UK Budget Deficit: Alternative Policies

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Introduction

The budget deficit is the amount by which a person, institution, company, or government’s spending or expenditure; exceeds the amount of income or amount earned within a given period. This excess expenditure amount is also referred to as the deficit spending or deficit amount of the given body or entity, and in the case, the amount is positive meaning that the income is more than the expenditure, then the amount is referred to; as the budget surplus or surplus on a budget (Dixit 1991).

The historical background to the ”Budget deficit problem”

The U.K budget deficit fell short of the projected 167 billion pounds in the past budget period’s budget reading. The deficit has been at its highest since the Second World War; where the real root cause of these significant weaknesses in the economy of the U.K is rooted in the great depression that faced the U.K economy. However, up to the period around the late 1990s, the case about government finances had been better; then the amount moved from a surplus amount to a deficit amount of above 2% of the National G.D.P amount realized.

The root causes of the budget deficit problem can to a large extent be attributed to the feeble economy of the time; and the impacts of the increased government channeling of funds into the funding of the social health sector. Some of these areas within the social sector whose increased budgetary expenditure led to the development of the current budgetary problem include the following. The increased spending to the priority areas was channeled to the sectors of education, transport, health, and defense (Corsetti & Roubini 1996).

Another factor forming the background of the U.K deficit problem as experienced today is the weakness of the pound as compared to other currencies. This situation has been made worse by the Bank of England’s inflation, causing financial strategic policies; which has directly led to the situation that the credit and monetary level growth of the currency has remained strong, but in turn, leading to the situation which has fueled the demand for foreign goods with no compensating increase in exportation from the U.K.

The other factor underlying the U.K deficit problem is the fact that; unlike the other countries, the U.K owns a very limited importation net amount of oil as a result of its North sea fields. As a result of the drop in the prices of oil for the past few years; the monetary realization of the U.K has been reducing (Cavanaugh, 1996).

Another factor that has led to the development of the current budget deficit is the fact that for some time in the past; due to the recession situation tax receipts were reduced and as a result, the expenditure on unemployment benefits has been increased. Due to the reduced income as opposed to the increased expenditure; then the case has turned into the present budget deficit. Another factor that has slowed down the process of sustainable economic recovery within the U.K economy; is the highly felt extent of constraints on lending to trade organizations and businesses, due to the careful monitoring of such flows across all the sectors of the economy.

Other factors contributing to the budgetary setback include the reluctance of consumers to spend and invest; due to the associated fears for unemployment and the ending of stimulus measures like the car scrappage plot (Buiter, Corsetti & Roubini 1992).

What alternative policies are available to deal with the said problem, in particular addressing the issue concerned with timing

Some of the alternative policies that are available for the U.K to solve the current budgetary deficit situation include; the employment of fiscal policies as they have a far-reaching effect on the operations of businesses and individuals towards the improvement of the economy.

One of the measures that can be applied towards correcting the problem include scaling down back on the role of the government; where citizens especial those that can vote play a more influential role in carrying out services, as a means to create more funds to cut down on the high deficit and lower taxes, The other measure that can be used in the contribution to the power contained in the ordinary to contain their destiny. According to the proponents of this measure; the argument is that with the owner being able to determine their fate then they will be capable of solving the problems that are causing increased borrowing; even without the need to raise the levels of spending (Bonner & Wiggin 2006).

Other policies that can be applied to correct the current budget deficit problem experienced by the U.K include the employment and application of employment programs, with the pursuit to create employment opportunities for the unemployed. In return, this move will create an income from the labor employed at the different places of work; while on the other hand, the move would create a source of income among these individuals; therefore a source of earning that will form a source of funds to the government’s budget in the form of taxes. Some of the funds that can be recovered from the different employed members of the public in the form of taxes include; value-added as well as income taxes which both form a source of income for the government (Bittle & Johnson 2008).

The other viable means of correcting the budget deficit is through the creation of citizen promotional sources of funds; which will be geared towards creating the availability of opportunities for the citizens to invest in; source of funds in the form of loans and an enhancing tool from the government in the form of information provision. The government in the pursuit to correct the problems in question; can do this through the funding of the productivity of the national resources through the issuing of bonds and gilt-edged consoles. In return investing in these sources of income would lead to the availability of payments to the government in the form of interest either on an indefinite; or on a fixed basis within a specified period (Alberto & Tamim 1996)

Conclusion

Having discussed that a budget deficit is the number of expenses that is more than the earning of the entity in question which can be an individual, a company, or a government; it is clear from the discussion that the levels of expenditure are lower than the levels of income sourcing for U.K. Based on the discussion it should further be noted that some of the root causes of the U.K budget deficit include the over expenditure on the provision of social services; over the income recovered by the state in the form of taxes among other incomes. Some of the measures that can be employed to correct the situation include the use of measures to ensure that the environment is favorable for investing by the citizens; which in the long run will help return funds into the budget.

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