Brexit demographics revisited

More than three years after the Brexit referendum, many of those who promoted the idea are more adamant than ever that the UK should leave the EU. We only need to listen to the candidates for the Conservative Party leadership attempting to outdo themselves in terms of their commitment to the Brexit cause to realise that something unpleasant has taken root in the public debate over the past three years. One of the contenders, Jeremy Hunt who in 2016 supported the Remain campaign, responded in a TV interview to the question whether he was prepared to let businesses go to the wall in the event of a no-deal Brexit that he “would do so but I would do it with a heavy heart … if in order to do what the people tell us to do, we have to leave without a deal, I would do that.“ In all my time watching UK politics, I do not think I have ever heard a politician say something as stupid – and there is a lot of competition.

Brexit has now become an article of faith in which politicians tell us that the will of the people has to be respected. These are the same politicians who respect the will of the people so much that they have twice changed an elected prime minister without consulting the wider electorate. Or, to put it another way, the next prime minister will be a leader without a general mandate, of a government without a majority, promising an outcome that is not deliverable to an unrepresentative slice of the electorate and foisting it on a public that arguably no longer wants it. Let there be no doubt that what is being offered today – a hard Brexit – is not what people voted for in 2016. Of course, a no-deal Brexit may not result in the worst case scenarios that many of us have highlighted. But the simple truth is we do not know what will happen, in which case politicians have a duty not to take unnecessary risks with the livelihoods of the electorate which they represent.

As a reminder, the 2017 Conservative manifesto promised “a strong economy that works for everyone.” It also promised “We will seek to replicate all existing EU free trade agreements and support the ratification of trade agreements entered into during our EU membership … We will introduce a Trade Bill in the next parliament.” So far it has failed to deliver on the first two of these and the Trade Bill has still not been ratified. Brexit is clearly not proceeding as planned. That being the case, what is stopping the government from putting the terms of the EU exit to the electorate for ratification?

What appears to be stopping them is that the Conservatives have nailed their colours to the Brexit mast, and it is far from certain that they will be able to get a second Brexit referendum across the line. A quick look at the demographics highlights the extent of the problem. Based on data through 14 June 2019, we know that 1.34 million people aged 65+ have passed away since the referendum in June 2016. By the same token, roughly 1.16 million young people who were not old enough to vote three years ago are now eligible to do so. Of course, not all those aged 65+ who are now deceased will have supported Brexit and not all those now old enough to cast a vote will necessarily support Remain.

I have thus made some assumptions based on varying degrees of Brexit support for deceased voters aged 65+, ranging from 50% to 75%. Similarly, new voters are assumed to support Brexit over the range 25% to 75%. In simple terms, the higher the degree of support for Brexit amongst deceased voters and the lower the degree of support from younger voters, the more the margin in favour of Leave narrows. This is illustrated in chart 1 (above). In the case where deceased voters are assumed to have voted 75% in favour of Brexit (right-hand column) whereas only 25% of new voters support it (top row) the margin in favour of leaving the EU narrows to 15k. Conversely if deceased voters only voted 50% in favour Brexit (left-hand column) and younger voters are 75% in favour (bottom row), the margin comes in at 1.85 million. Recall that the margin in favour of Remain in 2016 was 1.27 million.

On the basis of the figures presented here, there are no circumstances in which the demographics alone will flip the referendum result. Matters look slightly different if we account for a swing in voters’ preferences on top of the demographics. A swing of 2% in favour of Remain opens up the prospect that the result could be overturned (chart 2). A 4% swing would certainly make a Leave vote a realistic prospect (chart 3). Evidence to suggest there has been a swing in public opinion comes from the poll conducted by YouGov since summer 2016 asking whether people think the vote to leave in 2016 was right or wrong. Those who believe it was the wrong decision now hold a seven point lead over those who believe it was the right decision, whereas in summer 2016 they lagged by three percentage points.

With the Conservative Party comprised of mature voters with a clear bias towards Brexit, no candidate worth their salt is going to promise a second referendum. But the very narrowness of the victory margin in 2016 meant that it was always going to be vulnerable to small changes in demographics and voter preferences. Whilst a second referendum which produces a narrow vote for Remain will not resolve the issue either, it is clear that those politicians who argue that the electorate clearly supports Brexit (“do or die” to quote Boris Johnson) are deluding themselves and large parts of the electorate. The new prime minister has a big job on their hands to restore political unity – the evidence suggests that delivering a no-deal Brexit will not be the way to do that.

