Britain’s collapsing birth rate could lead to a 7.4p hike in income tax, a leading think tank has warned.

The country faces “exploding levels of state debt” unless people have more babies, according to Policy Exchange.

Experts are alarmed the birth rate in England and Wales crashed to the lowest on record in 2023, with women now having on average just 1.44 children.

They warn this is far below the “replacement birth rate” of 2.1 children – and is down from 1.83 just a decade earlier.

A raft or urgent measures are recommended, including:

• More generous maternity and paternity leave and more flexible childcare policies;
• More affordable and more spacious housing so people can have larger families;
• A “fundamental rethink” of the tax and benefits system to support the family instead of focusing on the individual;
• A change in culture so having two to three children is seen as “normal”.

The think tank warns that the “UK’s low birth rates are creating an ageing population increasingly dependent upon the state”.

The report’s authors found that the combination of low birth rates and Britain’s ageing population could push up Government spending to 58% of GDP and require the equivalent of a 7.4p hike in income tax by 2080.

Paul Morland, one of the authors of the report, warned: “As Governments across the developed world struggle to balance their budgets, too few recognise that it is the underlying demographic model into which their countries have slipped which is dooming them to an ongoing agony of rising tax, rising debt and deteriorating services.”

In a sharp message to Britain’s opposition parties, he said: “Those on the right who fret about the state being too big must start with the problem that the family is too small.”

David Goodhart, the think tank’s head of demography, said: “The UK cannot sustain its current level of wealth on a birth rate of below 1.5 children per woman – and falling.”

He claimed the research “exposes the myth that immigration can be our saviour”.

Policy Exchange argues that even if net migration was more than 600,000 people a year this would not make up for low birth rates, with a 4.1 point increase in income tax required.

Shadow education minister Neil O’Brien welcomed the report, describing the “impact of collapsing birth rates on our economy, society and public services” as “one of the top global issues of our time”.

The report calls for the Government to acknowledge that “a nation cannot have a future if it fails to reproduce itself, and that this nation has not been reproducing itself for half a century”.

Its authors describe the two-child benefit cap as an “explicitly anti-natal act” that “sends a signal to the country that the ideal family size is no more than two children”.

They also highlight the difficulties facing larger families in everyday life, stating that the “third child who once fitted comfortably in the back of the car can no longer be squeezed in when child car seats get larger”. And “rules applied in swimming pools where a parent can only accompany two children create similar headaches for larger families where both parents are not always on tap for family outings”.

Pushing for urgent action, the authors warn: “At this point, far from being a leader, the UK is a laggard in addressing the looming crisis.”