Weekly Update – Chancellor’s Statement, falling birth rate & Westminster committees

Earlier in the week, we published our immediate reaction to Rachel Reeves’ statement on her audit of the UK public finances. Since Monday, there has been lots of analysis of the detail of the statement, and perhaps some surprise that so much was announced alongside to deal with (only some of) the “black hole”, rather than waiting for the budget in October.

From the Scottish perspective, we flagged on Monday that the changes to the Winter Fuel Payment would not apply in Scotland. However, this change will affect the resources available to the Scottish Government given the way that the adjustments to the block grant work: so that the Scottish Government will either have to follow suit or fund the universalism of the Winter Fuel Payment replacement out of other funds.

The Scottish Government have now responded, and have not committed to either following the lead of the UK Government or to keeping the devolved benefit universal. It feels difficult to imagine that this decision will be able to wait until the Scottish budget, which is likely to come in late November, given the normal timescale for these payments being made (between November and Christmas).

We wait and see – perhaps we will find out when the Programme for Government comes out in early September.

Scottish birth rate falls to a historic low

This week’s release by National Records of Scotland showed that the birth rate in Scotland fell further in 2023, to 1.3 births per woman. This is a historically low level, but not unexpectedly so; it continues a broad trend of fewer births that we have seen for a number of decades.

It’s not exclusive to Scotland either. Across the world, births per woman are below the 2.1 replacement rate in two thirds of countries, and the rate has generally been trending down.

Low birth rates are one of the main reasons for the ageing of the population that projections show taking place over the coming decades. Life expectancy has been increasing, and so this interacts with lower birth rates to create a situation where we can expect a growing share of people to be of retirement age while a smaller cohort of people transition into working age.

Older people tend to use the health service more and also generally draw their income from pensions, which are mostly paid out of the contributions of those currently in work. It’s from this smaller proportion of the population of working age that tax revenues will need to be found to pay for public services and pensions. As the Office for Budget Responsibility and the Scottish Fiscal Commission’s projections show – the latter based on the same figure of 1.3 births per woman as in today’s statistics release – current levels of tax revenue are unlikely to be enough to pay for those demographic pressures.

Fiscal sustainability, therefore, will require future governments to either raise taxes, reduce spending on some areas, or a combination of the two. The 2020s are the first decade in which these large ageing population pressures are manifesting themselves, and that is one of the drivers of the increases in taxes over the last few years.

Relatively high net migration into the UK, which is largely of working age, has meant that the population has not yet been declining as in other European countries.

Scotland’s net migration is lower than its share of the UK population, and it has a lower birth rate too (1.6 for the UK as whole), meaning that on current trends we’re likely to see a declining population from the mid-2030s onwards. But the challenges are similar, because in both cases the ageing of the population is very present and pressing.

While there is much variation in birth rates across the world, the trend of falling births is clear, and it’s one that is broadly beyond the control of governments. Fertility policies can have some effect, but only at the margin, and can be very expensive. Increased cash transfers tend to have only a temporary effect, bringing births forwards but not increasing total births over time.

Other interventions such as childcare provision and extended parental leave are associated with permanent increases in births and some reductions in social inequalities. And there is also some evidence that subsidising assisted reproductive treatment can increase birth rates for women over the age of 35.

But these policies are unlikely to be large enough to fully reverse the trend. And in a context where low birth rates are here to stay, providing a decent standard of social protection and of living to those in retirement is likely to be linked with somewhat higher taxes and somewhat less spending in some areas. But the ultimate help would be higher productivity growth and therefore GDP per capita growth. That would mean more income generated by those in work, higher tax revenues, and less difficult trade-offs.

Westminster Committee chairs allocated

As the procedures for the new session of parliament wrapped up this week for the Westminster summer recess, one of the most important bits of business was the allocation of the select committee chairs.

Select Committees are an important part of the UK Parliamentary system, scrutinising the government, carrying out inquiries to inform policy development, and requiring Ministers to attend to give evidence so they can be held to account. There are 26 in all: 20 which shadow particular government departments and 6 which are known as “standing” committees, such as Public Accounts.

The chairs are elected by the whole house, in theory giving them legitimacy with all parties in the Chamber. However, the political party that the chair comes from is determined by the number of seats they hold in the house. So, Labour has 18 of the 26 chairs, Conservatives have 5, and the Lib Dems 3, with the SNP now getting none due to their diminished numbers.

Notably, the Lib Dems have been allocated the Health and Care committee; Labour have the powerful Treasury Select Committee and the Scottish Affairs Committee (which the SNP held previously). In line with their role as the primary opposition, the Conservatives have the Public Accounts Committee and the Standards Committee.