Retiring Baby Boomers risk plunging Britain into crisis
The UK’s Ageing Population Problem
Britain has an increasingly ageing population, with Baby Boomers retiring en masse just as declining birth rates mean there are fewer young people to replace them in the workforce. This threatens to create economic turmoil in the coming decades.
The share of over 65s is set to rise dramatically from 19% now to around 25% by 2040, an “unprecedented degree” of societal ageing, according to a new report from the Centre for Policy Studies (CPS). With such a dramatic demographic shift comes increased government spending on healthcare, pensions and elderly care support. Total expenditure could quadruple from £225 billion today to an eye-watering £950 billion by 2072.
More worryingly, this spending looks set to double as a percentage of GDP to 21% over the period. That means the tax burden will have to increase on a shrinking pool of workers to pay for growing elderly care costs, risking lower growth and living standards.
The UK’s Economic Growth Imperative
To offset the impact of an ageing population, the UK economy would need to achieve herculean growth rates of 2.9% a year for the next half century, according to the CPS. But with the Office for Budget Responsibility forecasting average growth of just 1.4% over the next five years, such transformational growth looks highly ambitious.
“We risk accepting a doom loop of low growth and high elderly care costs,” says Karl Williams, deputy research director at the CPS. “But if we take action in areas like boosting birth rates, productivity and technology, an ageing crisis doesn’t have to be inevitable.”
Policies to Boost Birth Rates
With UK birth rates lagging far below the 2.1 “replacement level”, an obvious solution is to encourage people to have more children. This would grow the tax base and boost economic output.
In parent-friendly France, which has Europe’s highest fertility, families get tax breaks. Similar financial incentives in the UK could make it more affordable for parents, given the high costs of housing, childcare and living faced by young families today.
“The government should focus on lifting barriers around affordability,” argues Phoebe Arslanagić-Little of campaign group Boom. Specific policies could include more affordable childcare, housebuilding, flexible work and NHS IVF treatment.
However, experts warn such natalist policies haven’t reversed birth decline in countries like Finland. “There’s no magic bullet,” says Professor Michael Murphy.
The Limits of Migration
Allowing more working-age migrants into Britain is another oft-touted solution from lobby groups. However, this “Ponzi scheme” only delays the problem as migrants also eventually require elderly care, experts argue.
“What matters is not the size of the workforce but its productivity,” says Williams. Recent decades of high migration have coincided with dismally low productivity growth in the UK.
The Promise of Technology
Raising productivity will therefore be key. One route is through more automation, like industrial robots in manufacturing. On a global scale, the UK currently underutilises such labour-saving technologies.
Deploying more robots could boost industry. Meanwhile “AI software can also take on repetitive tasks to allow humans to focus on higher-value work,” explains Williams.
However, experts studying automation in Japanese elderly care homes found clunky robots often created more work for human staff. More modest innovations like sensor monitors and paperwork automation software may be more useful than humanoid machines.
With Baby Boomers retiring en masse over the next 20 years, Britain will probably need to combine higher birth rates, productivity gains and some increased migration to generate the growth required to avoid an elderly care funding crisis.
The scale of the demographic challenge is daunting but must be tackled now, Williams urges. “I’m hoping the sheer scariness of the numbers will jolt people into action.”