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The impact of Europe’s rapidly ageing population is coming under increasing scrutiny, including by British peers.
The UK House of Lords Economic Affairs Committee has just concluded an inquiry into Preparing for Ageing.
Britain is an ageing society, the birth rate is declining and life expectancy increasing. It can therefore expect an increasing proportion of its population to comprise older individuals.
The Lords’ committee launched an inquiry to investigate the impact of ageing on the UK economy and society, the opportunities and challenges the UK Government needs to consider given current demographic trends and the policies necessary to adapt to this.
The committee took oral evidence and will report its findings later this year.
Its chair, Lord Wood of Anfield, says that as the UK’s population ages the economy and wider society will need to adapt.
“Our inquiry looked at the policies necessary to prepare for this future given the demographic trends and the broader behavioural changes that may be required.”
Among the formal submissions to the committee was one drafted by Giles Merritt, a former FT journalist specialising in Europe’s policy challenges.
Merritt has been based in Brussels since 1978, is a senior Associate fellow at Belgium’s Egmont Institute and writes a fortnightly Frankly Speaking commentary for Friends of Europe, the respected think tank he founded.
He is also author of Timebomb: When Ageing Explodes, newly published by Policy Press on 27 May. Copies of the book were offered to the Lords’ committee.
Merritt, in his submission to the Lords, says, “Ageing is a profoundly European challenge, so, although the committee will be seeking UK-specific policy recommendations, sharing international best practices is essential. The inter-generational aspect is equally crucial because today’s policies must be shaped to ensure that under-privileged and often poorly paid younger people can afford to support the growth of the inactive elderly population.”
He adds, “Immigration to counter-balance infertility is vital, and needs to be re-thought. France, Belgium, the Netherlands and Germany have found that the preponderance of young male migrants fuels criminality without contributing to greater fertility. Therefore increases in the numbers of women migrating along with family units of childbearing age should be encouraged, as should the arrival of potentially child-minding grandparents who can release mothers to take productive, tax-paying work.”
He goes on, “If immigrant communities could help lift average European fertility from 1.5 children per couple to 2.5 and eventually 3.0, the expected mid-century demographic crunch could be averted.”
Merritt continues, “Housing shortages are among the root causes of infertility. Without suitable accommodation and enough financial and practical support, young couples’ parenthood is discouraged.”
“Millennials and Gen-Zers are often called Generation Rent because soaring house prices and mortgage costs are increasingly beyond their reach. Housing Europe Observatory, an NGO in Brussels, states that up to two-thirds of a young couple’s disposable income goes on housing costs, and these affect a third of European households. Home construction in the UK is roughly 100,000 units yearly, a third of the target announced in 2010. Ways to tackle this range from subsidies or tax breaks for younger home buyers to an elimination of outdated planning rules.”
He adds, “A major step forward in Britain would be to loosen the grasp of huge developers like Barratt Developments, Taylor Wimpey and Persimmon that are understood to hoard buildable land to force prices up. A government drive to reinvigorate the small building firms that were the backbone of postwar UK house construction would also help the situation.”
He argues that care services for the old and the very young are essential to countering the disruptive effects of population ageing.
“France, Germany and Finland provide instructive examples of how care homes for the elderly should be steered away from generalised healthcare, and how childcare could be greatly improved.”
“France’s state-sponsored Ehpads (établissements d’hebergement pour les personnes âgées dependantes) are a mix of public and privately run and greatly relieve regular hospitals of more expensive geriatric patients. In the UK, a hospital bed costs £2,500 a week, compared to £1,000 for a care home place, and on average a quarter are occupied by older patients.”
Half of households in the UK and across Europe are now one-child families, he says, with only 12 per cent of households having three children or more.
“This heightens the problem of pre-school childcare that is discouraging women from taking a job. Germany tries to tackle daycare with its subsidised Kindertagesstätte, KITAs, but the best system is Finland’s free-of-charge universal childcare arrangements. In all countries where childcare is substantially subsidised, the proportion of women in work is higher and family sizes larger.”
Keeping older people in the active labour force is equally important, says Merritt.
“The trend toward earlier retirement that began in the 1990s when talk was of the Leisure Revolution still dominates social attitudes in the UK, and this is compounded by the Great Resignation that followed Covid-19. Why so many people, and the young especially, aren’t looking for work is much debated; but encouraging their elders to delay their retirement is, on the other hand, comparatively straightforward.”
