the public sector).
Some definitions are more complicated still. In Keynesian economics, which many commentators still support, “austerity” could mean policies which fail to close a gap between a country’s possible GDP and the one it actually achieves (a “negative output gap”). This can happen when the private sector – the part of the economy run by companies and individuals, rather than the state – is doing poorly. This is the situation the UK has been in since 2008/9.