Revisiting Brexit demographics

Even some of those who believe Brexit to be a thoroughly bad idea are beginning to realise that it is a process that cannot now be stopped. Indeed, I have long believed that full EU membership will end in March 2019 because of (a) the investment that the UK government has sunk into delivering Brexit, which will likely preclude parliament overturning the decision, and (b) the sheer cost in terms of time and effort required to deliver a second referendum which rules out the option that people will be given a chance to change their mind.

Wolfgang Münchau in his FT column last week gave four reasons why The time for revoking Brexit has passed: (i) both sides have made significant progress towards an agreement; (ii) domestic opposition to Brexit remains fragmented, which means that it has been hard for Remainers to find a credible figurehead to get behind; (iii) the UK economy has held up better than expected thus reducing the extent of buyers’ remorse and (iv) the EU has itself moved on, and having accepted that Brexit is inevitable is now turning to the issues which matter for its own future (relationships with the US and Russia and reforming EMU). Obviously this has not gone down well with hard core Remainers but sane commentators, such as the lawyer David Allen Green, increasingly point out that the energy would be better spent trying to shape the post-2019 transition rather than fight battles that have already been lost.

In order to consider what should be the appropriate strategy – fight Brexit or shape the future – consider the demographic evidence. The ONS’ population projections suggest that the 55+ cohort which voted predominantly for Brexit will have declined by almost 1.6 million between mid-2016 and mid-2019 (chart). To put this into context, the margin of victory for Leave was slightly less than 1.3 million. Not surprisingly, the further ahead we roll the numbers the bigger the decline,  such that by 2026 the 2016 cohort aged 55+ will have declined by 5.3 million (a 27% reduction). This raises the obvious question: In whose name is Brexit being conducted? It is all very well older voters opting to leave the EU but useless both to them and younger voters if they are not around to see it. So on that basis, there is an argument in favour of continuing to oppose Brexit.

As an aside, I did do some back of the envelope calculations a few months ago which bear repeating. If we were to apply a weighting structure based on the fact that younger voters have more to lose from leaving the EU and therefore we allow their votes to count for more, it is possible to come up with a scenario in which the June 2016 vote would have produced a Remain vote. Assume (arbitrarily) that votes account for a positive weight so long as voters are under the age of 90, with the weight derived as follows (90 – age / 90). For those in the 18-24 age group, if we assume a median age of 21, applying the formula gives their vote a weight of 0.7633; for those in the 25-34 bracket, the median age is 29.5 and the weight declines to 0.672. As age rises, so the weight declines. Even allowing for a low turnout amongst younger voters, survey-based evidence of voting patterns indicate this would be enough to give Remain a 52.5%-47.5% majority. Whilst such an idea should not be taken too seriously, as it cuts across the principle of one person-one vote, it does at least try to introduce some inter-generational fairness which many people claim is lacking in the whole debate.

The case for instead campaigning for the best post-Brexit settlement is also supported by the fact that the constituency most in favour of Brexit will soon become less politically relevant. The likes of Nigel Farage, who did so much to whip up Brexit support, might bewail the nature of any agreement hammered out between the UK and EU27 but he is increasingly becoming a political irrelevance as those who bought into his vision of a backward-looking Britain become less active (look out for UKIP to take a serious beating at the local UK elections on 3 May). The same may also be true for Jacob Rees-Mogg and Boris Johnson, the hardliners on the front line of Conservative politics, who belong to a party with an average membership age of at least 57 and whose numbers are only around 20% of their Labour opponents. The point, of course, being that Conservative parliamentary MPs will not in future have to be quite so beholden to their increasingly ageing party membership.

You can never say never on Brexit-related matters. But if there is to be any subsequent vote it will most likely only take the form of a parliamentary vote on the terms of the final agreement offered by the EU. After all, the will of the people has already been heard so there is no need to ask them again. It’s just a shame that large numbers of those who voted for Brexit will not be around to enjoy it.

