Karl Williams is Research Director at the Centre for Policy Studies.
The gap between the old and the young is one of the defining economic and political challenges of our time. Already, today’s young people have a notoriously raw deal on housing, childcare, higher education and a host of other issues. But on the current trajectory, things are going to get so, so much worse – especially when it comes to tax.
Everyone in politics vaguely knows that an ageing population is a problem. But until you really crunch the numbers, the terrifying scale of the challenge facing Britain (and the rest of the developing world) doesn’t hit home. Unfortunately for my sanity, that’s just what I did for ‘Justice for the Young’, a collection of essays published by the Centre for Policy Studies last autumn.
When the state pension was first introduced in 1908, people aged 65 or over made up roughly five per cent of the population. In 2022, that share stood at 19 per cent. By 2040, it will be 24 per cent, and by 2072, 27 per cent.
Extreme age is increasing too. By 2070, the share of the population over 80 will have more than doubled to 11 per cent, and the number of centenarians (currently 14,000) will have passed 100,000.
Ageing creates spending pressures. The best estimates suggest that a combination of pensions, adult social care, and NHS spending on the elderly will more than double from roughly 10 per cent to 21 per cent of GDP over the next 50 years – even as the economy doubles in size! So annual spending on the elderly is set to quadruple in real terms, reaching almost £1 trillion in today’s money.
Tax receipts already amount to around 36 per cent of GDP, the highest level since 1951. If by 2072 we were to meet the increase in elderly spending entirely from tax, then receipts would need to rise by almost a third, to over 46 per cent of GDP. This is equivalent to more than doubling the share of GDP harvested by income tax, or tripling the corporation tax take.
Yet even as age-related spending pressures mount, the number of working age people is set to decline, first in relative terms but then in absolute terms too. Based on the then-current iteration of ONS population projections, we calculated that the old-age dependency ratio – the number of potential workers per pensioner – had already declined from 4.5 in 1972 to 3.3 by 2022, and was on track to fall to 1.9 by 2072.
So double the spending in GDP terms, and quadruple in real terms, but on a much-reduced working-age tax base. No wonder Allister Heath struck a doom-laden note in a recent piece highlighting the CPS’s calculations: “I look at the future, and I fear for our children: we are bequeathing them a poisoned legacy”.
One oft-touted solution to an ageing population is immigration. Of course, this assumes that those coming here are working – even though less than a quarter of the 1.39 million visas issued last year were actually for workers (as opposed to their dependents or other categories of migrant).
It also assumes most migrants are net contributors over the long run. But as Neil O’Brien has shown, there is scant evidence that this is the case.
Still, let’s say we fixed the immigration system and only welcomed those likely to be net contributors. What then?
Based on the ONS’s hypothetical ‘net zero migration’ scenario in the new (January 2024) population projections, the dependency ratio is set to decline from around 3.5 workers per pensioner today to 2.0 in 50 years. To keep that ratio at 3.5, we’d need net migration of over 33 million workers over this period – an average of 666,000 per annum.
This would not only be hugely unpopular, based on everything we know about public opinion, but would exacerbate our already appalling housing crisis still further – meaning the young would lose out again. And, of course, migrants age too, so the treadmill never stops.
In this hypothetical future Britain of 90 million people, well over a third of the population would have been born overseas, and more than half would be first- or second-generation immigrants.
That raises the prospect, as Henry George describes it, of the dissolution of the ‘first-person plural’ of a socially cohesive, culturally confident British nation, and a major exacerbation of existing social and cultural tensions, for example over Gaza.
In other words, controlled and carefully selected immigration is undoubtedly a good thing, but rapid, large-scale immigration can at best postpone Britain’s inter-generational challenges, rather than resolve them.
So what’s the solution? We argued in ‘Justice for the Young’ that the only way we can forestall the tax-and-spend doom loop is to go for growth. In fact, we crunched the numbers. We found that if the welfare state is to survive in anything like its present form without significantly heavier taxation of working-age people, we will need economic growth to average 2.9 per cent over the next 50 years.
