There are many long-term challenges facing Britain’s policymakers. But the ageing population is surely the most intractable. The demographic tide is constantly tugging us towards a world of lower economic growth and higher taxation. But those same trends also give the elderly an enormous amount of political power – which leads to policy being set in their interests, rather than the interests of the younger generation. The result is an inbuilt tendency for public policy to run contrary to the long term national interest.
In this essay, we will show how our ageing population means that we are set to run into a hard constraint on economic growth over the next 20 years – unless we can achieve stellar rates of underlying productivity growth. But we will also show how what we have chosen to call the ‘gerontocratic transition’ is reshaping British politics. Remarkably, as of 2024 the majority of voters (taking turnout rates into account) in the majority of constituencies will be over the age of 55 – the first time this has happened in the history of British democracy.
Already, the falling ratio of workers to pensioners is undermining growth in myriad ways, including via higher taxes on workers and sclerosis in the housing market. The shift is accelerating too. By 2072, there will be only 1.9 potential workers for each pensioner, down from 3.3 in 2022 and 4.5 in 1972.1 (Recent trends in economic inactivity, if sustained, would make the outlook even more dire.) In addition, per capita spending on pensioners is set to rise, as the average pensioner lives for longer but with more complex health conditions. The result is that sustaining both rising living standards and a cradle-to-grave welfare state looks to be an almost impossible task in the long run – indeed, as we will show, it would require annual growth rates substantially beyond what this country has historically delivered.
We must face up to the reality that as Britain’s population is greying, so too is its political economy. The fundamental question for policymakers seeking to keep the country’s head above the water is therefore: how can we rejuvenate our politics and return to robust economic growth, in defiance of demographic destiny?
Britain’s ageing population
Britain has not aged as much or as rapidly as many other developed countries, including Germany, France and Japan. But with three times more people over 65 than a century ago, our population is as old as it has ever been. And it is going to get a lot older still, in a relatively short space of time.
Of course, long-term demographic projections are never entirely reliable. While the medium-term trend is pretty much baked in, even a tiny adjustment to initial conditions or one of the three key variables – mortality, fertility and net migration rates – could result in a significantly different picture after 50 years. Our analysis is based on the biennial population projections produced by the Office for National Statistics (ONS), which also underpin the long-term modelling by the Office for Budget Responsibility (OBR) and the recent Neville-Rolfe Review of the state pension age. They may turn out to be wide of the mark. But it is undeniable that they present a vast challenge.
When the state pension was first introduced in 1908, people aged 65 or more made up roughly 5% of the population (although of course the pension age under the Old Age Pensions Act 1908 was 70 for both men and women). Today, it stands at 19%.4 By 2040, it will hit roughly 24%, when the last of the Baby Boomers reaches retirement. After that, the increase is expected to slow. But it will still rise to 25% by 2050 and 27% by 2070.
The crucial thing here is not just the number of the elderly but the speed of the transition. It took 100 years for the 65+ share of the population to go from 5% to 16%. It will go from 16% to 24% in the space of just 35.
Share of the UK population aged 65+
But the fiscal picture is even worse than the headline figures suggest. We are seeing the rise not just of age, but of extreme age. By 2070, the share of the population over 80 will have more than doubled to 11%, and the number of centenarians – currently 14,000 – will have passed 100,000. And the health and social care needs of people in their late 80s tend to be far more complex and expensive than those of people in their late 60s.
Then there is the dependency ratio: the number of people of working age, who can foot the bill for their children and grandparents. The overall dependency ratio – the number of people of working age (18-64) compared to the young (0-17) and elderly (65+) combined – currently stands at around 1.50. Over the next 50 years, this is projected to fall to around 1.25 potential workers per dependent.
This might not sound so bad. But the figures are being flattered by a sharp fall in the share of the population under 18 relative to the working age population. This ‘young-age dependency ratio’ is set to rise from 2.9 now to peak at a record 3.3 in the early 2040s. This reflects the collapse in fertility rates, which now stands at just 1.59 births per woman – ‘the lowest birth rate assumed in any set of official population projections published over the last seven decades’, according to the Office for Budget Responsibility (OBR). But even these figures are being flattered by higher birth rates among immigrant families. As CapX Editor-in-Chief Robert Colvile has pointed out, the number of births among mothers born in the UK has fallen by 22% over the past decade.
