Tom Clougherty is research director at the Centre for Policy Studies.
The family is the bedrock of society. Yet there are few topics that politicians are so nervous about discussing. Of course, they are happy to spout bromides about “hard-working families” at every opportunity. But when it comes to suggesting policies that might help and promote the family, there is a knee-jerk fear of appearing to lecture others on their life choices, of wanting to reimpose the nuclear family of the 1950s on a reluctant and resistant country.
But if we want to build a better society, then family is a core part of the answer. Not just in terms of improving life outcomes, but containing the ever-growing size of the state.
Let’s take a step back. Conservatives want lower taxes. They believe that lower taxes help foster the economic dynamism on which our prosperity rests. And they think people spend their own money better than distant bureaucrats will spend it on their behalf. Yet even those of us who advocate lower taxes must sometimes admit that the long-term prospects for such an approach do not look good.
The Office for Budget Responsibility’s 2022 Fiscal Sustainability Report suggests that if current policies and demographic trends continue, public spending will rise by about 10 percentage points of GDP over the next 50 years. That increase is largely driven by increasing demands on the state, especially in healthcare, social care, and pensions, as the population ages.
The result is a fiscal gap not far short of £300bn in today’s terms. And if you wanted to plug that hole with tax revenue, you would have to raise all three income tax rates to more than 50p (with National Insurance payable too) and increase VAT to 30 per cent (including the reduced, 5p rate). Of course, things are more complicated than that. Levying taxes that high might destroy the private sector economy, whereas the right tax cuts might actually boost revenue.
But it would be brave (and likely foolish) to suggest that even the most awesomely pro-growth tax reforms imaginable could fill the fiscal hole that is set to emerge as the population ages.
So what can we do? First, we need reform in the public sector – both to boost productivity and, wherever possible, to emphasise personal responsibility and shift costs from the state to the individual. A welfare state designed for a population in which only a tenth are over 65 must surely change as that ‘grey share’ heads for a quarter by the middle of the century. Second, we need to go hell-for-leather for growth in the private sector – doing everything we possibly can to encourage investment, boost productivity, and promote innovation.
So far, so free-market think tank. But there’s a third element to this that isn’t yet getting the attention it deserves in the UK. Namely, that we do not have to accept our apparent demographic destiny. Historically low birth rates (currently 1.59 births per woman) need not be irreversible. With the right pro-family policies – and perhaps also a broader cultural shift – maybe we can get back to the 2.1 ‘replacement rate’ needed to keep the population stable, or even to the 2.3 children that British women, on average, say they want.
That last part is critical. Any successful pro-family policy must be about helping people to get what they want – by removing barriers that stand in their way – rather than pushing them towards a life they would not freely choose.
Admittedly, boosting the birth rate might not help the public finances in the short run: children are costly too, though far less so than the old. But in the long run, having greater numbers of younger Britons will help to ward off secular stagnation and might also produce more rapid innovation. More straightforwardly, it might prevent our working-age population from shrinking (in absolute terms) from the mid-2040s, and our old-age dependency ratio from rising so rapidly.
So what, then, should the government do to support family formation and help people to have more children?
First, we need to reform our tax system to make it more family-friendly, by introducing transferable allowances or even income-splitting for married couples with children. This is something that Ranil Jayawardena MP and I look at in detail in a forthcoming report for the Centre for Policy Studies. We should also reverse George Osborne’s changes to child benefit, or at least ensure that only the best-off families face child benefit withdrawal.
Second, we need to significantly reduce childcare costs. Convenient, affordable childcare seems to be particularly important to people considering whether to have additional children. But British parents face some of the highest childcare costs in the world.
Subsidising nursery places will only drive up prices in the sector unless supply constraints can be loosened considerably. We also need to roll back regulatory changes that have pushed two-thirds of childminders out of the market in a decade and consider whether more can be done to support informal ‘friends and family’ childcare too.
Third, we need to overhaul Britain’s broken property market so that many more homes are built where the demand for them is strongest. As the American demographer Lyman Stone has put it, ‘if rent is rising, fertility is falling’. Smaller, more crowded, and more expensive homes all seem to reduce birth rates during peak child-bearing years. And since many people say they want to be homeowners before they have children, we might also consider measures to help young people accumulate savings and/or access mortgages with lower deposits – as long as this is done in tandem with increasing housing supply.
Fourth, if we want young people to people to start families sooner, which is one of the keys to them ultimately having their hoped-for number of children, we need to improve their economic situation. Young Britons aren’t just facing skyrocketing rents with no realistic path to homeownership; they also face a faltering economy, stagnant wages, and high marginal tax rates (partly as a result of student loan repayments). It is hard to get ahead – let alone feel ready to support children – when exposed to such headwinds. Policies that promote growth and reduce the cost of living for the young are essential.
There are cultural factors to consider too. Some say that modern dating patterns and misguided narratives of environmental doom are putting people off starting families. Others say that we need a better work-life balance, and for men to do more around the house. Pretty much everyone agrees that the most helpful thing of all would be for Britain to be a country that really welcomes and celebrates children. Government can’t control such things and generally should not try to. But it can, where appropriate, set the right tone.
Will any of this work? At the margin, certainly. There’s clear evidence that modern ‘pro-natalist’ policies can nudge birth rates up – although big interventions can come with a high price tag. But even if we do not manage to inspire a new baby boom, the good news is that supporting stronger families produces a host of other social and economic benefits, which are worth pursuing in their own right.
Ultimately, there is no one solution to the challenges Britain’s ageing population will create. In policy terms, we need to throw everything at it – and get going now to make up for lost time. A plan to support family formation and children needs to be part of the mix.