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The UK population is steadily becoming older. ICAEW examines the burden on the public purse at a time of worsening economic conditions.
The UK’s population is getting older and public finances are struggling to keep pace.
According to population projections from the Office for National Statistics, the number of people in the UK aged 65 or over is expected to increase by 35% from 12.5m in 2020 to 15.9m in 2040. This contrasts with a projected 2% increase in those aged between 20 and 64 over the same period (38.9m to 39.5m) and a projected fall of 11% in those aged under 20 (15.6m to 13.9m).
It is a significant issue for public finances, which operate on a ‘pay-as-you-go’ approach that sees the current generation of taxpayers pay for the state pension and health and social care needs of previous generations. More pensioners for each person of working age implies higher taxes or lower spending per pensioner or, most likely, a combination of the two.
Health and social care
Having more people in older age groups is already driving demand for NHS services across the UK. Not only are people living longer – and therefore using the NHS for longer periods – but they are doing so at a point in their lives where their medical needs are greater, increasing the cost to the public finances and putting greater pressure on health services.
Research by the Nuffield Trust has found that NHS spend per person rises sharply after age 50, with the ‘85 and above’ bracket needing NHS spending of £7,000 a year on average. In particular, medical care for men in that age group costs about seven times more than for the late-30s cohort.
In England, these factors have contributed to NHS spending rising almost a third in real terms since 2013/14. Despite that,
The King’s Fund reports that the NHS has still needed £3.3bn extra in both 2023–24 and 2024–25 to meet increasing demand. Similar budgetary pressures are affecting the NHS in Scotland, Wales and Northern Ireland.
Going forward, NHS spending will need to grow by 3.1% a year and social care funding by 4.3% a year to meet the needs of the UK’s ageing population, estimates
the Health Foundation. It’s more funding than was promised in the
NHS Long Term Plan, published by the government shortly before the pandemic added yet more pressure to the UK’s healthcare infrastructure.
“One of the reasons for NHS wastefulness and inefficiency is that the current care delivery model is not suited to the challenges of an ageing population,” notes Sebastian Rees, Senior Researcher at thinktank Reform. “The real issue is how to develop a new delivery model. We need to aim for a ‘compression of morbidity’. This means that as people get older, the aim is that they should spend less of their lives in ill health. Right now, the inverse seems to be true.”
There is added pressure on adult social care services, too, especially following the commitment made by recent prime minister Boris Johnson to expand eligibility and cap social care costs to individuals.
Social care plans to stop people in England paying more than £86,000 for personal care expenses are due to be introduced in October 2023. But the finances of the elderly are a cause for concern, too. While many members of the current generation of pensioners own their homes and are in receipt of index-linked defined benefit final salary pensions, future cohorts have less generous pension arrangements that may make them more reliant on the state once they retire.