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How will UK prosperity affect the UK budget deficit?

In the excitement of today's news that UK economic growth in the final quarter of 2009 was better than expected, it is easy to forget that the UK budget deficit for this current tax year will be in excess of £170 billion. When you also consider that the UK national debt now stands at over £1 trillion and consumer debt is in excess of £1.5 trillion it is obvious that there is still much work to be done with regards to UK finances. So how will UK prosperity affect the UK budget deficit?

Once the improvement in the UK economy touches all areas of consumer and business finance we will see an increase in tax income for the government, a reduction in benefits payments and ultimately the UK budget deficit will start to fall, albeit fairly slowly initially. It will take more time for the UK national debt to be paid off as the government will need to push through tax rises to bring in the additional income required over and above UK budget requirements.

Many experts believe it could take decades to get the UK national finances back on an even keel although the UK budget deficit will obviously be reduced significantly in a shorter time frame. But those who believe that a return to economic growth in the UK will immediately lead to an improvement in national finances should think again.

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