Growth. Whoever forms the next government has to find some way to generate more, because that is the only way they can hope to raise living standards, contain the national debt and maintain (hopefully improve) public services. If you can’t, well, we already know what will happen.
There’s no easy get-out-of-jail-free card, but there is one country we can learn from: Japan. It also faces the challenge of an aging population, rising pension payments and slow growth (more so than here, in fact). But unlike the UK, it has not attempted to counter these forces by encouraging immigration. More than 18 percent of our workforce is foreign-born; in Japan it is 3 percent. Instead, it has encouraged more and more older people to stay in some form of work. How have you done it?
There is a new report from the Growth Commission which outlines some answers. One is that the government requires companies to hire staff who have reached formal retirement age, if that is what they wish.
The deal may not seem very good, as it is usually a fixed-term contract and, on average, only 60 percent of pre-retirement salary.
Still, many workers choose this option, with the result that the proportion of people aged 65 to 69 who are still working is much higher than in other developed countries, including the UK.
Plan ahead: what could we do here to encourage people to continue working if they want to?
From the company’s point of view, this means it retains skills and keeps overall labor costs down.
I suspect there is a broader social point as well. The point is, while the formality of human relations in the Japanese workplace can be stifling, it can make it easier for older workers to feel comfortable alongside younger colleagues.
Accepting that it’s okay to be paid less if you’re older will likely help smooth out any rough edges in intergenerational relationships.
So what could we do here to encourage people to continue working if they want to?
There are some obvious adjustments the Government can make. For example, currently anyone who has passed the official retirement age no longer pays national insurance contributions on their income.
The argument is that if someone is already receiving their pension, it would be very strange if they still had to pay more money for that pension. But suppose employers of older workers also had to pay any national insurance contributions?
It would be a huge incentive to hire them and would probably cost nothing overall, because the government would receive more income taxes.
It is possible, although difficult to implement, that the Government could exempt the income of older people from inheritance tax. Any money people earned after retirement age (and for which they had paid income taxes) would be deducted from their estate when they died.
There is a wider range of things to consider, particularly self-employment. In practice, most older workers are likely to be self-employed.
But recent tax changes have discouraged this because many organisations, including the BBC, were paying people who were, for all intents and purposes, employees as if they were self-employed. That has stopped and rightly so. But it has had the effect of discouraging early retirees from seeking any kind of paid work. A dysfunctional Tax and Customs system is simply not worth dealing with.
This is not something exclusive to the Government. It is for both employers and staff. It’s 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 requires flexibility – and grace – on both sides.
Still, if the Japanese could do it, surely we can too. Many older people don’t need to work and that’s fine. Many cannot work and need support. But if we want to ease the tax burden on young people, we have to make work more attractive to older people. Simple as that.