1.  The term of “Budget deficit” is best normally used to discuss to government spending sooner than business or single spending. When mentioning to increase state government deficits, the term used is “natural debt”.

Budget surplus is the opposite of a budget deficit, and when entries equal outflows, the budget is said to be stable.

Important terms that related to UK budget deficit are;

• Cyclical budget deficit – A cyclical budget deficit takings to account variations in tax spending and revenue due to the cycle of economic, for example, in a weakening, tax revenue drop spending on the increases of unemployment benefits.
• Structural deficit – This is the equal of the deficit even when the economy as at complete employment.
• Primary Budget Balance – A primary budget balance means we remove interest expense on debt. (Primary budget deficits of EU) for example, if the budget deficit is £119 bn, but we spend £42 bn on interest payment, the primary budget deficit will be £77 bn.
• Current Budget – The current budget is a rapid of net cash flows at that specific time.
• Net borrowing – Net borrowing contains net investment and is measured to be the main deficit number.
• PSNB – Stands for Public sector net borrowing – another amount of annual borrowing. (ONS)
• PSNCR – Stands for Public sector net cash requirement – another amount of annual government borrowing (0NS)

2. Historical background of the budget deficit problem:–

During the time period of the years 2007 to 2009 was very important for the United Kingdome the main reasons are followed for the financial crisis in UK.

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UK housing boom:-

In UK the values of the real esate part was continuously rising. Besides that, the loaning terms and conditions were very large and also the rate of interest on mortgages was low. So mostly people use that mortgages for savings in real estate sector. Financial institutions were began to offer sub-prime mortages. Sub-prime means to offer money to unable borrowers. The results of this building industry was also in boom and they were modifing and exponding their workers and machinery. They also took away the loans for changes. All of sudden the real astate sector distorted the financial institutions came in difficulty.

UK banks crisis:-

The banks lended and give extra amount that had. Only the HSBC bank presented fewer loans. When the credits disaster rises, all banks were successively out of liquid reserves. No one of them are ready to helping each other bacause they did not have trust when they are all were facing problem.

Decrease in foreign trade:

Each and Every country is doing foreign employment by importing and exporting goods and services. The country exports only theseds and services which they can create easily by using starts resources. The service sector is having more effect on foreign trade for UK. UK is having more influnce on foreign trade by calling service sector.

UK is calling service center of world. The service industry of UK includes insurance and banking. So there is hesitation in it that the credit disaster happened in US directly affected to the foreign trade of UK. On the other hand, the imports of UK remain same because most of UK imports include basic necessities, automobile etc. As a results of this account of current showed deficit or there was also a loud decrease in it.

3. Discuss in detail what alternative policies there are to deal with the said problem, in particular addressing the issue concerned with timing

– The major changes in the bank reform

Banks in the UK need to raise their capital to £25 billion. However, most of the banks are suffering from the credit crunch. They will need to ask these funds from the UK government.