In the short to medium term, low birth rates will help with there being enough workers to support everyone else. But in the long term, of course, it means the opposite. Low and declining birth rates means fewer people reaching working age than would otherwise be the case in the longer run. The old-age dependency ratio is currently around 3.3. Once the current ageing surge has passed, it will stand at 2.4 in the early 2040s. But it will still continue to fall after that, dropping to 1.9 by the 2070s. On current trends, the number of people over 65 will by 2026 exceed the number of people under the age of 18 for the first time in British history.
Number of working age people per pensioner
The deteriorating old-age dependency ratio represents a chronic challenge for the next century. But we are also coming up fast on a much more acute demographic challenge: in the absence of historically unprecedented levels of immigration, the working age population is projected to peak in absolute terms at about 41.1m people circa 2043, before starting to shrink, declining by 1.3m (3%) out to 2072. Economic degrowth is therefore a very real possibility if the current stagnant productivity trend continues into the long term.
In short, in both relative and absolute terms, Britain’s population is greying to an unprecedented degree. And as we shall see, both the political and economic consequences of this ongoing transformation are profoundly worrying.
The gerontocratic transition
It is a truism of British politics that older people tend to decide elections. But the sheer power of the grey vote has if anything been underestimated.
In a hypothetical 2024 election, there would be 4.38m 25- to 29-year-olds eligible to vote, and 3.52m 65- to 69-year-olds. The young would, you would think, outvote the old.
But then you factor in turnout. Based on previous elections, we might reasonably expect a 50% turnout among those in their twenties, and 81% among those in their sixties. Suddenly, the actual number of votes cast becomes 2.19m for the young and 2.83m for the old.
When we model this ‘weighted vote’ across all age groups, and then look at the weighted vote share held by those aged 65 or older, we find that they currently make up around 24% of the electorate (as distinct from the population) but collectively wield 30% of voting power. In 20 years’ time, they will be 29% of the electorate with 36% of the weighted vote share, and by 2072, 33% with 40%.
Yet these calculations understate the scale of the gerontocratic transition. People do not suddenly become interested in their retirement prospects when they reach the state pension age. A 55- or 60-year-old who has reached the top of their profession, paid off their mortgage and whose children have flown the nest will tend to prioritise the same things as a 66-year-old. Indeed, the closer they get to the state pension age, the more likely they are to have left the workforce already, for reasons of ill health or to enjoy early retirement (people can access their private pensions from 55). This is reflected in economic inactivity figures – 23% and 32% for men and women aged 50-64, compared to 8% and 17% for those aged 35-49.
If we look not just at OAPs but at all those aged 55 and above – the ‘grey vote’ – that 41% of the electorate now accounts for 49.7% of the weighted vote share. But in 2024, this is on track to rise to over 50%. Unless young people become much more assiduous about turning up on polling day, then in 20 years, the weighted grey vote share will rise to 53%. By 2070, it will be 58%.
Clearly we are on the cusp of a notable marker in the gerontocratic transition. At the next election, the electoral power of the grey vote will, for the first time in our history, match or outweigh that of the generations below.
And again, these headline trends become even more significant when you examine the detail – in this case, how the gerontocratic transition is refracted through the UK’s first past the post (FPTP) electoral system.
There are currently 650 Parliamentary constituencies in the UK. Fully 48% (310) had already reached the gerontocratic midpoint in 2020, with more than 50% of the weighted vote share in each having gone grey. By the next election, we will certainly have reached the point where the majority of constituencies have gone grey. (There were 42 seats in 2020 where the weighted grey vote share was between 49% and 50%, and it has been rising by 0.4 percentage points a year since 2011. By our calculations, the constituency that will have tipped us over the edge is Bury North, the 326th on our list.)
Why should the grey vote be more important on a constituency basis? The simple answer is that the younger vote piles up in cities and large university towns. Grey constituencies cover rural areas and provincial towns all over the country – seats like Bosworth, Norfolk North and West Worcestershire. In contrast, the younger vote tends to be concentrated in places like Islington North, Leeds West and Oxford East. (The most youthful seat is Manchester Central, where the weighted grey vote is only 21.3%.)
