Forecasting Eye

 

In 2000 the average UK household spent £386 per week. Today this figure stands at £554 – a rise of 44%. But the rise in spending has not been evenly spread across all age groups. Those under 50 have increased their expenditure by 35%, those over 65 by 84%. In 2000 the average weekly expenditure of 65 to 74 year olds households was 70% of the under 30s’ expenditure. Today, they are roughly equal. Moreover the households of 65-74 year olds are generally smaller than those of under 30s.

 

The factors most often cited to explain this intergenerational expenditure shift are the boost in housing wealth of the over 65s and the triple lock on pensioners’ incomes.The IMF in its annual assessment of the UK economy in the past week has called for the end of the triple lock.

 

These are undoubtedly relevant factors that explain about two thirds of the additional growth in spending by the older age groups. In fact, increased pension incomes alone make up more than a third of the total increase in incomes amongst over 65s.

 

But there are other factors at work as well. Older people are working much more while smaller proportions of younger people are in work. Moreover an increasing proportion of the young people in work are doing ‘lifestyle work’ as writers, artists or musicians, which are jobs that are generally likely to be less well remunerated.

 

In 2000, the typical 65+ household earned 9% of its income from wages, salaries and self employment. We estimate that in 2018, this figure has doubled to 18%.[1] ONS’ employment data paint a similar picture – the employment rate for over 65s has doubled from 5% to 10% in the Q1 2000 to Q1 2018 period. Clearly, the older age groups are playing an increasingly important role in the labour market. In the years from 2008 to 2017, an added 501,000 65+ year olds have entered the labour market. This is a greater employment boost than the 304,000 EU8 migrants that have come to the UK over the same period.

 

Meanwhile in 2000 68% of those aged between 18 and 24 were employed. By 2017 this had fallen to 62%. A year ago Cebr estimated that the rise in lifestyle employment between 2008 and 2017 had reduced productivity for the UK by 4% in total, much of it amongst younger people.

 

So the story, as usual, is a complicated one. Yes the triple lock has transferred income from poor to old and in our view the IMF was right to call upon the government to scrap it. And the rise in real property prices has had a similar effect on wealth. But these are not the only sources of intergenerational transfers and about a quarter comes from increased earnings from old people staying on in work (particularly self-employment) while younger people stay on in education or take gap years.

 

Reversing this redistribution is not going to be easy.But policy has to be aimed at 1) reducing the real cost of housing (but not so rapidly as to create a financial crisis) 2) improving the quality of education to improve young people’s earning power and 3) should probably look at fiscal means for redistributing incomes as well as at ending the triple lock. Young people are already starting to lose faith in the economic system and without action the problem will get worse.

 

[1]The Living Costs and Food Survey last produced a comparable figure in 2014, at which point it stood at 16%.

 

Contact: Nina Skero and Douglas McWilliams, dmcwilliams@cebr.com 020 732 2850