How retiring Baby Boomers risk plunging Britain into crisis

Offsetting the cost of retiring Boomers and a declining birth rate will require herculean economic growth

ageing population uk

Britain has an ageing problem – and it’s going to cost a fortune

With Baby Boomers retiring, the global workforce will lose its largest contingent at a time when too few children are being born to replace them. 

It means our population is on course to grey at an “unprecedented degree”, taking the share of people aged 65 and above to about one quarter by 2040, according to a new report by the Centre for Policy Studies (CPS). 

That is up from just 5pc in 1908, when the state pension was introduced, and 19pc today.

This will bring with it unprecedented costs for pensions, medicine and care, with government spending on the elderly expected to quadruple from £225bn to £950bn by 2072, according to CPS estimates.

More crucially, this expenditure is set to double as a share of GDP to 21pc over the period.

That means more tax will be needed to pay for it, or other spending will have to fall – threatening a vicious cycle where a shrinking, younger workforce has to fork out ever-larger sums to support the elderly. 

Avoiding a calamity will require a herculean effort on many fronts, says Karl Williams, deputy research director at the CPS.

To offset the impact of the ageing population, the UK economy would need to grow by 2.9pc every year, for the next 50 years. 

But on present trends, growth for the next five years will average an annual rate of just 1.4pc, according to the Office for Budget Responsibility.

“We’re at risk of accepting a doom loop narrative,” says Williams. “But actually, none of this has to be inevitable - there are ways we can avert it.”

So what are the best suggestions? 

Perhaps the most simple answer is that people could have more children, boosting economic output and generating more tax.

Yet Britain’s birth rate today languishes well below the “replacement rate” of 2.1 children per woman, following decades of decline. 

Women in the UK had 1.61 children each in 2021. That is down from the post-war peak of 2.9 in 1964 and 1.9 as recently as 2012, official figures show. 

We are by no means alone in this, with birth rates generally falling across the West. 

But campaigners say the problem is exacerbated in Britain, where would-be parents face a plethora of high costs, ranging from unaffordable housing to extortionate childcare fees and muddled tax incentives. 

The UK suffers from some of the highest childcare costs in the world, at about £936 per month, according to Money.co.uk. That compares to £511 in France, £271 in Germany and just £115 in Sweden. 

Meanwhile, the price of a typical home costs £351 per sq ft, according to property tech firm Moverly, compared to £212 in France and £236 in Germany.

When combined with a punishing tax regime, it can make having a child less attractive for women who also value their careers. 

Alys Denby, editor of CapX, an opinion-focused news website owned by the CPS, found childcare swallowed up 70pc of her post-tax earnings when she returned to work part-time after having her daughter, Matilda. 

“We were lucky because we were able to afford it, but it felt like going to work was an expensive lifestyle decision,” she explains. 

A plethora of policy solutions have been suggested. In France - which has Europe’s highest fertility rate - families are given money off their tax bills.

Hungary has also managed to reverse its declining birth rate in the past decade through a mix of pro-natalist policies, including a total exemption from income tax for women who bear four children. 

In this vein, one Conservative cabinet minister sparked the headline “Bonk for Britain” last year when they suggested similar tax breaks here.

Phoebe Arslanagić-Little, co-founder of pro-families campaign Boom and a policy analyst, argues the best thing the Government can do is “focus on lifting the barriers that parents and prospective parents face to growing or starting their families”.

This includes making childcare more affordable, building more homes, extending paternity leave for fathers and ensuring more women can access in vitro fertilisation (IVF) through the NHS.

But even so, that may not be a surefire way to boost the birth rate, warns Michael Murphy, emeritus professor of demography at the London School of Economics.

He has just returned from a trip to Finland, where childcare and housing are much cheaper than in the UK - but where the fertility rate is even lower. 

“There doesn’t appear to be any magic bullet,” he says. 

Another way to boost the young population is by allowing more working-age migrants into Britain. 

This is one of the solutions often advocated by business lobby groups, which have urged ministers to loosen restrictions to help ease staff shortages. 

But Murphy warns this is a “Ponzi scheme” in the long run because eventually migrants will grow old and require care as well. Research by the Office for National Statistics (ONS) concurs that, at best, immigration can only “slow down the effects of population ageing”. 

Williams, at the CPS, is equally as scathing. “The argument that increasing immigration is necessary to offset an ageing population is frankly, complete nonsense,” he says. 

This is because the productivity of workers, not only their total numbers, will need to go up to counteract the ageing population.

Record migration over the past couple of decades has coincided with the lowest period of productivity growth in the last two centuries, Williams argues. 

“What we should care about is not the number of people in the workforce but how productive they are, because ultimately that’s what drives growth,” he says.

Interestingly, it is not only humans who can play a part: one way to boost productivity is by employing more robots. 

At the moment, the UK has 111 industrial robots in service for every 10,000 manufacturing workers, according to the International Federation of Robotics.

That compares to 274 in the US, 397 in Germany and 1,000 in South Korea. Globally, the UK is at the bottom of the G7 and ranked 24th in the world.

As well as boosting industry, artificial intelligence (AI) software can also make a difference in white-collar roles by taking on repetitive or formulaic tasks, thus freeing up humans to focus on creative work. 

“Clearly, if we change our economic model slightly there is massive potential there,” says Williams.

In Japan, where the birth rate is one of the lowest in the world, the government even wants robots to be deployed en masse in elderly care homes.

But it is not yet proving to be the panacea some hoped for. 

Dr James Wright, author of the book Robots Won’t Save Japan, spent 18 months in the country studying how robots were being made and then used in care settings. He found they were actually making life harder for staff. 

In some cases, he found the machines were only briefly used before being hidden away in storage cupboards.

There was often a “disconnect” between the people developing the machines and the people who would end up using them. 

A robot designed to lift people out of bed had to be cumbersomely moved from room to room. It also wasn’t comfortable for many care home residents. 

“And there’s all this other invisible work: Introducing the robot to the elderly, moving it around, maintaining it, and cleaning it,” adds Wright. 

“All of these things actually take time, and it creates new work for caregivers.”

He believes robots can still play a role but that more useful inventions, such as better sensors to monitor people in bed and the automation of paperwork, will be more immediately useful. 

Back in the UK, we will probably need some combination of these things to get the transformational growth we need. 

And with the final few Baby Boomers set to retire in the 2040s, time is ticking away. 

It is a daunting challenge, admits Williams, at the CPS: “But I’m hoping the scariness of the numbers will jolt people into thinking ‘Actually, let’s take some action so we don’t have this future’.”