That looks like a pretty tall order. Trendline GPD growth before the financial crisis was around 2.5 per cent, and merely 2.0 per cent afterwards. The OBR now assume a long-run growth rate of 1.4 per cent. But we absolutely have to try.
And luckily, we know exactly what we need to do to get the economy growing faster: reform the planning system to build millions more houses and deliver infrastructure at a lower cost; reform the tax system to incentivise work, savings and investment; pursue energy abundance and cheap electricity; remove barriers to innovation and entrepreneurship; fix our broken state… the list goes on.
However, this bold agenda runs head first into another problem identified in ‘Justice for the Young’ – a trend which we christened the “gerontocratic transition”.
Basically, when you adjust for who actually bothers to vote, the power of the so-called grey vote (pensioners and near-pensioners) is growing inexorably, even when refracted through Britain’s first-past-the-post system. Indeed, we are about to hit a notable marker: the 2024 general election is likely to be the first in which over-55s are a majority of voters by turnout in a majority of constituencies.
Politicians thus have strong electoral incentives to prioritise older voters over younger ones – hence policies like the triple lock and the Tories’ rampant Nimbyism. It’s not clear how to break out of this political trap and get Britain growing again; despite their warm words on housing, Labour are certainly no solution.
The sad truth is that it could take an enormous crisis to jolt us out of our national complacency, not unlike the IMF bailout of 1976. Some would welcome such a crisis. Among certain groups of Gen Z Tories, there is a tendency towards a sort of Leninist accelerationism: it’s not simply that things will get worse before they get better, but that things have to get worse before they can get better.
Their frustration is understandable, but let’s hope they’re wrong. According to the tagline of one of Britain’s most successful (albeit nerdy) exports: “In the grim darkness of the far future, there is only war”. As things stand, for young Britons today, the grim darkness of the near future contains only taxes – and the promise of more taxes to come.
Karl Williams is Research Director at the Centre for Policy Studies.
The gap between the old and the young is one of the defining economic and political challenges of our time. Already, today’s young people have a notoriously raw deal on housing, childcare, higher education and a host of other issues. But on the current trajectory, things are going to get so, so much worse – especially when it comes to tax.
Everyone in politics vaguely knows that an ageing population is a problem. But until you really crunch the numbers, the terrifying scale of the challenge facing Britain (and the rest of the developing world) doesn’t hit home. Unfortunately for my sanity, that’s just what I did for ‘Justice for the Young’, a collection of essays published by the Centre for Policy Studies last autumn.
When the state pension was first introduced in 1908, people aged 65 or over made up roughly five per cent of the population. In 2022, that share stood at 19 per cent. By 2040, it will be 24 per cent, and by 2072, 27 per cent.
Extreme age is increasing too. By 2070, the share of the population over 80 will have more than doubled to 11 per cent, and the number of centenarians (currently 14,000) will have passed 100,000.
Ageing creates spending pressures. The best estimates suggest that a combination of pensions, adult social care, and NHS spending on the elderly will more than double from roughly 10 per cent to 21 per cent of GDP over the next 50 years – even as the economy doubles in size! So annual spending on the elderly is set to quadruple in real terms, reaching almost £1 trillion in today’s money.
Tax receipts already amount to around 36 per cent of GDP, the highest level since 1951. If by 2072 we were to meet the increase in elderly spending entirely from tax, then receipts would need to rise by almost a third, to over 46 per cent of GDP. This is equivalent to more than doubling the share of GDP harvested by income tax, or tripling the corporation tax take.
Yet even as age-related spending pressures mount, the number of working age people is set to decline, first in relative terms but then in absolute terms too. Based on the then-current iteration of ONS population projections, we calculated that the old-age dependency ratio – the number of potential workers per pensioner – had already declined from 4.5 in 1972 to 3.3 by 2022, and was on track to fall to 1.9 by 2072.