Age concern

Without wishing to trivialise in any way the horrific bombing in Manchester, the suspension of the UK election campaign came at a fortuitous time for the prime minister who was undoubtedly on the ropes on Monday regarding her U-turn on plans to fund care for the elderly. Dealing with old age care is an issue of major economic importance, and I did note last weekend that “tackling the problems of an ageing society will require us to think differently on tax and social insurance issues.” But it is worthwhile digging into some of the economic implications of an issue which not only affects the UK but is a problem for all ageing societies.

To remind you of the story so far, the Conservative manifesto last week suggested that those requiring long-term old age care would be required to run down their assets to “a single capital floor, set at £100,000, more than four times the current means test threshold.” The implication is that households will have to pay a lot less than they do today. Whilst that is true of the current system, it omits the fact that under legislation already on the books “from April 2020, there will be a cap limiting the amount people will have to pay for their care and support”. Moreover, the threshold beyond which people receive no financial support is due to rise from £23,250 to £118,500 (these reforms were originally scheduled for 2016 but local authorities balked at the additional costs this would impose, hence the delay until 2020).

In other words, a significantly more favourable plan is already scheduled to come into play in 2020 than that proposed by the Conservatives. As it currently stands, someone who has lifetime care costs of £150,000 could lose up to 90% of their accumulated wealth. Raising the support threshold and imposing a cap significantly reduces this proportion. By contrast, the Conservatives’ plan placed no such upper limit so that all but the final £100,000 of an individual’s assets could be used to fund their care needs. I am indebted to the FT’s economics correspondent, Chris Giles, for working out the tax rates on assets in different care systems (see chart). What is evident is the magnitude of the costs under the current system (the green area) versus the proposals set out by the Dilnot Commission in 2010 (black line). Last week’s Conservative plans (red line) help those at the lower end of the asset scale but they are far less favourable compared to what was proposed in 2010.

The idea of scrapping the cap caused an outcry for both good and bad reasons. The bad reason is the notion that today’s generation of pensioners be protected so that they can hand over their stock of assets to future generations. Whilst this may reflect an instinctive desire to help one’s offspring, there is no reason why today’s tax revenues should be used to ring-fence bequests to future generations. A better objection is that the absence of a cap promotes unfairness due to the fact that for any given wealth cohort some will be afflicted by illnesses which require extensive old age care whilst others will not. For example, an unfortunate pensioner who suffers from dementia may require many years of care whereas someone with the same assets who dies suddenly at the same age will not face the same care burden. There is no sense of social insurance: people are very much on their own.

Whether the reaction of the public and politicians was motivated more by the latter than the former matters less than the fact that the Conservatives responded to the groundswell of opposition by announcing they would indeed place an “absolute limit” on care costs (without saying what the limit would be). What is absolutely not true is the prime minister’s assertion that “nothing has changed from the principles on social care policy that we set out on our manifesto.” In fact, everything has changed. The principle of a cap means that we have some notion of risk pooling rather than one which forces individuals to bear full personal liability.

A more pertinent question is how this should be funded, which is the bit no-one talks about. The Dilnot Commission pointed out that there are three ways to fund old age care provision. The obvious way is to do what we do now – raise the additional revenue from general taxation, which will mean higher taxes. A second option would be to change the balance of spending away from other items and towards care provision. However, a third option would be to introduce a specific tax increase which should be paid “at least in part by those who are benefitting directly from the reforms. In particular, it would seem sensible for at least a part of the burden to fall on those over state pension age.” Dilnot further suggested that “it would be sensible to do so through an existing tax, rather than creating a new tax” which would most obviously suggest targeting inheritance tax.

I am not even averse to the idea of levying a specific tax in order to build up a social insurance fund, although governments are generally very bad at ring-fencing revenues for specific tasks. Whatever the ultimate outcome, the UK government clearly has to think more carefully about generational outcomes than it has up to now. The current pay-as-you-go option is not fit for purpose. But nor is a system which mitigates against a market for social insurance. There is plenty to ponder but it certainly will not be resolved before the election, and it is increasingly a problem which all industrialised countries have to face up to. Ageing societies don't come cheap.