The ‘Economic Crisis’.
The economic crisis was primarily caused by de-regulated banking - or the ‘credit crunch’. ‘De-regulated’ means that the banks were allowed to do risky things.
Banks work on the promise of money - or debt. We keep our money in them, and they can use it to lend to other people and businesses for a charge - interest. That’s how they make a profit. The problem with the recent financial collapse happened when people who weren’t really very able to pay back their debts were loaned money by the banks. These were ‘risky’ investments because people often struggled to repay on them and sometimes failed - when this happened some their possessions were taken in payment. This meant steady income became a static asset - usually a house - which they then had to sell.
However because it was hard for these people to borrow, the banks could charge them a lot of interest, and if they paid it back ok, make a much bigger profit.
Banks routinely sell collections of debts and investments, and so these ‘risky’ ones were often sold with a bunch of ‘safer’ investments and debts in packages. Imagine one of those games where there’s a ball under a cup, but they keep swapping them around until you’re not sure where it is - that’s like the banks and the ‘bad debt’.
But eventually it was revealed that far more of these packages were full of ‘bad’ debt than was thought, and nobody wanted to buy them anymore. The financial system froze up (crunched like two cogs with something sticking in them!) because it was full of houses instead of income, and because there were so many houses, the prices they got if they could sell them were rubbish.
In order to get the banks out of this mess, a global ‘bailout’ using tax-payers money had to be agreed to get things moving again. The richest nations got together and each country agreed to contribute. This is why Gordon Brown had to spend so much money while he was prime minister, and why the structural deficit (what the UK owes its own creditors) became such a focus. We need to pay back some of the money we borrowed or it will cost us a lot in interest.
However it is a lie that public spending by Labour was unusually high before this. Just as we borrow money to buy houses, all governments borrow money to invest in their countries. In fact, public spending was higher under the Conservative governments of the 80s than for the majority of the Labour government of the 90s and 2000s - right up until 2008 when there is a big blip caused by the bank bailout borrowing. You can see the figures here, Labour took over from the Conservative party in 1997.