He also highlights the value of tax incentives and UK National Insurance tweaks which, he says, could help to entice employers to retain older staff or attract newcomers who are unwilling or unable to retire.
“Less skilled service jobs are better performed by older people, which releases school-leavers and graduates to train for higher added-value work in the digital economy. Stepped pensions with increased payouts for those who remain longer in work could help stem the shrinkage in workforces that is the result of ageing.”
“As people are on average living longer and more healthily than their forebears, a well-publicised strategy for encouraging people to remain in the active workforce into their seventies could boost tax revenues and diminish opposition to pension age reforms.”
“Efforts to bribe people into having more children have failed everywhere. From Russia to Portugal, fertility schemes have had to be abandoned because the money isn’t being spent on the right things. Housing, childcare, education are the three key areas.
“Young people of child-rearing age should be given priority access to comparatively spacious subsidised social housing. This should be complemented by free or extremely cheap crêches and pre-school daycare facilities nearby. Employment possibilities along with primary and secondary schools should be within easy reach.”
“All these ingredients are found in the New Towns the UK pioneered in the mid-20th century, and which, although no longer prioritised, are still urged by experts. But resistance for financial reasons to the large-scale planning such imaginative policies demand has limited their development. Offering cash incentives for more children may have proved worthwhile in years past – notably in 1950s France – but today’s very different social economy makes them less effective and holistic strategies are needed to effectively boost birthrates.”
“Younger people are under-paid as well as poorly housed. Tax can be fine-tuned to a much greater extent with the aim of raising younger employees’ take-home pay.”
Merritt adds, “It’s now widely recognised that the grandchildren of the post-war Baby Boomer generation can’t expect to be as well-off as their parents. Under 35s now own less than 5% of net wealth, whereas the Boomers had 20%. This is accepted as evidence of the ups and downs of economic growth, but it overlooks the far greater burden Millennials and Gen-Zers must bear when they reach middle age. In the years ahead the UK’s income tax revenue is estimated to need to rise by 10 per cent.”
He says that increasing wages for younger workers can’t be imposed on employers, but ideas worth consideration include giving people in their mid-20s a ‘capital endowment’ to help them become property owners.
“In the UK,” he says, “a lump sum of £10,000 at age 30 has been mooted, while French economist Thomas Piketty calls for £120,000 at age 25.”
These two questions are crucially important and deserve high priority, says Merritt.
“One area where policy makers could level the playing field for younger people is that of gig jobs. It is arguable whether these offer greater liberty to younger people than fixed employment, or are a source of cheap labour for employers, but they can be made less insecure.”
“The Swedish model of umbrella companies that users of gig labour must sign up to is an attractive idea. These companies administer gig workers’ payroll tax and social security payments, and participation is mandatory for both employers and gig employees.”
“The churning of labour markets reflects the turmoil of the digital revolution, and is making life very unpredictable for young people. So-called job guarantee schemes have little credibility either in Britain or continental Europe, while training and re-training programmes are widely criticised by employers as failing to deliver the right skills.”
“Ageing is beginning to upend our familiar structures of work and reward. At one end of the labour market, zero-hours contracts are operating, and at the other the forced retirement of senior executives, professionals and academics is being imposed, while they are still at peak performance thanks to improved healthcare and longevity.”
“Generation-based career patterns must be re-thought. The relationship between salaries and pensions should be made more flexible, although that requires a different approach to the way both are taxed.”
“Older people need to make way for younger ones, but in a future where workforce shrinkages will greatly reduce tax revenues it is clearly essential that rigid rules should no longer mean compulsory retirement. The equilibrium between successive generations has never been as unequal as it is now.”
“A first step must be inter-connected new policies for healthcare, care for the elderly, housing, pensions, and taxation, and these should be grouped in high-profile strategy. Far-sighted (although expensive) measures must be put in place before ageing’s worst economic ill-effects begin to be felt.”
His submission concludes: “Voters must be asked to make sacrifices now to address future dangers they cannot yet see. Ageing’s impact is becoming discernible with slow growth and soaring social costs, and it is going to wreak greater trouble still from 2030 onwards. The goal must be to soften the blow before it falls on the structures and values of our society.”
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Giles Merritt is the Founding Director of Friends of Europe
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