The population explosion and your finances

Not so long ago it was thought the population of the UK would level off at around its current level of 60m. But a report this week from the Office of National Statistics (ONS) is suggesting that we’ll pass the 70m mark in just over 20 years. This could have a big impact on the state of our finances affecting pensions, taxes and house prices.

The ONS is quick to state that these figures are just projections rather than detailed forecasts. In fact, it has just extrapolated what will happen if the UK keeps growing at its current rate of around 400,000 people a year. Half of this growth is coming from immigration with remainder being the net difference between births and deaths (although immigration is increasingly a factor in pushing up births too). Of course, future policy decisions could result in radically different numbers for immigration but these projections give us a good idea of how things might turn out if we carry on as we are now.

Across the regions of the UK, England and Northern Ireland will be the quickest growing areas. But even Scotland, which had been forecast to see its population shrink, is now expected to experience an increase in numbers over the next 25 years.

It’s worth noting how quickly these projections can change however. Just two years ago, UK population growth over the next 25 years was estimated to be just 6m. The latest revisions have bumped that up significantly to 10m. In a couple more years we could be revising the figures again although hopefully not so dramatically.

More people but older people

Some parts of the projections can’t be disputed though. For example, as well as an increasing population, we’ve also got an aging one. This is old news of course but the higher numbers of immigrants means that the UK’s average age may not increase by quite as much as had been previously thought. Most immigrants are young and tend to start families, both of which help defuse the so-called demographic timebomb. As luck would have it, many of them are also employed in the residential care sector, one of the fastest growing areas of the UK’s ever-greying economy.

At the moment we have 3.3 as many people of working age as we have pensioners. The ONS now reckons this figure, known as the dependency ratio, will fall to 2.9 by 2031. A lower dependency ratio was the key reason behind the recent announcement of the increase in the state pension age. It will rise to 66 in 2024 and go to 68 in 2044. The ONS projections are unlikely to mean that this decision is reversed but it does take the pressure off a little and could mean it’s tweaked a bit.

Mixed news for taxes

There is good news and bad news when it comes to taxes. On the plus side, more people means more taxpayers to fund those pensions, as it’s thought that immigration is generally a net boost to the economy. But, in the near term, we’ll also need to spend a lot more to improve our already creaking infrastructure, particularly in terms of transport, schools and health. With long lead times in many of these areas, plans, and funding for those plans, need to be sorted out pretty damn quickly.

So what about house prices?

Perhaps the place where the biggest impact will be felt is house prices. The house price Cassandras are out in full force at the moment and, while prices do look expensive, it is long-term factors like population growth which are likely to underpin house prices over the next few decades although there will undoubtedly be blips along the way.

Naturally, whether this is a good or bad thing depends on your position on the housing ladder! Although it’s widely accepted that we need to build many more houses (and that was before these new figures came along) there doesn’t seem to be much action on this front at the moment. The increasing number of immigrants will also offer some comfort to the buy-to-let brigade, many are whom are reportedly struggling to cover their costs at the moment and will be glad to see hordes of fresh tenants on the horizon.