The UK's parlous financial state is a result of poor tax revenues and low economic growth, according to analysis of the March Budget by Evercore Asset Management.
The asset manager found that the UK's structural deficit was expected to be eliminated by 2015, largely as a result of steady public spending and major increases in tax revenue on the back of strong economic growth.
While public spending is on track, with a slight under-spend in 2012-13, a collapse in tax receipts combined with drastically lower than forecast economic growth is to blame for high public borrowing.
Evercore said that the Office of Budget Responsibility’s forecast in June 2010 of 8.6% cumulative growth between 2012-13 and 2014-15 had been slashed to 3% over the period. Similarly, tax revenues have been much lower than expected with the government now expecting tax revenue in 2014-15 to be £62bn ($94bn) than forecast in June 2010.
Higher income tax rates have lost the government some £7bn a year as a result of very high earners leaving the country. Although Evercore's analysis noted that the Budget was “modestly positive” for the economy, it also said the Budget raised questions about the ability of the banking sector to help finance the UK's recovery, while remaining largely silent on energy costs and energy security issues.