So double the spending in GDP terms, and quadruple in real terms, but on a much-reduced working-age tax base. No wonder Allister Heath struck a doom-laden note in a recent piece highlighting the CPS’s calculations: “I look at the future, and I fear for our children: we are bequeathing them a poisoned legacy”.
One oft-touted solution to an ageing population is immigration. Of course, this assumes that those coming here are working – even though less than a quarter of the 1.39 million visas issued last year were actually for workers (as opposed to their dependents or other categories of migrant).
It also assumes most migrants are net contributors over the long run. But as Neil O’Brien has shown, there is scant evidence that this is the case.
Still, let’s say we fixed the immigration system and only welcomed those likely to be net contributors. What then?
Based on the ONS’s hypothetical ‘net zero migration’ scenario in the new (January 2024) population projections, the dependency ratio is set to decline from around 3.5 workers per pensioner today to 2.0 in 50 years. To keep that ratio at 3.5, we’d need net migration of over 33 million workers over this period – an average of 666,000 per annum.
This would not only be hugely unpopular, based on everything we know about public opinion, but would exacerbate our already appalling housing crisis still further – meaning the young would lose out again. And, of course, migrants age too, so the treadmill never stops.
In this hypothetical future Britain of 90 million people, well over a third of the population would have been born overseas, and more than half would be first- or second-generation immigrants.
That raises the prospect, as Henry George describes it, of the dissolution of the ‘first-person plural’ of a socially cohesive, culturally confident British nation, and a major exacerbation of existing social and cultural tensions, for example over Gaza.
In other words, controlled and carefully selected immigration is undoubtedly a good thing, but rapid, large-scale immigration can at best postpone Britain’s inter-generational challenges, rather than resolve them.
So what’s the solution? We argued in ‘Justice for the Young’ that the only way we can forestall the tax-and-spend doom loop is to go for growth. In fact, we crunched the numbers. We found that if the welfare state is to survive in anything like its present form without significantly heavier taxation of working-age people, we will need economic growth to average 2.9 per cent over the next 50 years.
That looks like a pretty tall order. Trendline GPD growth before the financial crisis was around 2.5 per cent, and merely 2.0 per cent afterwards. The OBR now assume a long-run growth rate of 1.4 per cent. But we absolutely have to try.
And luckily, we know exactly what we need to do to get the economy growing faster: reform the planning system to build millions more houses and deliver infrastructure at a lower cost; reform the tax system to incentivise work, savings and investment; pursue energy abundance and cheap electricity; remove barriers to innovation and entrepreneurship; fix our broken state… the list goes on.
However, this bold agenda runs head first into another problem identified in ‘Justice for the Young’ – a trend which we christened the “gerontocratic transition”.
Basically, when you adjust for who actually bothers to vote, the power of the so-called grey vote (pensioners and near-pensioners) is growing inexorably, even when refracted through Britain’s first-past-the-post system. Indeed, we are about to hit a notable marker: the 2024 general election is likely to be the first in which over-55s are a majority of voters by turnout in a majority of constituencies.
Politicians thus have strong electoral incentives to prioritise older voters over younger ones – hence policies like the triple lock and the Tories’ rampant Nimbyism. It’s not clear how to break out of this political trap and get Britain growing again; despite their warm words on housing, Labour are certainly no solution.
The sad truth is that it could take an enormous crisis to jolt us out of our national complacency, not unlike the IMF bailout of 1976. Some would welcome such a crisis. Among certain groups of Gen Z Tories, there is a tendency towards a sort of Leninist accelerationism: it’s not simply that things will get worse before they get better, but that things have to get worse before they can get better.
Their frustration is understandable, but let’s hope they’re wrong. According to the tagline of one of Britain’s most successful (albeit nerdy) exports: “In the grim darkness of the far future, there is only war”. As things stand, for young Britons today, the grim darkness of the near future contains only taxes – and the promise of more taxes to come.