Media Release

“Baby shortage” could spell economic stagnation for UK

Britain risks long-term economic stagnation because falling fertility rates will deepen the country’s “baby bust”, a think-tank report warns today.

The long-term trend towards people having fewer children could leave the UK with fewer workers, a weaker economy and unsustainable public finances, according to the Social Market Foundation. Scotland faces a particularly acute problem

The SMF said the demographic outlook for Britain should spark public and political debate about the scope for government policies to help people who want to have more children to do so.

Effective interventions could include payments to parents, greater parental leave entitlement and, especially, cheaper childcare, the think-tank said. However, it also cautioned that such policies can be very costly whilst only delivering modest increases in the birth-rate.

Birth rates in Britain are on the decline. In 2020, the total fertility rate (TFR) – the number of children per woman – stood at 1.58 in England & Wales, almost half the post-World War Two peak of 2.93. The recent decline in fertility is even more pronounced in Scotland, where the TFR is 1.29.

Since the early 1970s, the TFR has been below the critical replacement rate of 2.1 children. The SMF said that depending on the scale of immigration and trends in life expectancy, the UK could see its population shrinking in the 21st Century.

Britain could also face long-term shortages of working-age adults. At present there are a little under three over 65s for every ten workers, but by the middle of the next decade that ratio will rise to 3.5. By the 2060s the number will be closing to 4.

Meanwhile, by 2050 a quarter of Britons will be over 65, up from a fifth today.

“This combination of a lower share of the population in work and a higher share in need of economic support clearly has a negative effect on the productive capacity of the economy,” the SMF said.

The SMF paper is written by Scott Corfe and Aveek Bhattacharya, senior members of the think-tank’s staff.

They argue that this long-term outlook means that UK policymakers should consider the merits of “liberal pronatalism”, where people who want to have children, or have more children, are given more support to do so.

28% of countries have adopted explicitly pronatalist measures. The UK is not yet among them, though the Scottish Government has a ‘population taskforce’ that examines such issues.

Having surveyed the evidence on population, economics and wellbeing, the SMF conclude that the case for explicitly encouraging a higher birth-rate is not fully proven, but deserves more investigation by politicians and others.

A cross-government taskforce should consider the issue, and a parliamentary inquiry into birth-rates should be established, the paper says. It also floats the possibility of Whitehall officials adopting a ‘Population Test’ where every policy is scrutinised to estimate its likely effect on the birth rate.

The strongest argument for liberal pronatalism is economic, the authors conclude. “Under plausible assumptions, low fertility rates are set to shrink the workforce, stifle demand and slow innovation, suppressing GDP growth and stretching the public finances.”

Several governments around the world including France and Poland have explored policies that can make it easier and more attractive to have children. The SMF suggested that better childcare provision could be a promising intervention for Britain to focus on.

The OECD estimates that typical British working parents spend 22% of their income on full-time childcare, more than double the average rate for Western economies. “That might mean that there is more scope for the government to influence birth rates through childcare policy in the UK than in other parts of the world starting from a better position on childcare costs,” the paper says.

However, the authors conclude that many policies that could encourage fertility should be pursued for other reasons: “Most pronatalist policies have other advantages at least as compelling as their impact on the birth rate. To put it another way, pronatalism often merely provides another reason to do things the government should probably do anyway.”

In other papers, the SMF has supported liberal immigration policies and continues to do so. But Corfe and Bhattacharya warn that immigration alone will not be enough to address a falling birth rate in the long run because many other countries face similar challenges: “Liberal immigration policies may not help if population is declining elsewhere in the world.”

Aveek Bhattacharya, Chief Economist at the SMF said:

“The question of whether the government should intervene to try and increase the birth rate is clearly a sensitive topic that must be delicately handled. However, given the alarming fall in fertility rates, and the risks that population ageing poses to our social and economic wellbeing, it is a discussion we should not duck.

“Many other liberal democracies are exploring the use of policies like cash payments to parents, more generous parental leave and cheaper childcare to make it easier for those that want children to have them. Here in the UK we should consider the merit of these policies– not least because they would bring many other benefits to parents, children and wider society.”

  • The SMF report, Baby bust and baby boom: examining the liberal case for pronatalism, is published at 07:00 on Monday 20th September at
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