The April Budget signalled substantial fiscal tightening starting from next year, with cyclically-adjusted public sector net borrowing projected to fall from a peak of 9.8% of GDP in 2009-10 to 4.5% by 2013-14. The current political debate is less about the scale of adjustment required than how it will be achieved.

It is widely assumed that a deficit cut of this size will act as a major growth depressant. Comparable tightening in the mid 1990s, however, was associated with robust economic expansion. Cyclically-adjusted net borrowing fell from 5.4% of GDP in 1993-94 to 0.6% four years later, a decline only slightly smaller than the 5.3 percentage point projected reduction between 2009-10 and 2013-14. Yet GDP growth averaged 3.2% a year between 1994 and 1998 – see chart.

The lesson of the 1990s is that major fiscal tightening need not derail economic expansion providing it can be phased over several years. The risk is that markets will deny policy-makers the luxury of a slow pace of adjustment – a gilt-buyers' strike could push yields sharply higher and force action to be accelerated, with larger negative economic consequences.

Such a scenario could develop but there is currently little sign of any funding constraint. The bond market vigilantes were run out of town years ago, to be replaced by pension fund actuaries and compliant central bankers.