Growth. Whoever forms the next government has to find some way of generating more of it, for that is the only way in which it can hope to increase living standards, hold down the national debt, and maintain – hopefully improve – public services. If it can’t, well, we know what happens then.
There is no easy ‘get out of jail’ card, but there is one country we can learn from: Japan. It too faces the challenge of an ageing population, rising pension payments, and slow growth – in fact more so than here. But unlike the UK it has not tried to counter these forces by encouraging immigration. More than 18 per cent of our workforce has been born abroad; in Japan it’s 3 per cent. Instead, it has encouraged more and more of its older people to stay in some kind of work. How has it done it?
There is a new report from the Growth Commission that sketches some answers. One is that companies are required by the government to hire back staff who have reached formal retirement age, if that is what they want.
The deal may not appear great, as it is usually on a fixed-term contract and on average only 60 per cent of pre-retirement pay.
Still, many workers do choose this option, with the result that the proportion of people aged 65 to 69 who are still in work is much higher than in other developed countries, including the UK.
Planning ahead: what could we do here to encourage people to stay in work if they want to?
From the firm’s point of view, this means it retains skills and holds down overall labour costs.
I suspect there is a wider social point too. It is that while the formality of human relations in the Japanese workplace can be stifling, it may make it easier for older workers to feel comfortable alongside younger colleagues.
Accepting that it is OK to get paid less if you are older probably helps smooth any roughness in inter-generational relations.
So what could we do here to encourage people to stay in work if they want to?
There are some obvious tweaks the Government can make. For example, at the moment anyone beyond official retirement age no longer pays National Insurance Contributions on their earnings.
The argument is that if someone is already getting their pension, it would be very odd if they still have to pay more money for that pension. But suppose that employers of older workers also didn’t have to pay any National Insurance Contributions?
That would be a huge incentive to hire them, and probably would cost nothing overall, because the Government would receive more income tax.
It is possible, though tricky to implement, that the Government could exempt the earnings of older people from inheritance tax. Any money that people earned past retirement age (and on which they had paid income tax) would be deducted from their estate when they died.
There is a further range of things to look at, notably self-employment. Most older workers are in practice likely to be working for themselves.
But recent tax changes have discouraged that because a lot of organisations, including the BBC, were paying people who were to all intents and purposes employees as though they were freelancers. That has been stopped and rightly so. But it has had the effect of discouraging early retirees from seeking any kind of paid work. It is just not worth the hassle of coping with a dysfunctional Revenue & Customs.
This is not something just for the Government. It is for employers and staff alike. It is about creating a workplace atmosphere that encourages different age groups to get along with each other. Their values will inevitably be different, their language will be different, and their politics will probably be different too. Each can learn from each other, but that does require flexibility – and grace – from both sides.
Still, if the Japanese can manage it, so surely can we. Many older people don’t need to work and that’s fine. Many can’t work, and need to be supported. But if we are to ease the tax burden on the young, we have to make work more attractive for the old. Simple as that.