You can see the electoral impact of this in the results from 2019, when the Conservative landslide depended in part on winning over grey seats in England and Wales. Of the 270 English and Welsh seats which had tipped into the grey by 2020, 84% elected a Conservative MP, including a large number of ‘Red Wall’ constituencies such as Darlington, Sedgefield and Stoke-on-Trent South. Labour did better in areas where the younger vote is concentrated, winning all 34 seats in England and Wales where the weighted grey vote was less than a third of the total, except for the Green Party bastion of Brighton Pavilion.
The impact on tax and spend
At present, public spending on the elderly amounts to roughly 10.1% of GDP, taking into account the state pension and pensioner benefits, adult social care and healthcare.
It is worth taking each of these in turn to see how the dynamics of an ageing population are likely to drive up spending, paid for by younger workers as the old-age dependency ratio compresses.
The OBR estimates that public spending on the state pension amounts to 4.8% of GDP, with another 0.7% going on pensioner benefits. Since the state pension is not means-tested, the surge in pensioners will only push this up. The Neville-Rolfe Review recommended capping state pension spending at 6% of GDP, i.e. 20% higher than now. But with the actual number of pensioners increasing by over 30% in the next 20 years and by over 50% by 2072, that will only be possible if we can slow the growth in the value of the state pension.
The problem, however, is the ‘triple lock’. Introduced under the Coalition Government, this guarantees that the state pension will always rise in line with the highest of either inflation, average earnings growth or 2.5%. Accordingly, the state pension increased by 10.1% in April 2023, outstripping earnings growth for workers and passing £10,000 (in nominal terms) for the first time.
If the state pension were linked to earnings only, projected spending would increase to 6.2% of GDP by 2072. As things stand, even factoring in the planned increases in the state pension age, the OBR projects the share of GDP allocated to the state pension to rise to 8.1% by 2072.
Then there are pensioner benefits, some of which are means-tested (such as pension credit) and some of which are not (such as the winter fuel payment). This spending is also projected to rise to 1.5% of GDP by 2072. So together, spending on the state pension and pensioner benefits is projected to rise from 5.5% of GDP now to 9.6% of GDP in 2072 – a 75% increase.
Then there is elderly social care. Under the changes introduced on the back of the Health and Social Care Levy – principally the £100,000 cap – the OBR projects spending on adult social care to double, from 1.2% to 2.5% of GDP. Indeed, social care is perhaps the most intractable item of spending from an intergenerational justice perspective. On the one hand, the cap means that much of the cost will fall on younger taxpayers. On the other hand, if the cap were lifted or abolished, the assets of many older people – notably their homes – might have to be liquidated to pay for their care. And for many younger people, inheriting a share of the family home represents their only hope of getting on the housing ladder. Whatever happens, the young are going to lose out.
However, the biggest source of increased spending on the elderly will be healthcare related. NHS spending – minus the Covid outlay – is around 8.3% of GDP. Estimates vary, but around 40-45% of this is spent on those aged 65 or older – amounting to 3.3-3.7% of GDP.19 With the size of the elderly population increasing, and extreme age becoming much more prevalent, elderly healthcare spending is set to explode over the next few decades. Based on current demographic and healthcare trends, the OBR projects overall spending on healthcare to rise to 15% of GDP by 2072 (with growing elderly healthcare needs more than offsetting falling postnatal and paediatric spending).
The basic problem here is that mortality is outpacing morbidity – that life expectancy is outpacing healthy life expectancy. Before Covid, the gap between life and health life expectancy stood at 16.3 and 19.3 years for men and women respectively. Older people are more likely to suffer from chronic conditions and indeed from multi-morbidity. This of course is very costly (and not just in terms of the direct fiscal cost, but also through unpaid labour in the home and opportunity cost).
Once you put all of these together, public spending on the over-65s – across pensions, social and healthcare – is projected to rise from around 10.1% of GDP to roughly 21.3% of GDP in 2072. If age is just a number, then unfortunately for the young, it is a very large number indeed. And even this is something of a best case scenario, which assumes no further policies that increase spending on the elderly – even though they will have the voting power to make it happen.
Moreover, this is all going to have to be paid for from a shrinking working age tax base, first in relative terms and then in absolute terms too. A fall in education spending as a share of GDP as the younger population declines will help at the margins, but then there are other priorities that will be hard to ignore as the 21st century progresses (defence spending, for example). With the tax base narrowing, borrowing is likely to become more costly for the British state. So to pay for an ageing population, we are facing significantly higher taxes.
