The UK faces a fiscal crisis with an ageing population as the number of dependants per worker soars. We already have around one person over 65 for every three of working age – this is projected to rise to around 1 person over 65 per 2 people of working age by 2050. Three solutions are available: we can reduce the number of dependants, we can raise the fertility rate, or we can take in workers from abroad. In many respects, raising the fertility rate is the most appetising of the methods. It avoids the encouragement of death we already see in Canada. It also limits the excesses of brain drain in other countries that taking in workers from abroad would bring. Nonetheless, it is perhaps the most difficult of the methods to scale.
Poaching talent from abroad is not a long-term solution anyway; over time, it may become increasingly difficult for the UK. Competing demand for immigration is likely to increase across the developed world, as fertility rates there remain well below replacement. Simultaneously, the number of potential immigrants – particularly skilled ones – will likely decline, since sub-Saharan Africa is currently the only region with above replacement fertility. In the future, we may not be able to attract productive immigrants with the needed skills as we do now. After all, we already struggle to attract sufficient numbers of healthcare staff.
Meanwhile, the UK is already lagging behind the richest countries in terms of real median income and has a subpar growth rate. What is more, under current projections, the UK will default on welfare obligations in the early 2040s. Even those concerned about the ageing population often fail to appreciate the scale of the problem we face. At the same time, if people had their stated desired number of children – 2.35 per woman – we would have slightly above replacement fertility. So, there is an urgent need to identify policies which will best facilitate people to have the children they wish to have.
These pro-natalist policies largely come with a hefty price tag. Hungarian total fertility rate (TFR) now exceeds that of many European countries but comes at the cost of several percent of GDP. However, there are some measures that have a reasonable return on investment.
An example is a German maternity benefit policy introduced in 2007. The reform had manageable costs and saw an increase in fertility of 23% among educated women. It did so by renumerating women for lost earnings, ensuring their maternity benefits amounted to 67% of their earnings. The total cost of running the program in recent years is around half a percent of the UK Government’s budget deficit.
That said, changes to maternity and paternity leave pay risk a higher burden on the private sector, which would find an increasing number of women out of work. Instead, the Government should look to parental tax reliefs. These offer an even more cost-effective solution to the ageing population crisis the UK faces.
We could match the principle of the German maternity benefit policy by granting tax relief on a woman’s earnings in the year prior to and following childbirth. Such a policy would not set a welfarist precedent, but would have the same wealth effect as the German maternity policy.
Other pro-natalist policies often have a short-term positive effect on fertility as people shift the timing of childbirth earlier, but then find their impact trailing off. This is an exception: so far, the German maternity policy has had a permanent positive effect on fertility rates. This is even seen on a macro level – Germany is one of the few developed countries to have increased its fertility rate in the past 20 years.
The German policy has also had positive implications for long-run fiscal sustainability and gender equality. Successful German women have higher medium- and long-run earnings due to the policy. Further, any tax relief policy brings an obvious incentive to work and earn more. Therefore, the full cost of implementing such a policy would be significantly less than the headline figure.
Such a policy would most encourage productive members of society to have more children. It is in keeping with small-c conservative values: helping people to build the lives they wish to have through hard work. Importantly, it shifts the dial in the pro-natalist direction.
Peter R. Brookes is a private tutor. He writes the Persistent Ruminator substack.
Views expressed in this article are those of the author, and not those of Bright Blue.
[Image: Pixabay]
