Allowing children to grow up in poverty remains a false economy

5th Jun 2013

Spending money to take children out of poverty would be less costly than the alternative, says Donald Hirsch.

Five years ago, child poverty campaigners were still complaining that the speed of its reduction was too slow, relative to the last Government’s ambitious aim of halving it by 2010. In the event, it ‘only’ cut it by a third. Today, the same campaigners are wringing their hands, as poverty levels creep back up. By 2020, say the forecasters, we’ll be back to square one: child poverty looks set to return to the high point of the late 1990s – around 3.5 million.

The Government says that the importance of income poverty (how these calculations are made) has been over-rated. Of course, low income is only one of many problems faced by children growing up in deprived neighbourhoods, sometimes with poor services and parents struggling to give them a good start in life. But long-term ‘cohort studies’ show clearly that, other things being equal, those experiencing financial hardship as children have worse outcomes as adults.

In 2008, Jo Blanden and Steve Machin used these studies to estimate that child poverty costs our economy at least about 1 per cent of GDP, in terms of the unemployment and low earnings eventually experienced by its victims. This was a highly conservative estimate, which didn’t count all harm to individuals as representing harm to the whole economy. Partly, a high level of child poverty helps determine who ends up at the bottom of the heap; partly, it affects the shape of the heap itself.

Just before the recession, I estimated in a JRF report that child poverty was costing the country £25 billion a year. This included not just the long-term damage to the economy, but also the immediate cost of spending public money repairing damaged lives – whether through social services, extra health spending or remedial educational measures for children with a difficult upbringing. Now I have repeated the estimate in very different economic conditions.

The total has gone up to £29 billion. This is not as much as might be expected during tougher economic times, and actually a very similar level to 2008, corrected for inflation. That’s in part because the lost earnings potential of the most disadvantaged groups has shrunk slightly in real terms: being out of work or on a relatively low income incurs a lower cost if general earnings are worth a bit less. And it’s partly because of spending cuts: in many public services, there are fewer resources around to pay for the damage suffered by children in poverty (and thus the financial ‘cost’, though not the human cost, is lower). Offsetting these effects, the current Government has created some new targeted funding, notably the Pupil Premium and free early childhood provision for disadvantaged two year olds.

But the more important factor is that, even today, child poverty levels are similar to their level in the middle of last decade, having dipped in 2008–10 before starting to rise again recently. The grim prospect that they will now rise continuously for the rest of the decade could mean that, by 2020, child poverty will costs the country around £35 billion a year. Spending money instead to take children out of poverty would be less costly both in financial terms and, more importantly, in terms of damaged lives.