The UK, China and demographic change

6 January 2016

Aside from some great fireworks, the start of 2016 brought an additional moment of celebration for some Chinese families. After some 35 years, China officially ended its ‘one child’ policy, bringing an end to a controversial intervention in family structures thought to have reduced total births by some 400 million. However, it comes too late to avoid a significant demographic problem. China’s working age population is forecast to start declining from 2020 through the delayed effect of the one child policy, meaning economic growth will be dependent on productivity gains. There is now a serious danger that the country will ‘grow old before it grows rich.’

This is a salutary reminder of the importance of demographics to public policy – often a dominant but opaque factor. In contrast to developing economies, where high fertility rates are helping to spur growth (with around half the increase in global population increase up to 2050 projected to come from Africa, for example), for many developed economies the ratio of workers to dependents is only worsening. Some of the biggest percentage falls in working population are projected in Eurozone countries – Spain, Greece, Italy and Portugal particularly – which have had serious problems with their public finances in recent years.

For the UK, the picture is not so grim. In contrast to the stereotype of a ‘greying’ developed nations’ workforce acting as a drag on growth, the UK economy is expected to grow both per head and overall – with around half the population change due to net migration. By some estimates, the UK will become Europe’s largest economy by the 2030s; with the latest figures projecting a population of 74.3 million by 2039 – the latest in a series of upward revisions. While policymakers are generally coy about population management – with the notable exception in the UK of former minister David Willetts’ call for incentives to increase the birth rate – many developed economies implicitly manage this issue through labour market interventions, immigration, taxation and public spending.

Nevertheless, such policies will not alter the fundamentally stark choices much of the developed world will face in coming years. Limits on public service provision will require new delivery models to encourage people to plan early for getting older, such as working longer, managing social care costs and funding private pensions. Government may have to look further at eligibility for age related benefits (including regular review of the State Pension age) and consider whether some universal benefits remain sustainable. The health service will have to make tough choices about prioritisation in areas such as preventative healthcare, drugs, dementia and immunisation. Employers will have to look at new ways of offering support for workers with declining capacities to reduce their hours as they age, or in working more flexibly. The prospect of intergenerational conflict looms large as younger workers are asked to fund the retirement of a rapidly expanding number of retirees.

For the UK, the challenges are formidable and Reform will continue to look at all these issues. Nevertheless, we look likely to have it easier than many other countries.

Ed Holmes, Senior Researcher, Reform

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