Britain must do more to adapt to the ageing population

Forget Brexit – in the long term this is our economy’s biggest challenge

Retirement may have to be softened so more older people still work (Getty)

The continued growth of jobs in the UK, albeit at a slower pace, is one of the brighter spots in an otherwise questionable economic landscape. How long it goes on – well, let’s see... for there are certainly headwinds ahead. But let’s step back a moment and see it not so much in the context of this economic cycle or indeed the disruption of Brexit. Let’s instead think about the medium and longer terms, and the ways in which the trends of the UK employment market fit into the current set of figures

The reason for wanting to think about the long term is that while the size of the UK workforce is expected to continue growing over the next 20 years, unlike that of the eurozone, it will still shrink as a proportion of the total population. We are becoming an older society, but more slowly than the rest of Europe and much more slowly than Japan. The most extreme characterisation of this greying of Europe that I have found is that of the Robert Schuman Foundation, a European research centre created in 1991 after the fall of the Berlin Wall. It talks in terms of demographic suicide, which is harsh indeed.

Whether or not you accept that conclusion, and it is important to remember there are differences within Europe, there is no doubt the continent faces a challenge. One of the ways of meeting that will be to encourage higher participation rates of people of conventional working age, and to encourage people beyond working age to remain in some form of employment.

So how are we doing? First, employment. As we are often reminded, the current rate is the highest ever recorded. The Office for National Statistics numbers and commentary are here. But without in any way wishing to play down that achievement, which brings social as well as economic benefits, there are countries elsewhere in Europe, such as Sweden, where participation rates are even higher.

One of the challenges for the next government will be to look at the ways in which we can clear blockages so we can nudge the proportion up even further. I suspect that help with child care and particularly retraining will come top of the list. There is clearly a skills mismatch, for many employers report they cannot find people with the skills they need – one of the reasons why so many people from the rest of the European Union have come to the UK.

This might explain why male employment rates, though they have come up a bit since the last recession, are still below the levels of the 1970s and late 1980s. The record participation rate is therefore driven by the rapid increase of women in the workforce. The next sector to look at is how to use the resource of an older workforce positively. Just increasing the formal retirement age is something, and just about every country is doing that, albeit with some pushback from older workers. But what you really need to do is more subtle. The aim should be both to increase the average actual retirement age, but also to soften the transition into retirement.

Again, the UK is not doing too badly, with more than one million people working beyond retirement age and nearly half a million beyond the age of 70. But perhaps the most remarkable statistic is that one-third of the people in work (10.5 million) are over the age of 50 – up from a quarter a decade ago. As for the over-65s, not having to pay national insurance probably keeps quite a few people still in work who might otherwise have retired. Were the government to drop employer national insurance contributions, which are still paid, the number of older workers would doubtless rise even more. That is unlikely, but more flexible working conditions should enable the numbers to continue climbing.

There is a further twist of policy that is needed – the removal of disincentives to continue working. The most widely reported current example has been GPs who are pushed to retire early because of tax changes to their pension pots. But there are other instances where quite a small tax change produces unwanted effects.

The big point here is that the UK has made some steps in adapting the labour market to cope with the threat/opportunity of an ageing population. But getting this right is one of the great challenges facing all developed countries, and in some regards the UK could do better.