NI has bigger things to worry about than Brexit

Brexit is a massive once in a generational change. The reverberations of which will be felt far and wide for years to come. However, it is only one of several risks - and potential opportunities - facing NI at this time. Indeed we believe there are five bigger challenges that NI needs to address. Namely:

Care
Education
Infrastructure
Pensions
Social

1. CARE

Older people will increase by 65% in the next 25 years

DEMOGRAPHIC SHIFT

More people are living longer. By 2041, there will be 23,000 less children (age 0-15) in NI. The same NISRA projections show that there will be 30,000 less people of working age (16-64). In contrast those 65+ will increase by two-thirds. Rising from 297,800 to 491,700. The ratio of older people to working age will increase from 25 per 100 to 43 per 100. That is, for every 100 people of working age there will be 43 older people by 2041. The proportion of people over 85 will double.

In short, we have less young people and a fast rising older population. Some male-dominated sectors (e.g. farming, fishing, priests) are specifically affected by age, with the average age of full-time workers approaching late 50s. Generations, and skills, are not being replaced. People living longer is a good thing, but this seismic shift needs to be properly planned for. As an indicator over 65s make up 18% if the UK population (2016 figures) but take up over 40% of national health spending. An 85 year old costs seven times more than a man in his late 30 years (median age in UK).

CARE NEEDS

As people live longer, they will need more care. Care costs approximately £29,000 per year, more if nursing care is needed. Care home are increasingly under pressure from rising costs (e.g. minimum wage) and reduced incomes. Some also suffered from takeover debts. Four Seasons Health Care, the UK’s second biggest care home provider was saved from collapse this week only after intervention by the UK Care regulator. Four Seasons owns 58 care homes in NI.

Care is not just for older people, but also for people with certain long-term illness or disabilities. In April, NI’s social care sector, stated nursing and community care in NI is already “stretched to breaking point”. 1 in 8 people are already carers in the UK. As people get older, more people will become carers and more care will be needed. For the foreseeable future, there is going to be a rising demand for carers and care homes. Who will provide this and who will pay? And who is planning for this….

2. EDUCATION & SKILLS

NI excels at exams but fails at basic skills

NI’s education system is routinely praised and our grammar schools frequent the top echelons of the league tables. However, there is a large gap between the top scores and the bottom scores. Larger than many other countries. The focus of schools on exams and the role of tutors and impact on young people’s mental and physical health has previously been reported.

The proportion of the NI population aged 20 to 65 without any formal qualifications is much higher than anywhere else in the UK. Increasing rates of qualifications among younger people will start to tilt this balance but the gap remains significant. England and NI rank in the bottom four OECD countries for literacy and numeracy among 16-24 year olds. Employers were also found to invest less in skills compared to other EU countries. Meanwhile the UK Commission for Employment & Skills state 43% of STEM vacancies are hard to fill.

Whilst many people in NI and the UK appreciate the need for languages, we lie far behind the multi-lingual abilities of people on the continent and further afield. In addition to a pipeline shortage of maths and science teachers (there are only a “handful” of physics and chemistry teachers graduating this year in Ireland), there are believed to be language shortages too.

Research increasingly shows the importance of early years education and the link between education and social mobility. There are also dangers with providing children with too much screen time and this needs to be addressed by parents and schools. Education lies at the heart of potential problems and opportunities (e.g. Teach First, Apprenticeship Levy, Coder Dojo). Where is the comprehensive plan to improve education and skills?

3. INFRASTRUCTURE

Internet is still all about cables, which can be cut

What do Britain’s military chiefs consider the most dangerous threat to the UK? Turning off the internet. Although we often hear of ‘the cloud’, the reality is that as islands the UK and Ireland rely on internet cables running along the sea bed. The internet is essential for the City of London, the world’s financial centre, and others. The think tank Policy Exchange recently published a report saying 97% of global communications and $10tn in daily financial transactions are transmitted through such cables. When Russia annexed Crimea, one of their first acts was to cut off the internet cable connecting it to the world. This week, the UK Air Chief Marshall Peach warned of the potential risks posed by Russia to the UK.

The growth of GPS related devices (e.g. ‘Garmins’) and potential self-driving cars also highlight our reliance on the 20-year old technology. GPS is used by military and civilian uses, with the later less secure. GPS jammers can be easily bought and have been used by people to block vehicle tracking. However, these are increasingly causing problems when parked near airports with pilots complaining of interference.

Securing a strong internet connection and GPS signal is only half the battle. There is also the issue of consistent mobile signals and rural broadband access in NI. Most crime in the UK is now considered to be cybercrime and fraud. These create infrastructural and individual challenges and opportunities.

