Sylvan Lutz, IF researcher, analyses the latest England and Wales census population data released.
Census 2021 has confirmed what demographers have long been warning: the population of England and Wales is ageing. On the one hand, a miracle of modern society has led to longer lifespans; on the other, slowing birth rates alleviate some of the pressures on the natural environment that come from high levels of consumption in the UK. While these outcomes may be celebrated by some, this demographic transition will be nothing short of a disaster if not planned for.
The ageing population will affect many policy areas: the structure of the labour force, the distribution of wealth, the stability of pension schemes, the NHS, the infrastructure needs of the population and a myriad of other major systems. The UK needs to consider the intergenerational effects of an ageing population while building an economy that allows young people to flourish. An intergenerational settlement is needed. All generations should be able to contribute to meeting the demands of an ageing population without sacrificing their own welfare. Proactive health policy, community connectivity and wealth taxation are just some of the policy changes that need to be made to enable continued economic dynamism during the silver-haired wave.
The silver tsunami
The large generation of children born in the post-war period – the baby boomers – are reaching old age and living longer than their parents and grandparents. As the baby boomers age, younger generations are having fewer children than the population replacement rate (approximately 2.1 children per woman) due to a variety of social, cultural and economic forces. This caused the proportion of the population over 65 to grow from 16.4% in 2011 to 18.6% in 2021. If these trends continue the government projects that 26% of the UK population will be over 65 in 2066. The ageing population marks an unprecedented event in human history and will cause the structure of the UK’s economy and society to confront fundamental change.
Health and wellbeing
The most obvious consequence of ageing populations is the shifting demands on healthcare infrastructure. As people age, they cost the government more in healthcare expenses and their consumption of healthcare services grows faster. The Office for Budget Responsibility found that average annual healthcare spending grows slowly and gradually from 18 (around ₤1,000) to 65 (around ₤2,000), but increases significantly and quickly after age 65 reaching around ₤10,000 per capita by 85. Unless the ageing population is met with an equivalent increase in the number of years spent in good health, we will see a significant rise in per-capita and aggregate healthcare spending.
The government can reduce the stress of the ageing population on the NHS and other public services by encouraging preventative healthcare (exercise, healthy diets, easy access to medical services and texts), community groups and encouraging intergenerational linkages. By improving community engagement, building support networks like childcare and encouraging volunteerism among those that are able, governments at all levels can benefit children, working parents and the social lives of the older generation. This can reduce loneliness across generations, improve the health outcomes of older individuals, reduce stresses on young families and build strong communities in the face of a monumental social transition.
With increasing life expectancy, it takes considerably longer for wealth to be transferred between generations. It also leaves large inequalities within generations that must be addressed. In the UK 27% of children as well as 15% of pensioners are living in poverty (after housing costs). This poverty is not caused by a lack of GDP growth, but by a lack of redistribution within the UK. Age is the single largest determinant of wealth: the medium total wealth of individuals in their early 60s is about nine times as high as that of those in their early 30s. Nevertheless, it is still unequally distributed within generations: the richest 10% of households hold almost 50% of total wealth.
Making financial resources available to young people is critical because they are the drivers of growth and innovation in society. The limited capital available to younger people is a strain on all generations because there are fewer resources to start new businesses or further education; key determinants of economic growth. Even when young people do have the access to resources they need to invest in their futures, it is the privileged few whose families are able to support them.
By implementing a one-off (or annual wealth tax) of 5% the UK government could earn between ₤80-260 billion (for a threshold of wealth above ₤2 million or ₤500,000) to fund life-long education, innovation programmes and the welfare of all people in this changing and ageing society. Taxing wealth rather than income would be a significant benefit to both intra- and intergenerational welfare.
Aligning the interests across generations
The transformation of society to one where an increasing proportion of the population is above 60 is inevitable and it is up to us, whatever our ages, to find solutions. Younger and older generations will be left lacking if we continue with the current levels of wealth redistribution, community development and infrastructure investment.
By reducing the pressures on the NHS through more active community-driven preventative healthcare, the government will have more resources left over to invest in education, housing and other issues that are putting a strain on the well-being of all generations across the UK. By starting to tax wealth, the government will have the resources to ensure that all young people, not just those with wealthy families, can get an education and start businesses that will drive economic growth in the long term. An ageing population marks a fundamental change in human history, it is up to humans of all generations to implement transformative policies that are up to this change.
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