The challenges we now face are deeply routed in a series of events. From the sub-prime loan, recession through to the deficit.

2008: It all started with the sub-prime loan

The current economic crisis began in 2008 with the collapse of ‘sub prime’ lending which resulted in a global ‘credit crunch’. Get the low down on how it all began with this simple explanation:

2009: Then the UK economy went into recession

The credit crunch led to a dip in the growth of the UK’s GDP – or Gross Domestic Product – as banks were not keen on giving loans to people and businesses struggled to grow and so they produced less. As fewer products were being made, fewer were being sold and bought – and so people were losing their jobs.  As people lost their jobs, they had less money to spend, and so the amount of money moving around the economy started to decrease.

This also meant that the Government was receiving less money from tax on the things that people were buying – and so they had less money to spend. All this combined led to the most severe recession the UK had experienced since the 1930s.

Here’s clip explaining a recession:

2010: The deficit grew
In order to get things going again, the Government invested billions of pounds to encourage people to produce more and buy more. So the Government was raising less money than it needed to spend, which meant that it was getting in to more and more debt itself. This is called the ‘deficit’.

In order to raise more money, the Government borrowed money from private investors by selling ‘gilts’. A gilt is an amount of money that an investor lends to the Government, and that the Government promises to pay back with a fixed rate of interest. In the 2010 the Government paid its lenders over £44 billion in interest alone – this is approximately £4 billion more than the amount that the country spends on its defence.

In May 2010 a new Coalition Government was elected with David Cameron as Prime Minister. Shortly afterwards the newly elected Chancellor George Osborne set out his plans for tackling the deficit:

2011: Tough choices

The global financial crisis has lead to governments having to be more cautious with their finances; borrowing money to fund public spending is no longer a safe option. Instead governments are looking for innovative ways to raise money through taxes and save money through decreasing public spending.

2012: You decide

Here is your chance to make those decisions. Who will you tax – the Banks? The consumer? Where will you choose to spend – on investment or reducing the deficit? You decide!

Enter now for Chance to be Chancellor 2012.