A tax on workers to pay for retirees won’t solve Wales’ ‘brain drain’ problem

Ifan Morgan Jones

Wales has for centuries had a ‘brain drain’ problem. That’s a side-effect of being on the economic periphery of one of the world’s richest regions, the south of England.

To give you an idea of how far back this phenomenon goes, it has been estimated by historians that in the 17th century about one in every six people spent some time living in London.

Indeed, the economist Brinley Thomas suggested that if the industrial revolution had not happened Wales’ would likely have been almost completely drained of its young talent.

They would have left for London or the United States, and Wales would have become a ‘costa geriatrica’ of elderly retirees.

With the industrial revolution having now long receded into the past, the Welsh economy is once again stuck in a rut.

Things are likely to get much worse before they get better, with a hard Brexit set to literally decimate the Welsh economy.

If this happens the ‘brain drain’ is likely to accelerate further, with young people gravitating towards the prosperous areas that are set to be less affected by Brexit, such as, of course, London (plus ça change).

Creaking

Of course, as people of a working age move out the housing stock is more likely to be snapped up by elderly retirees from elsewhere in the UK, exacerbating the problem still further.

I call this a problem not because of ageism but because this elderly population will need to be cared for.

When the bulk of the current ‘baby boomer’ generation hit their late 70s and 80s and just keep going, the burden on the Welsh Assembly’s already-creaking budget will be enormous.

Research by the Wales Public Services 2025 think tank has found spending on social services for over-65s by Welsh councils would need to increase by 18% (£101m) over the next decade just to maintain the current level of spending per-person.

Politicians have been slow to face up to this problem for a number of reasons. Firstly, it’s a long-term problem that goes far beyond the next election.

Second, this older cohort vote in much larger numbers than the young, so the problem needs to be approached with sensitivity.

Thirdly, the issue of retirement into Wales is a sensitive one for a Labour government keen to avoid any accusations of crypto-nationalism.

As a result, this is the biggest challenge facing Wales but the Welsh Government does not seem to be in a particular hurry to do anything about it.

No incentive

This week a solution was suggested by Finance Minister Mark Drakeford, which was an income tax in order to fund elderly care.

The average wage earner would pay “somewhere between £250 and £300 a year” and that money would go into a fund dedicated to elderly social care.

On the surface, it’s a good, workable solution. But I’m concerned that they’re on the wrong track here, for a handful of reasons:

The challenge here is not really to find money to care for the elderly but to find a way to convince people to stay and spend their working lives in Wales.

If that happens then the income tax that they produce will close the funding gap.

Far from achieving that, this tax would be an extra incentive to leave the country, on top of all the economic incentives there already are.

In effect, we’ll be asking people to stay put in a comparatively poor part of the UK where jobs are scarce, and pay an extra £300 pounds on their income for the great pleasure of doing so.

Reward

The pattern of young people moving out of Wales and elderly people moving in also raises questions of fairness.

Will people be able to avoid this tax all their lives and then return, or arrive for the first time, and reap the rewards?

Prof. Gerry Holtham, who suggested this new form of national insurance, has said that those who retire to Wales should not able to take advantage of the fund.

However, again, with Labour’s aversion to any accusation of crypto-nationalism, and fear of conservative voters in key marginals, how likely would such a provision be?

And if Wales does become Brinley Thomas’ ‘costa geriatrica’, will there be a financially viable Welsh state still in existence when today’s young people reach an age when they want to take advantage of this fund?

Problem

While it’s encouraging to see the Welsh Assembly getting to grips with this problem, the impression given is that they think that a band-aid will cover a festering, centuries-old wound.

The only solution to this problem – short on another industrial revolution – is a transformation of Wales’ economy from a peripheral backwater.

When Wales is a country young people want to move to, and the elderly retire away from in order to take advantage of lower cost of living elsewhere, the problem will be solved.

This does not, however, seem to be a problem that the Welsh Government has any real idea how to solve.

Whatever the solution, it probably involves incentives, rather than disincentives, to stay in Wales.

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