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
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.”