Thursday 17 December 2015

Death and taxes

I've got a new report out with the Institute of Economic Affairs. It's called Death and Taxes and it looks at the costs associated with the ageing population.

Here's the introduction:

The British population is getting older. At the start of the last century, there were two million people aged over 65. Today, there are more than ten million and this is expected to rise to nearly twenty million by 2050 (Cracknell 2007: 44). The number of people aged 75 and over is expected to reach nearly nine million by 2035, up from less than five million in 2010 (Rutherford 2012: 4).

Falling fertility rates and the baby boom have played a part in recent demographic change, but old people getting older as a result of medical advancements and healthier lifestyles has been the overwhelming driver of increased life expectancy in the last fifty years (Rechel et al., 2009: 2).

The financial impacts of an ageing society are profound. When the basic state pension was introduced after the Second World War, life expectancy was 68. It is now 81. It is expected to be 87 by 2030. Governments have long recognised that the working age population is under increasing pressure as the number of working taxpayers falls relative to the number of dependents. Longer lives necessitate greater expenditure on healthcare, social care and welfare.

If healthy lifestyles lead to longer lives and higher costs, it might be expected that unhealthy lifestyles lead to shorter lives and fewer costs. Nobody would advocate unhealthy lifestyles on the basis that they save money, but if the issue is reduced to cold financial facts this is a logical conclusion to draw. However, quite the opposite conclusion would be reached by reading the popular press and listening to public health campaigners. It is routinely claimed that groups with lower life expectancy, particularly smokers and the obese, are a ‘drain on the taxpayer’ because of the costs of treating smoking and obesity-related diseases. The clear implication is that expenditure on public services would be lower if there was less smoking and less obesity.

This argument is often made explicitly. In 2014, Simon Stevens, the Chief Executive of the NHS, warned that if ‘we keep piling on the pounds around the waistline, we’ll be piling on the pounds in terms of future taxes needed just to keep the NHS afloat’ (NHS England 2014). A month later, the NHS published a five year plan which concluded that ‘the sustainability of the NHS’ requires ‘hard-hitting national action on obesity, smoking, alcohol and other major health risks’ (NHS 2014: 9-10).

There is no doubt that lifestyle-related illnesses require healthcare expenditure. The real question is whether these costs are higher than the longevity-related costs associated with ageing, not only to the NHS but to the government as a whole, including the social security system. The aim of this discussion paper is to find an answer to that question.

You can download it here and there's a blog post about it here.

Merry Christmas!

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