Is pensioner spending keeping our small towns afloat?

The Joseph Rowntree Foundation had a report out last week on declining cities. Among other things, it noted the falling population of northern cities and the movement of young people from small towns to cities and, in England, from north to south.

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Figure 4 from the report shows the population change for the age cohort now in their late twenties to late thirties. Broadly, it shows that the bigger the city and the closer to London its location, the more of this age group moved there. City size and proximity to London are factors attracting younger workers.

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A report by the ONS a couple of years ago found something similar. It looked at migration to and from the northern regions. It found that school leavers tend to move away from the north but their numbers are offset by those of a similar age heading north to university. There is then a then a net migration from the north by those in their twenties, after graduation.

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The picture, then, is of a move from the small towns to the major cities and from north to south.

As the JRF report comments:

These specific population flows have cumulative effects on different cities. Champion et al. (2007) show that better qualified young people, such as graduates, are more likely to migrate. A city with strong net intra-UK inflows of young people gets a boost to its skill levels. Selective migration thus reinforces the uneven geography of job opportunities: young skilled people respond to the personal benefits of the regional ‘escalator’ while collectively they fuel the skills gaps between cities.

This cumulative difference in skill levels makes it far more likely that employers will set up in the bigger cities while ignoring the smaller towns. They might cut their costs by moving from London to Leeds or Newcastle but they are likely to avoid Hartlepool and Workington.

All this then starts to skew the population in the smaller towns towards the lower skilled and retired. Unfortunately the ONS seen to have archived all those interactive data maps and they no longer work. However, I still have some screen shots of a few of them. This one shows the percentage of retired people in each local authority area in England and Wales.

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On the whole, the further you get from London, the greater the proportion of retired people. The few light coloured pockets are cities like Newcastle, Manchester, Nottingham and Cardiff; university cities to which the young flock and which have enough opportunities to encourage some of them to stay. But, as the JRF report notes, just as London pulls the young and well-educated from the rest of the country, so these vibrant cities do the same to the regions that surround them.

What, then, of the towns left behind? Harry, my late father in law, had a hypothesis about the small towns in South Wales where he lived. The pensioners were spending all the money and the young people who hadn’t already left were employed in jobs running round after them. A trip to the local Wetherspoons seemed to bear this out. Lots of people in their late sixties and early seventies were enjoying pub lunches while being waited on by youngsters.

The share of spending by the over 50s has increased over the last decade or so, especially when it comes to food, drinking and entertainment.

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How far are the service economies in Britain’s small towns dependent on spending by the retired? Is pensioner spending all that is standing between them and economic collapse?

I couldn’t find anything that broke data on pensions down to local authority level but the regional data released earlier this month by HMRC is interesting. It shows pension income making up a greater proportion of total income in the regions more distant from London. This is partly because people move away from London to retire but also because the young are moving in the opposite direction.

Pension income

Source: Survey of Personal Incomes 2013-14, HMRC, 1 March 2016

As an aside, it’s also worth noting that total pensioner income is higher than total self-employment income in all regions except London.

Pensioners have done relatively well in recent decades, largely because they lived through a time when those on middle incomes enjoyed a greater share of income than at any time before or since and their assets, mostly their houses, appreciated faster than inflation. But with the decline of defined benefit pension schemes, the affluent pensioner is likely to be a historical blip. The next generations will not be anywhere near as rich.

Where will that leave the smaller towns? Much has been written about de-industrialisation but the legacy pensions of the big postwar industries are rarely mentioned. The factory that once dominated a town might be gone but its ghost is still there in the form of its final salary pension scheme. We have no miners and few steelworkers in the UK now but the miners’ and steelworkers’ pension schemes are still paying out, pumping money into areas where much of the economic activity has dried up. What happens when those who are entitled to these pensions die off and the schemes stop paying out?

The big corporate final salary pension schemes are the afterglow of the post-war industrial age. As they fade away, with nothing to replace them, life in the left-behind towns might get that bit darker.

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4 Responses to Is pensioner spending keeping our small towns afloat?

  1. Florence says:

    An interesting and thoughtful look at the figures. One point does come to mind though, that while pension spending has gone up as percentages it is not possible to say in real terms that pensioners are better off or are spending more than in the past. This is because the average wages especially of the young have dropped in relative value. The *protected pensioner* is useful politically but fails to recognise the increasing numbers living in poverty, and that there are several millions that will not retire for 5 years because of accelerated pensions equalisation, who if not working will be on ESA and suffering relative deprivation. However, that said it does highlight the role in unearned / pension income that is keeping the smaller communities afloat, for now.

  2. SK says:

    Thats why Basic income is needed. It will provide the means for people to live away from cities.

  3. Interesting trend. I wonder where the poor pensioners of the future will live, or will they just work to death.

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