Britain’s fiscal time bomb: Too many pensioners, too few babies

The demographic time bomb is most certainly primed. Future fiscal projections are bleak: by the 2070s, government expenditure is forecast to reach 60% of GDP, and the UK debt-to-GDP ratio could reach 200% by the 2060s. Without imitating the rhetoric of the sitting British government too closely, the UK economy is clearly broken, the result of economic stagnation and increased state dependence. The primary cause? Increasing reliance on an ever-shrinking workforce to fund the eye-wateringly high expenses of retirees. The solution? Significant fiscal reform.

While the ideal of radicalism, particularly in the field of economics, is often met with a particularly furrowed brow, you must remember that every idea was once a radical one. From FDR’s New Deal to Thatcher’s Big Bang, today’s mainstream ideas were the innovative ones of the past, and it is healthy to at the very least entertain what we ought to call ‘responsible radicalism’: those ideals which extend beyond how we currently enact fiscal policy but still operate within established frameworks. It is rare, after all, to find long-term stability (and by extension prosperity) by tearing down the institutional house. But decisive action is still needed to address our most daunting economic challenges, and demographic change is undoubtedly one of them.

If current trajectories are not reversed, public services will face cuts far deeper than those of the now-renounced 2010s austerity run

The data paints a frightening picture. The UK’s total fertility rate in 2024 was 1.14 births per woman (a rate of 2.1 is required for population maintenance), marking it not only the lowest value ever recorded, but also one projected to worsen. As a point of comparison, South Korea had the lowest birthrate in the world last year, according to an OECD report, having fallen from 6 children per woman in the 1960s to 0.72 in 2023. The Bank of Korea has projected that the nation’s demographic challenges will force the country into permanent recession as early as the 2040s; Britain’s 2024 birth rate was only 0.4 higher than South Korea’s.

Such a low birth rate has set off major alarms at the OBR, which has estimated that the UK’s ratio of working-age individuals to retirees will fall from four to two. To stave off economic catastrophe, such demographic shifts would constitute severe cuts within the UK public sector, alongside substantial tax rises. If current trajectories are not reversed, public services will face cuts far deeper than those of the now-renounced 2010s austerity run, coupled with a tax creep that will make monetary individualists weep. Put simply, the UK’s current rate of expenditure cannot persist without natalism.

Before we consider pro-natalist policies, we must outline how we would pay for them – after all, we do not want to end up filling a bucket with a hole. Revising the triple lock is our answer, though we would like to do this within the realms of moral and political possibility. Seniors deserve comfort and security, and to cut too deeply into the British pension scheme is not only to deprive them of the respect they deserve, but to veer into electoral suicide, too. Unless we implement draconian democratic age limits, the oldest in society are to remain perhaps the most crucial voting bloc of all. Since turkeys don’t vote for Christmas, revisions to pension policy need to be delicate and well-considered to avoid political infeasibility.

We saw how difficult it was for the current government to cut Winter Fuel Allowance, and the painfully inevitable U-turn that followed. There is no doubt that any revisions to the triple lock would cause a similar, but altogether greater, stir. The decision to do so is obviously a painful one for party popularity, no matter how delicately it is carried out. Still, for the long-term prosperity of the country, it is doubtless the right one. The triple lock is designed to provide an increase in the state pension based on the highest of national average earnings, cost of living (CPI), or 2.5%. Given demographic projections, that 2.5% is going to be increasingly significant, and unsustainably so. Any policy that increases regardless of the economic climate finds itself being fiscally irresponsible.

Let us look at 2021 to illustrate the problem. The increase in pensions that year was 2.5%, which occurred even as average earnings nationwide took almost a full percentage-point plunge. Given the concerning projections for demographic changes, this triple lock will only feed the growing black hole currently residing at the heart of British finances. Scrapping the 2.5% baseline is therefore the least we ought to do, ensuring pensions are, like every other government expenditure, responsive to the monetary pragmatism of the context.

Of course, there will be concerns about pensioners being plunged into poverty. Still, there is already a failsafe in place through the pension credit scheme, which ensures those who do not receive a sufficient amount through their state and private pensions can live comfortably. What we’re doing here is retaining the existing prosperity of the state pension, whilst saving immense public costs (especially in the longer term), and preventing pensioner poverty in the process. This is significant since the threshold the government uses for ‘comfortable living’ can rise in line with whatever parameter we so choose. CPI, by nature, seems appropriate.

If both prospective parents are working full-time, amid long working hours and work-related stress, they will view children as a luxury, not a ubiquity

While we are at it, we should pursue a similar policy for the aforementioned Winter Fuel Allowance. Labour reduced the number of pensioners receiving the payment from 11.4 million to 1.5 million, but by their own analysis, 50,000 pensioners were left to descend into poverty. The government failed by going a step too far, retracting the payment from too many pensioners. Currently, it recovers the Winter Fuel Allowance from pensioners with an income over £35,000. Still, this limit could be conservatively reduced to £30,000 (if not further), which would save money whilst ensuring no increase in pensioner poverty. It is a shame for some that, as a result of such a policy, the government wouldn’t be funding ski passes anymore, but them’s the brakes.

44% of adults plan to delay having children, with the cost cited as the most significant reason. For most of the 20th century, families would survive, and often thrive, on a single income. However, due to rising house prices, stagnating real wages, and a general rise in the cost of living, most households are now forced to operate on a dual-earner model. If both prospective parents are working full-time, amid long working hours and work-related stress, they will view children as a luxury, not a ubiquity.

It is important to note that increased female labour participation is neither a cause of the problem nor a problem itself. Women in the workforce are economically beneficial, but women who need to work to sustain a basic standard of living leave couples with no spare time to rear children. We therefore propose a child-linked mortgage relief scheme, as housing costs are one of the main reasons people need dual incomes to sustain a household, with first-time buyers spending 37% of their take-home pay on mortgage payments. For each child born, the government could provide a principal forgiveness on the mortgage. This measure would significantly reduce mortgage costs, help people get on the housing ladder, and reduce the need for dual incomes. This would create a socio-economic environment more attuned to the needs of prospective parents. To further improve the policy’s efficacy, the principal forgiveness could be increased by a larger amount per child.

The demographic time bomb is ticking, and we need to enact real change to address this crucial issue before it’s too late

Of course, there are issues to address. Critics will likely point to the failure of policies of similar intent, such as those adopted in Hungary. However, our concept differs, as these efforts mainly benefited the middle classes. To ensure fairness, households would receive full benefits up to a particular income percentile, say the 70th percentile, tapering to 0 at the 85th percentile. Another potential problem could be that it would only help homeowners, meaning the government would also need to introduce deposit relief or provide rental vouchers to ensure benefits are distributed fairly. Though this policy would doubtless be expensive and difficult to quantify fully, you must spend money to make money, and research shows people are the most significant investment of all. We would also urge a pilot scheme to test these policies before national implementation.

Britain needs a baby boom. With our current projections, the UK is heading for a fiscal crisis. Reforming the triple lock and introducing a child-linked mortgage relief scheme with support for renters are not acts of ideological adventurism, but measured responses to the need for significant change. They are responsibly radical. Whilst the full impacts of the demographic crisis are still far away, the lever to change the direction of our train is quickly passing us by. The demographic time bomb is ticking, and we need to enact real change to address this crucial issue before it’s too late.