The Labour government was elected on a promise of economic growth but already this vision is faltering. IF researcher, Toby Whelton, argues that a low-growth economy is the inevitable result of a gerontocratic society.
Growth, growth, growth
Insofar as the current government had an overarching economic vision for the country, it was economic growth. One of Labour’s core missions was to “turbocharge growth” to the highest sustained rate in the G7. Growth was the mantra leading up to their election and remains the test they have staked their reputation on.
This makes sense. Growth is the closest thing to a silver bullet in politics. All governments are stuck in a fundamental trade-off: to spend more, they must tax more; to tax less, governments must spend less. Economic growth circumvents this trade-off. It increases the government’s budget without having to raise taxes or increase the deficit.
If growth was 0.5% stronger a year than is currently forecasted, this would give over £25 billion more in all-important headroom. For context, the cuts to disability benefits, which has led to an MP rebellion that could potentially tople the government, were to create an additional £5 billion in headroom.
Willing but not able
Sadly, the optimism has not matched reality. Forecasts for growth are down. At the start of the year, there were predictions the UK would become a zero-growth economy and warnings of stagflation. Recently, the IMF reduced its economic growth prediction from 1.6% to just 1.1% for 2025.
The new government cannot be solely held responsible for this stagnation in growth. While the decision to increase Employer’s National Insurance contributions has harmed jobs, Britain has been a low growth economy ever since the 2008 financial crash. Between 2010 and 2023, Real GDP grew by 1.5% a year on average, and in terms of GDP per capita it has grown by just 0.9% a year.
Why?
There is no shortage of theories for why the UK has experienced such low growth. Libertarians blame high taxes, red tape and regulation for stifling business and productivity, e.g. Trussonomics. Those on the left would say it is the result of decades of underinvestment and a lack of industrial strategy.
However, there is a reason perhaps more fundamental: Britain is a gerontocratic society.
It is to be expected that a country with an ageing population experiences slower growth due to fewer participants in the labour market and this is the trend seen throughout the global West. This is not a bad thing per se: increasing longevity is to be welcomed and a sign of prosperity.
The issue is not so much demographic but democratic. Older generations possess disproportionately more electoral voting power. A combination of their large cohort size and a far higher rate of voter turnout than younger generations meant that in the 2019 general election, over-55s cast 15.6 million collective votes, while 18−35 year-olds cast just 4.8 million (data for the 2024 election is not yet available, but likely to be similar, if not worse).
In order to get elected and stay in power, politicians must pander to the grey vote. Such a vast democratic deficit can mean that the economy and society become bent to the political will of older voters and ignore the interests of the young.
Do older people care about growth?
In classical economic theory, everyone benefits from, and thus desires, growth. Earnings for workers go up and unemployment goes down. The wealth and assets of older generations rises. The government receives more tax revenue to spend on infrastructure, benefits and services for all generations.
However, if an economy is fundamentally geared towards the interests of older people, economic growth ceases to be a priority.
Grey voters are reliant on income streams be they private pensions, public sector pensions, the state pension or from assets they own such as housing or private funds, which are not necessarily dependent on economic growth. The triple lock has severed the link between the state pension and the country’s general economic performance. Within the current system, even if the economy or earnings do not grow, the state pension will still ratchet up by 2.5% each year.
Nor is the value of assets inherently linked to growth. In the UK, the ratio of private wealth to national output has risen from three in 1970 to almost seven in 2020. Property prices have more than doubled during the last twenty years of lacklustre growth. This is good news for over-50s, who hold 78% of the UK’s property wealth. Meanwhile, private pensions have continued to increase at roughly 8% a year and the FTSE 100 has had an average increase of 5.6% a year over the last two decades.
Government spending on older generations has also increased at a faster rate than the economy. Our latest report has shown that the gulf in spending per pensioner versus per child has increased by 170% from 2004–05 to 2023–24. Investment and benefits spent on younger generations have been cut in order to maintain and increase spending on the NHS, concessionary travel and pensioner benefits, despite low growth and tightening budgets.
Growth does not matter to the older electorate: their incomes, wealth and access to government services are untethered. By implication, a government subservient to the preferences of the gerontocracy will not prioritise growth either.
Taxation of earned income
There are countless examples of how pandering to the grey vote has suppressed economic growth. One of which is who, what, and how much we tax.
UK workers currently face the highest tax rate since the war. Graduates, who are in theory our most productive workers, face an additional 9% marginal tax in student loan repayments under an increasingly extractive student finance regime. High taxes on young workers are stifling productivity, lowering their desire for work, promotion or even encouraging them to emigrate. Reduced disposable income has contributed to historic lows of consumption for young people, who are typically meant to be the drivers of demand in a dynamic economy.
An obvious way to increase economic growth would be to lower taxes on earned income and instead tax wealth, yet successive governments have been unwilling to do this as increased taxes on wealth would disproportionately impact older voters. They cannot afford to reduce the revenue taken from workers that is used to fund the services and overly generous benefits for older generations.
Generation remain
There is near consensus amongst experts that (re)aligning with the EU, such as joining the single market, would be the easiest way to induce growth. It is estimated that rejoining the EU could boost growth by 4−5% in the long term.
Over half of Brits want a second referendum and the majority would vote to rejoin the EU. For 18−25 year-olds, 84% would vote to rejoin. The staunchest Brexiteers are among older generations. This means that despite realigning with the EU being an open goal for economic growth, the government will not even entertain it due to fears of upsetting older voters.
House prices
Ballooning house prices have been disastrous for economic growth: it impedes the geographical mobility of young workers, burdens household budgets which suppresses consumption, and ultimately drains trillions of pounds worth of investment away from productive areas of the economy.
Nevertheless, government policies since the turn of the millennium have systematically sought to inflate house prices, which has overwhelmingly benefited older generations. You just have to look at how Right to Buy, Stamp Duty holidays and recent industry calls to relax affordability criteria on mortgage lending have artificially increase demand and lead to higher house prices. Meanwhile, planning regulations and community opposition have limited the supply of new houses, leading to higher prices.
Gerontocratic rule
Whether it is the taxation system, housing policy, EU relations, government expenditure or infrastructure investment, countless policies that would grow the economy have been ruled out due to the pressures of gerontocracy.
While economic growth sounds great in theory, when the inevitable trade-off between the demands of an ageing electorate and economic growth arises − the grey vote seems to always win.
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Photo by Amauri Mejía on Unsplash