How to cope with an ageing population is one of the crucial economic questions of our time, but you would hardly guess it from the lack of attention it receives in the media.
From time to time we are reminded that there is a ticking demographic
time bomb, but the full scale of the challenge is rarely acknowledged.
At the start of the last century, there were two million people aged
over 65. Today, it is more than ten million, and it is expected to rise
to nearly twenty million by 2050.
The number of people aged 75 and over is expected to double in the
next twenty years, from less than five million today to nearly nine
million in 2035.
The economic implications are profound. The annual healthcare costs
of a person aged 85 or over are five times higher than those of somebody
in their early 60s, and ten times higher than somebody in their 40s.
The extent to which ageing has necessitated the spiralling budget of
the NHS in recent decades is a matter of debate, but there is no doubt
that it has been an important factor.
Significant though they are, healthcare costs are a relatively small
part of the costs of ageing when compared to pensions and other old age
When the basic state pension was introduced after the Second World
War, life expectancy was 68. It is now 81 and is expected to rise to 87
in the next fifteen years. It may not be long before people spend more
years of life out of work than in work.
The Office for Budget Responsibility expects increased demand for
healthcare, long-term care and state pensions – mostly caused by greater
longevity – to gobble up an additional five per cent of GDP by 2065.
None of this is necessarily unsustainable given a strong economy, but
as the number of workers dwindles relative to the number of dependants
we will be set a challenge that no society has had to confront before.
Contrast the modest amount of coverage this serious issue attracts
with the claims that are routinely made about obesity ‘bankrupting the
NHS’ and smokers being a ‘drain on the taxpayer’. Last year, the NHS
published a report which claimed that the very sustainability of the
health service required ‘hard-hitting national action on obesity,
smoking, alcohol and other major health risks’.
It would appear that we are a drain on the taxpayer if we live too
long and a drain on the taxpayer if we die too early. But which is
really more costly?
The economic evidence strongly suggests that old age requires much
more expenditure than premature mortality. Diseases related to obesity
and smoking are usually, though not always, cheaper to deal with than
the chronic, non-fatal diseases of old age and they are also – to put it
bluntly – lethally efficient.
If anyone is a ‘drain on the taxpayer’, it those who indulge in
healthy lifestyles and live to a ripe old age. Every year in old age is
spent taking more in services and benefits than is paid in tax.
People will argue, quite rightly, that old people have paid into the
system all their lives and deserve their benefits in retirement, but
that does not change the fact that the burden on working taxpayers rises
as the elderly cohort expands.
The principal aim of healthy living is to extend life. It should be
no surprise, then, that most preventive health measures end up costing
more than they save.
Health economists have long argued that policies designed to extend
life should be promoted on the basis that better health has intrinsic
benefits rather than on spurious claims about saving money.
But when the government cut the UK’s £3 billion public health budget
by £200 million earlier this year, the Faculty of Public Health claimed
that it would cost the NHS ‘at least £1 billion’ in the long run.
This ‘stitch in time’ theory doesn’t stand up against the facts. As I show in Death and Taxes,
a new report from the Institute of Economic Affairs, it is highly
unlikely that efforts to deter physical inactivity, over-eating, smoking
and drinking will save the taxpayer any money.
In fact if successful, they will almost certainly require greater public spending further down the line.
This is, of course, not an argument for encouraging worse health. But
the pervasive fiction that the NHS’s financial problems would be solved
if we all just ate our greens and cut down on the wine encourages
unrealistic expectations about the ability of public health policy to
cut costs, while making scapegoats of people whose healthcare costs are
actually lower than those who lead ‘healthy lifestyles’.
The reality is that life expectancy has increased largely as a result
of healthier lifestyles – better nutrition and lower smoking rates, for
example - and that this has led to significantly higher costs to
The question of how to deal with the economic consequences of our
grandparents in a system of state-run healthcare and welfare remains an
important one. By contrast, the drinking and obesity ‘time bombs’ are
Cross-posted from Conservative Home