A conference on changing demographics I attended last week tackled the fact that, while we are living longer – a great product of medical innovation – many of us will also experience extended periods later in life with physical and mental decline, so requiring more health and social care than in the past. Yet falling birthrates mean there will be fewer working-age taxpayers, raising the question of how we foot the bill.
As I listened, the Institute for Fiscal Studies’ description of this general election campaign being “a conspiracy of silence” came to mind. Neither the Conservatives nor the Labour party are confronting voters with the tough fiscal choices facing the country. Further cuts on already underfunded public services are baked into spending plans accepted by both parties. To avoid them, either taxes or the national debt would have to rise in a context of high interest rates, unless the economy somehow starts booming. And so the election has inevitably ended up feeling a bit like a phoney war. Difficult decisions inevitably await a new government on 5 July, but we are none the wiser on exactly how they will play out.
While I’ve always had a vague sense that declining populations and ageing societies will mean that governments will face an unenviable fiscal crunch in a few decades, there’s nothing like talking about it for three days straight at a Ditchley Foundation conference to put contemporary political aversion to talking about trade-offs in context. And what awaits us could make today’s financial headaches seem barely perceptible in comparison.
Global birthrates are declining: women on average had 4.7 children each in 1950; by 2100 this is projected to fall to 1.7. This trend is particularly pronounced in wealthier nations: 23 countries, including Japan, Spain and South Korea, are forecast to see their populations halve by 2100. The result is that we are facing the prospect of shrinking, ageing societies in which there will be fewer working-age people for every retired person. This means fewer taxpayers to meet the growing costs of state pensions, healthcare and social care.
There are two ways to slow this crunch down. One is to find a way of increasing birthrates. But falling rates are in large part down to social progress, a function of women’s liberation. In a world where women aren’t solely defined by being mothers, it’s hardly surprising that more couples decide to have fewer or no children. That said, while people want fewer children, there is also evidence that they are not having the number of children they say they want. Policies that improve the affordability of housing and childcare and so help reduce the need to delay having children, or that make fertility treatment such as IVF more available on the NHS, are good things, even if their impact on overall birthrates is likely to be fairly marginal.
The second is to improve the working-age-to-retired ratio through higher levels of immigration. But there are reasons why this isn’t a sustainable answer: immigrants age, too; there might be growing competition for immigrants globally as more and more countries confront this demographic issue; politicians have not proved willing to make a positive case for immigration based on need; and there are ethical questions about filling in our gaps by attracting skilled workers from other countries whose birthrates have also started to fall.
The UK is a bit more insulated from demographic change than other wealthy countries, thanks to a higher birthrate and relatively high levels of immigration (it helps that women born outside the UK have more children on average than those born there). AI may help cushion the blow by driving increases in productivity, though there is every chance that the spoils will be concentrated among the very richest. But we cannot avoid the coming crunch altogether. The financial pressures loaded on today’s 25-year-olds – spending a huge chunk of their income on rent, many without a hope of ever getting on the housing ladder, and repaying an average of £47,000 of tuition fee debt if they went to university – could look quite minor compared with those facing the 25-year-olds of 2050, who will also have to pay a good deal more tax to ensure anything like current levels of health, care and state pension provision. It is more difficult politically to redistribute resources in a society where living standards are declining across the piece, so intragenerational inequality is also likely to get worse.
The incentives for even the most responsible politician to grapple with this profoundly depressing scenario, let alone our current fiscal issues, are nonexistent. Of course it would have been mad for Labour to run on a platform of “things can only get worse”, particularly when the main oppositional force in recent years has been the populist promise that Brexit will solve all of the UK’s long-term structural issues and any attempt to confront voters with trade-offs is batted away with the accusation of “talking Britain down”. Yet this is true outside election campaigns, too: neither Labour nor the Conservatives addressed the social care crisis while in government, which bodes badly for difficult conversations in the future.
Last weekend’s conference was a rude wake-up call for the bit of me that, if I’m honest, just really hopes that Labour’s shadow chancellor, Rachel Reeves, is right that a healthy dose of economic growth will catapult us back into the late 90s. Maybe we’ll get lucky for a while, but I think it’s more likely we have a painful adjustment to a future in which stagnant or declining living standards are the new normal. We know what a Labour government felt like in a time of plenty; we may well be about to experience what it will feel like in a time of greater scarcity. I’ll be celebrating as hard as anyone if Labour win handsomely next month, but I have tempered my expectations of what they will be able to achieve.
• Sonia Sodha is an Observer columnist
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