The first task of the coalition Government was to make it clear to the markets that the UK is nowhere near the danger of sovereign default. There must be no grouping together of the so-called PIIGS and the UK. If this were to happen then gilt yields would rise sharply, thereby increasing the cost of servicing the debt, depressing other asset prices and damaging confidence. So far, so good. Gilt yields have remained very low. And I reckon this success will endure.

But Brown's Keynesian approach was not wholly wrong. It is just that there are limits - and we have passed them. There are also dangers, however, in hairshirtism. There is a tendency for some members of the Government, and some hawks outside, to argue that a fiscal hairshirt will itself help the recovery as the private sector ineluctably glides in to take up the resources released by the retreat of the public sector.

Yet where is the demand to come from to enable this to happen? It won't. This part of the Keynesian analysis is spot on. Admittedly, if the budget can boost confidence, there is more chance that the economy can withstand the demand-squeezing effects of the fiscal tightening. The more the Chancellor can do to boost the hope for a future of low and simple taxes the better. Nevertheless, there is a real danger that a sharp fiscal crunch could derail the recovery.

Accordingly, the Chancellor's task is to convince the markets that the structural deficit will be substantially eliminated by the end of this parliament, but not to slash and burn this year. The way to do this is to announce measures which will take effect later but which do not bite heavily this year.