Other infrastructural issues include the lack of a two-lane carriage way between NI’s two largest cities; and increasing need to deal with waste more effectively. Much of NI’s electricity and water infrastructure is decades old. Our electricity was based largely on three power stations providing the end user. Advancements in renewable energy and battery design will mean increasingly two way electrical flows, storage, decentralised supply and new forms of distribution will have to be factored in.

NI not only needs to improve electricity infrastructure to improve capacity (e.g. Interconnector) and reduce costs. Ireland and Denmark who share similar climates are already attracting large data centres (e.g. Google, Apple, Microsoft, Amazon), and can fast track planning and infrastructure decisions. Why can’t NI compete for these centres?

Much of Europe is reliant on gas from Russia delivered through a small number of pipelines. This creates a dependency risk, evidenced by the deadly explosion at the main gas station in Austria this week. As a consequence, immediate delivery gas prices rose by 40% and Italy called a ‘state of emergency’ to address the issue. The UK national grid needs to replace nuclear power plants that are coming to the end of their life, and this needs to be factored in. Finally, the North Sea supply, which provided energy for so long will not only reduce greatly but cost £24bn to shut down. A major plan, investment strategy and score of regulatory approvals are required to address these issues.

4. PENSIONS

Rising pension liabilities and deficits impact on us all in more ways than one

Over the last 7 years, pension spending has increased from 0.4% of GDP to 0.6% and will continue to rise. Pension spending is the difference between UK public-sector pension contributions and public-sector pension payments. In contrast to the private sector, most public-sector pensions are defined benefit. That means they are not based on contributions (defined contributions) but usually on a % of final salary. With people living longer, many people could expect to have a pension for 25 years and some will have a longer retirement than working life.

Given the demographic shifts above there will be more and more people taking a pension and less working age people contributing. In 1976 there were 4.3 people of working age for every person of retirement age. This dependency ratio will fall to 2.3 in 2046. Public pensions are guaranteed from the public purse, so either the purse will have to grow and/or the money will have to be found from elsewhere. Official UK growth forecasts have been reduced, so the money will have to be borrowed or savings (cuts) made elsewhere to make room. This is on top of the costs of Brexit, estimated at up to £100bn.

Between 2007 and 2017 FTSE 100 companies paid £150bn into defined benefit pension schemes to shore up liabilities. Despite this, a collective £12bn pension surplus in 2007 as turned into a £17bn pension deficit by 2017. Recent studies indicate that up to 1 in 6 corporate pension schemes could be in trouble. The UK pension regulator found that pension liabilities was the main reason BHS was sold (BHS later collapsed in 2016 with a pension deficit of £571m). When company pensions do fail, they fall into the lap of the UK Pension Protection Fund, ultimately backed by UK public funds.

In July, the main UK university sector’s pension scheme deficit doubled in a year to £17.5bn. This was the largest on record at any British retirement fund. In comparison, the largest UK company pension scheme (BT) had a £9bn deficit in March 2017. Pension liabilities are a major issue across the UK. Pensions are restricted in what they can invest in. In a prolonged period of low interest rates, pension investment returns are growing a lot less than the rise in payment liabilities. Payments are guaranteed and will only grow. To highlight the problem, $9tn ($9,000bn) of global bonds are currently offering negative yields.

How are pensions going to be addressed? Can the government reduce pension payments and convert to large scale defined contribution schemes? It will not be popular among the electorate and civil servants but who will end up paying for this. Pensions will be addressed more in an upcoming article.

5. SOCIAL

Social connections and networks lead to happier healthier lives

Social takes in mental health, loneliness, isolation and sedentariness. Many of which are interconnected. The recent ‘Jo Cox’ report into loneliness states that loneliness is as harmful as smoking 15 cigarettes a day. NI has higher rates of mental ill health than any other region in the UK. 1 in 5 adults will have a mental health problem at any one time. Mental health is the single largest cause of ill-health and disability in NI, according to a 2017 NI Assembly Research Paper.

More and more people are living alone. Phones are being used more for messaging and social media, and less for talking. It is becoming easier for people to become physically disconnected. Add in the prospects of increasing caring responsibilities (per demographic shift) and people could have less social interaction. Researchers initially thought it was the healthy diet and sun that allowed some communities to survive well into old age. Only when they examined it further did they realise strong social bonds were the primary reason for their longevity. People with strong social networks tend to be more active, feel happier and are more supported.

We need to build social networks, for us and others. How can we improve mental health, physical connectedness? How can we address these social concerns in a co-ordinated way at national level?

SUMMARY

The above five issues already impact on our lives. And the lives of people around us. The issues identified are massive in scale and will only increase. They cannot be tackled by one group alone, and not solely by the government. They cannot be kicked down the road any more or avoided. These issues may not be as in your face as Brexit or even the environment, but they are far more powerful in their own way. That power also represents an opportunity for the people to come up with ideas to address them. How much of a role are you willing to pay?

5 Bigger Risks to NI than Brexit