Birth rate blip could mean that all our labours will be lost in long run

Covid-19 has left work­ers more in­se­cure and more likely to de­lay start­ing a family, writes Lizzy Bur­den

The Daily Telegraph - Business - - Business -

Trust the dis­mal sci­ence to kill the idea that mis­spent lunch breaks at home will lead to a Covid-19 baby boom. In­stead, with more work­ers feel­ing in­se­cure about their em­ploy­ment prospects and fi­nances, economists be­lieve that peo­ple will de­lay start­ing a family. A study by the

Univer­sity of Cologne pre­dicts that, be­cause “pregnancie­s are con­ta­gious”, lock­down re­stric­tions will mean the birth rate will fall 5.8pc with­out the in­flu­ence of col­leagues and 1.5pc with­out in-per­son sib­ling con­tact.

It will take nearly two decades for the lost gen­er­a­tion of Covid-19 ba­bies to shape Bri­tain’s tax base, but the Of­fice for Bud­get Re­spon­si­bil­ity (OBR) thinks in decades. Ac­cord­ing to its lat­est fis­cal sus­tain­abil­ity re­port, gov­ern­ments will have to claw back 1.8pc of GDP – £40bn now – each decade so that by 2069-70 the debt-toGDP ra­tio re­turns to 75pc, the level the Gov­ern­ment deemed ac­cept­able in March’s Bud­get. The OBR’s warn­ing comes against a back­drop of the big­gest is­sue of fall­ing fer­til­ity rates, which means that 23 coun­tries could see their pop­u­la­tions halve by 2100.

A study by the Univer­sity of Wash­ing­ton’s In­sti­tute for Health Met­rics and Eval­u­a­tion, pub­lished in

showed the global fer­til­ity rate nearly halved to 2.4 in 2017. It could fall even fur­ther to 1.7 by the end of the cen­tury – below the 2.1 level that keeps the pop­u­la­tion level sta­ble. That would put more pres­sure on a UK econ­omy al­ready ex­pect­ing to spend a higher share of GDP on healthcare and adult so­cial care as the pop­u­la­tion ages. The Trea­sury’s cof­fers will also be about £26bn a year emp­tier a decade af­ter Brexit, ac­cord­ing to the Na­tional In­sti­tute Of Eco­nomic and So­cial Re­search, due to lower in­ward mi­gra­tion.

The cur­rent era of his­tor­i­cally low in­ter­est rates has eased wor­ries about debt sus­tain­abil­ity. But Jonathan Portes, a pro­fes­sor of eco­nom­ics at King’s Col­lege London, warns that “ev­ery ba­sic eco­nomic model will tell you we should spend more on health”.

Ju­lian Jes­sop, a fel­low at the In­sti­tute for Eco­nomic Af­fairs, also pro­poses more pri­vate-sec­tor fi­nanc­ing and pro­vi­sion of health and so­cial care. He cites Ja­pan as the clas­sic case of a coun­try with a long life ex­pectancy (84 com­pared to 81 in

‘Ev­ery ba­sic eco­nomic model will tell you we should spend more on health’

the UK), low birth rate (1.4 in 2017 com­pared to the UK’s 1.8) and enor­mous debt-to-GDP ra­tio (236pc last year). The ef­fect of de­mo­graph­ics on pro­duc­tiv­ity is harder to map, how­ever. An­drea Fer­rero, an eco­nom­ics pro­fes­sor at Ox­ford Univer­sity, ex­plains that while the early de­cline in Ja­pan’s fer­til­ity rate co­in­cided with stag­na­tion when the Eighties bub­ble burst, “there isn’t yet de­fin­i­tive proof that the low pro­duc­tiv­ity was caused by the de­mo­graph­ics”.

In the short term, Covid-19 may have ac­tu­ally boosted UK pro­duc­tiv­ity,

ac­cord­ing to Sil­vana Ten­reyro, a mem­ber of the Bank of Eng­land’s Mon­e­tary Pol­icy Com­mit­tee, who noted in April that the shift to on­line re­tail had boosted the per­for­mance of a sec­tor with low pro­duc­tiv­ity.

But fur­ther out the pan­demic is likely to pro­duce the op­po­site ef­fect. “Poor-qual­ity in­vest­ment may ex­ac­er­bate weak cap­i­tal spend­ing,” notes Ben May of Ox­ford Eco­nom­ics.

In the longer term, how much the likely baby bust will af­fect pro­duc­tiv­ity and add to a grow­ing fer­til­ity cri­sis will de­pend on the Gov­ern­ment’s re­sponse. Even if the ef­fects seem dis­tant, Andrew Ben­ito, chief Euro­pean econ­o­mist at the hedge fund Eisler Cap­i­tal, warns that a birth rate blip could be sig­nif­i­cant: “These trends are turn­ing out to be much more im­por­tant than the cycli­cal ups and downs that economists thought they’d cracked.”

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