A devastating Credit Suisse note says Britain's economy is screwed
Credit Suisse pension research chief Amlan Roy just published a devastating analysis of the UK's population demographics. He concludes, in part, that the ageing population of the UK is making the economy unsustainable, absent of some major change in demographics.
"Health and pension promises towards older people pose a serious future challenge to the UK's financial sustainability," his note to investors says.
The takeaway here is that if your priority is economic growth and low unemployment, then everything UKIP and the Conservatives have been saying about immigration has turned out to be totally wrong.
This problem — that as a population ages its ability to grow gross domestic product declines — is well known to economists.
Basically, growth in the worker population is one of the main drivers of economic growth overall. A country can get that growth by having lots of babies (which produces lots of new workers 16 to 22 years later), having lots of immigration (which can add young, new workers to the economy instantly), or making each worker more productive (such as through high-paid tech jobs).
But Britain is doing none of those things, Roy writes.
Here is a chart that will terrify you if you care about economics. It shows that the number of older nonworking people per 100 people of working age has increased dramatically since 1991:
Now, 27 people over the age of 65 are being sustained on the wages and taxes of 73 workers, this chart says. Back in 1991, only 24 such people were being supported by 76 workers, a far lower burden.
The increase is even greater in Wales, where nearly a third of the population is dependent on the productivity and tax revenue of the available workers.
The demographic shift — the median age has gone from 35 in 1985 to 42 today — has had the result of depressing the entire UK economy's productivity. This next chart expresses a complicated concept, the "decomposition of real GDP growth." But the fact that the bars are trending downward and going negative should tell you basically what it means. The UK's ability to grow GDP through increased labour productivity is in decline:
That productivity is in decline because the contribution to GDP growth from increases in working-age people is now tiny, and the overall productivity of those people is getting smaller.
More workers are needed to do jobs that pay more wages and generate more taxes, basically. What we have is fewer workers doing poorly paid jobs.
What Roy doesn't say explicitly — though his data obviously suggests it — is that Britain's hostility to immigration will actually hold it back economically, ushering in an era of low GDP growth and unpaid commitments to pensions and the NHS. (Conservative Prime Minister David Cameron promised to reduce immigration to "the tens of thousands, not the hundreds of thousands," in his 2015 manifesto.)
"With fertility rates decreasing, net migration has become a significant contributor to the UK's population growth," the note says. The immigration hasn't hurt anyone, either. The unemployment rate has remained unchanged over the years at just over 7%, the note says.
Unless more new workers are suddenly born or allowed in from other countries, "state and public pensions are unlikely to provide an adequate post-retirement income," Roy writes.
The solution to the problem — and we're quoting Roy a little out of context here — is to let more immigrants in: "Immigrants into the UK also tend to be younger. In the UK, 81.2% of migrants are of working age (i.e., 15-64 years old), compared to 65% in the total population. Most of them are also gainfully employed."