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Saturday, July 02, 2011

Old and broke: The long-term outlook for the UK’s public finances

Reform is UK think tank that has a particular view of the world – most of the time I support its conclusions. I even pay a subscription to receive its reports and to attend its events.

This paper is a good summary of the overall state of the ‘challenges’ posed by the ageing population in the UK. In particular the cost of medical and long term care.

I find that Reform’s analysis on this subject suffers from a major problem – it talks in ‘average’ terms and doesn’t drill down into the distribution of wealth and income. That is not good enough.

The report contains too much of this boilerplate text
It has been estimated that people over the age of 60 have more than 80 per cent of Britain’s wealth and over £1 trillion in unmortgaged equity. This cohort has benefitted from windfall gains from a long period of house price inflation higher than wage and price inflation
This is the same trap as David Willetts analysis of the subject falls into. The numbers are probably correct but the unsaid implications that result from the statements are not.

You have to drill down into the detail of the distribution of this wealth and then how the housing equity wealth will be need to be spent before people get to the point of requiring care services. You also need to take account of the impact of inflation on this wealth.

Sorry guys but this is back of an envelope type calculations and conclusions. Dick Stroud

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