Does an ageing population mean never-ending tax rises?

Taxes will keep on rising for years to come to cover the cost of caring for Britain’s ageing population, Chancellor Philip Hammond has warned.

Official figures have revealed the UK deficit has almost halved, dropping to its lowest level in 17 years in 2018-19 to drop to its lowest level in 17 years, apparently handing Hammond the chance to boost spending and move away from austerity.

However, instead the Chancellor said the tax burden - already its highest in more than 30 years - will rise further.

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“The tax share of GDP has been rising across the OECD, and the reason is fairly straightforward - it is a function of an ageing population,” Hammond said.

According to the Office for Budget Responsibility [OBR], taxes amounted to around 37% of UK GDP last year – “a share not seen for decades and one of the highest since the 1950s” reports The Daily Telegraph.

“We have to recognise that as the population ages, the pressure on public services and spending will increase. The OBR forecasts suggest it will go on rising out to forecast horizon 50 years out as a result of demographic change in the population.”

Countries like Japan and Italy are finding that an ageing population combined with a workforce that is shrinking means income taxes will no longer be sufficient to support investment in social services and infrastructure at the current level.

“As pressures continue to grow on public services, including as a result of an ageing population that demands more and more expensive health and social care, we may see more discussion about the size of the state,” says Helen Miller in Prospect.

The state pension age is being raised to 66 to take into account the ageing population, but the reality remains that we are now far from “the demographic sweet spot in the era of Margaret Thatcher when the post-war boomers were younger and paying taxes, while not needing much public spending,” says executive chair of the Resolution Foundation, David Willets, also in Prospect.

“No amount of radical pruning of the NHS or state pensions now escapes this dilemma as it is hard to see any government expecting retired people to make ‘alternative arrangements’ in these sensitive areas” he adds, suggesting there is a “good argument” for the wealthier older generations to pay more tax on their assets rather than adding to the burden on the working population.