Retirement age peiople will account for 47 in 100 by 2024, it is claimed

Currently there are 28 retirees for every 100 of working age, a report by the Institute of Economic Affairs said. The report said that blaming the financial problems of the NHS on unhealthy lifestyles no longer stands up to scrutiny.

It calls for the NHS to begin to build up an old-age reserve fund which would require a one-off increase in taxes, or spending cuts in the non-healthcare budget, but it would mean that as the number of older people grows, the old-age fund would automatically grow alongside it.

Report author Dr Kristian Niemietz, Head of Health and Welfare at the Institute of Economic Affairs, said: “The NHS, like almost all Western healthcare systems, is a fair-weather system.

“It is currently financed on a pay-as-you-go basis, which means that it never builds up any reserves.

“This worked just fine at the time the system was created, because Britain was then a relatively young population. But it is not set up to cope with an increasingly ageing population. Healthcare costs rise exponentially in old age, and life expectancy is rising, while birth rates are low. And we cannot just keep increasing taxes or borrowing forever. Something will have to give.

“Ideally, governments should have started building up an old-age reserve fund for future healthcare costs years ago. But this can still be done, and the sooner, the better.”

The study says it is rising life expectancy that is driving up healthcare costs, while falling birth rates decrease the funding base.

It says the average healthcare costs of people over the age of 85 are more than five times higher than those of young and middle-aged people. The study says it is therefore essential to make the current funding system of the NHS ageing-proof, otherwise we could see severe rationing, with a deterioration of standards, longer waiting times, barriers to access and a narrower range of treatments being made available.

The report claims the benefits of a pre-funded system include that old-age funds would earn a rate of return - since they would be used for long-term investments.

And that the rate of savings and investment would increase - thus increasing the economy’s capital stock, productivity and indirectly, wage levels.

There would also be, it is claimed, a more diversified funding base which would decrease the risk of sudden and erratic changes in healthcare spending.

The report says the system could be financed through an earmarked healthcare tax.

Revenue from that tax would have to be higher than current healthcare spending, leaving a surplus.

This would require a tax hike or reduction of spending in other areas but would prevent the need for even larger tax hikes in the future.

The surplus from this tax could be used to start building up an old-age reserve fund.

The report says a capital stock would be built up on behalf of people of working age who would draw upon it when they reach old-age – until then they would pay more into the health system than they take out.

To build up reserves for today’s working age generation, the government would have to fill up the old-age funds with government bonds.