At present, tax receipts equate to around 35.5% 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 46.5% of GDP. This would be equivalent to more than doubling the share of GDP harvested by income tax or tripling what is taken in via corporation tax. And of course, as well as amounting to a massive redistribution of earnings and opportunity from the young to the old, such colossal disincentives to work and investment would in turn depress growth and deepen the problem.
Growth or bust
An ageing population is undeniably going to weigh us down. But we are not alone in this. All advanced economies are facing a similar challenge and many are caught in even more perilous demographic currents. Indeed, it seems likely that the most successful developed nations of the 21st century will be the ones who are able to escape the tax and spend vortex caused by their ageing populations.
The best means of escape is economic growth. Unfortunately, without radical structural reform, the long-term growth outlook for Britain is grim. Annual GDP growth averaged around 2.5% before the 2008-9 financial crisis. Between the financial crisis and the pandemic, it averaged 2.0%. The OBR expects now growth to average just 1.75% in the medium term, and only 1.4% over the long term.
An average growth rate of 1.4% over the next 50 years would result in the economy almost doubling in size by 2072. But as we have seen, spending on the elderly is projected to more than double as a share of GDP. If this forecast holds, then such spending will quadruple in real terms, from around £225bn to £950bn (in 2022 prices) in 2072. That is almost as much as the British state currently spends on everything put together.
We might be able to shave a few tens of billions off this here and there, especially with advances in healthcare technology (lower obesity rates thanks to semaglutide, for example). But even so, given the politics of the gerontocratic transition, we are clearly on course to see a massive rise in elderly welfare spending.
To keep geriatric spending equivalent to around 10% of GDP in this scenario, and therefore render the narrowing old-age dependency ratio fiscally harmless, our calculation is that we would need economic growth to average 2.9% per annum over the next 50 years. That way the economy would similarly quadruple in size, and we would not have to raise taxes on the young (or make deep spending cuts elsewhere) to pay for spending on the elderly.
This 2.9% is in itself quite daunting, but we also have to recall that by 2072, the working age population is projected to be 2% smaller than it is now. So under this scenario, by 2072, the average worker will have to be 330% more productive than they are now. Growth in productivity in terms of output per hour worked would have to increase by an average of 3.0% per annum over the next 50 years to yield such an improvement. For context: from 1982 to 2007, productivity rose by 2.0% per annum on average, and in the decade of stagnation after the financial crisis and before the pandemic, by just 0.7% per annum.
To make matters worse (a familiar phrase by now), an ageing population is likely to weigh on productivity growth, not least via the increasing number of labour-intensive care jobs. Moreover, the average worker will also be older.
During her brief premiership, Liz Truss announced a 2.5% GDP growth target. While not entirely arbitrary, it was based on looking backwards, to Britain’s long-run average growth rate before the 2008-09 financial crisis.
If we are going to set a growth target, then better to focus on the future. Which shows that, to support an ageing population without raising taxes on the young, we need to achieve sustained GDP growth averaging 2.9%
across the boom and bust of the business cycle for the next 50 years. (To give us a bit of leeway, and make it a rounder number, let’s nudge thi ‘grey growth target’ up to 3.0%.)
Index of hypothetical GDP growth trajectories
We should not underestimate the scale of the challenge. Excluding the bounce-back from the pandemic, GDP growth has reached or exceeded 3% only in two of the last 20 years. But growth did average 3.0% per annum across 1982-1990 and 1993-2001, so the target is not an impossible aspiration, even if the macroeconomic fundamentals are less favourable now.
Remember: if we cannot get at least close to this level of growth, then the tax share of GDP is going to ratchet up to unsustainable levels, crushing living standards for younger workers.
But on this front, we are trapped by an awful paradox. As the debate over housebuilding shows, the increasing power of the grey vote is the single biggest political barrier to implementing the radical structural reforms needed to liberate younger workers and get economic growth going again. That is the self-reinforcing and ultimately self-defeating circular dilemma of our greying political economy.
The rest of this collection is devoted to setting out, across a range of policy areas, how to reconcile the politics and economics of an ageing population, so that we can rejuvenate our greying political economy and find the strength to escape the tax and spend vortex. If not, we will all sink together.
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