The Shrinking Generation: How the UK's Falling Birth Rate Threatens Work, Pensions, and Society

8th January 2026

The United Kingdom is confronting a demographic trend with profound long-term consequences: a falling birth rate.

Recent analyses, including those from the Resolution Foundation, indicate that this trend is likely to continue for decades, resulting in fewer people of working age, increased pressure on public finances, and significant challenges for pensions, labour markets, and social services.

Scotland, in particular, experiences similar pressures, with some areas — especially rural and remote regions — facing even sharper declines in population and workforce potential. Understanding the causes, implications, and potential responses is essential for policymakers and society alike.

The Problem - Declining Fertility and an Aging Population

The UK's total fertility rate (TFR) has been below the replacement level of 2.1 children per woman for decades, currently around 1.6, while Scotland's TFR is lower still, hovering around 1.3-1.4. Multiple factors contribute to these trends:

Economic pressures: Housing costs, insecure employment, and stagnant wages delay family formation.

Social change: Women are having children later, family sizes are smaller, and lifestyle choices impact fertility.

Migration and mobility: Scotland faces net migration from rural to urban areas or England, intensifying regional population decline.

These factors produce an aging population, with a shrinking share of people of working age relative to retirees, creating what demographers call a "dependency ratio" problem: fewer workers supporting more pensioners.

Implications for the Labour Market

A declining working-age population has significant consequences for the labour market in both the UK and Scotland:

Labour shortages: Essential sectors such as healthcare, social care, education, and construction face increasing recruitment pressures. Scotland’s rural areas and islands are particularly vulnerable.

Rising wages and competition for skills: Tight labour supply could increase wages in high-demand occupations but may not fully alleviate shortages in critical roles.

Need for higher productivity: Both UK and Scottish economies must rely on improved productivity through technology, innovation, and skills development to maintain output.

Extending working lives: Older workers may remain in employment longer, requiring policies that support retraining, flexible working, and phased retirement.

Consequences for Pensions and Public Finances

The shrinking workforce has direct implications for pensions and government budgets:

Increased state pension costs: More retirees relative to workers will strain both UK-wide and devolved pension systems.

Higher taxes: Fewer workers supporting more pensioners may necessitate increases in income tax, National Insurance, or other levies.

Pressure on social services: Scotland, with devolved responsibility for health and certain social security benefits, will face rising costs for healthcare, social care, and other public services.

Intergenerational equity: Younger generations may shoulder higher taxes and longer working lives while receiving fewer benefits, creating potential social and political tension.

Broader Social and Economic Impacts

Beyond work and pensions, the falling birth rate affects society in multiple ways:

Regional effects in Scotland: Rural depopulation leads to school closures, reduced local services, and economic decline in smaller towns and islands, while urban areas face aging populations and service pressures.

Healthcare demand: An older population increases demand for NHS services and social care across the UK and Scotland alike.

Housing and consumption patterns: Smaller households and an aging population change demand for housing, retail, and consumer services.

Innovation and entrepreneurship: Fewer young adults may reduce rates of business formation and technological innovation.

Policy Considerations and Responses

Both the UK and Scottish governments must act to mitigate these demographic challenges:

Encouraging higher fertility: Policies supporting childcare, family benefits, affordable housing, and work-life balance can encourage higher birth rates.

Immigration and retention: Managed migration can supplement the workforce, particularly in sectors like healthcare and engineering. Scotland must balance this against domestic population trends and integration challenges.

Extending working lives: Raising retirement ages, offering flexible working arrangements, and retraining older workers can help maintain labour supply.

Investing in technology: Automation, AI, and digital infrastructure can offset labour shortages in key sectors.

Pension and fiscal reform: Adjustments to retirement age, contribution rates, and benefits will be essential to maintain sustainability.

The falling birth rate presents a long-term challenge for both the UK and Scotland. Fewer working-age people will strain pensions, increase taxes, create labour shortages, and place additional pressure on public services. Scotland faces particular pressures in rural areas and in sectors such as health and social care. Without proactive policy interventions — including family support, immigration, technological investment, and pension reform — these demographic trends could slow economic growth, exacerbate regional inequalities, and create intergenerational tensions.

Preparing now for an older, smaller population is essential to ensure sustainable economic, social, and fiscal systems for the decades ahead.

Regional Solutions for Scotland: Addressing Rural Depopulation and Workforce Challenges

Scotland’s rural and remote communities face unique demographic pressures, with low birth rates compounded by out-migration of younger adults. Practical policy solutions could include:

Targeted incentives for families: Affordable housing schemes, childcare support, and tax incentives for families in rural areas could encourage young adults to remain or move to smaller towns and islands.

Remote work and digital infrastructure: Expanding broadband and digital connectivity allows workers to live rurally while participating in high-skill jobs, reducing the incentive to migrate to cities.

Skills and training hubs: Establishing regional training centres for healthcare, education, and technical trades can supply local industries with skilled workers and create career pathways for young people.

Support for local businesses and entrepreneurship: Grants, mentorship, and low-interest loans can encourage business creation in rural areas, boosting employment and retaining residents.

Enhanced transport and service access: Reliable public transport, healthcare, and education access make rural living more viable and attractive, reducing population decline.

These measures, implemented alongside broader demographic and labour policies, can help stabilize Scotland’s population distribution, maintain vital services, and support economic sustainability in regions most affected by the falling birth rate.