estimating the costs of child poverty - joseph rowntree ... the costs of child poverty round-up...

Estimating the costs of child poverty

Round-upReviewing the evidence

The moral case for eradicating child poverty rests on the immense human cost of allowing children to grow up suffering physical and psychological deprivations and unable to participate fully in society. But child poverty is also costly to everyone in Britain, not just those who experience it directly. What are the costs to the whole of society of allowing child poverty to continue?

This paper:

• includes the findings from three specially-commissioned reports and estimates some of the tangible costs resulting from child poverty.

Key points

• Childpoverty’sconsequencesarewide-rangingandlong-lasting.Childrenfromlow-incomefamiliesarelesslikelytodowellinschool,andmorelikelytosufferill-healthandtofacepressuresintheirlivesthathelptoexplainanassociationwithanti-socialbehavioursandcriminality.

• Theseconsequencescostsociety:inthemoneythatgovernmentspendsintryingtocountertheeffectsofchildpoverty,andintheeconomiccostsofchildrenfailingtoreachtheirpotential.

• Thesecostscannotbecalculatedprecisely,butthefollowingarecautiousestimates:

- Publicspendingtodealwiththefalloutofchildpovertyisabout£12billionayear,about60percentofwhichgoesonpersonalsocialservices,schooleducationandpoliceandcriminaljustice.

- Theannualcostofbelow-averageemploymentratesandearningslevelsamongadultswhogrewupinpovertyisabout£13billion,ofwhich£5billionrepresentsextrabenefitpaymentsandlowertaxrevenues;theremaining£8billionislostearningstoindividuals,affectinggrossdomesticproduct(GDP).

• Theconclusionisthatchildpovertycoststhecountryatleast£25billionayear,including£17billionthatcouldaccruetotheExchequerifchildpovertywereeradicated.Movingallfamiliesabovethepovertylinewouldnotinstantlyproducethissum.Butinthelongterm,hugeamountswouldbesavedfromnothavingtopickupthepiecesofchildpovertyandassociatedsocialills.

AuthorDonaldHirsch,JRFadviser

www.jrf.org.uk

October 2008

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Introduction

Thefullhumancostofchildpovertyisinestimable.Nobodycanmeasureadequatelythecostinphysicaloremotionalsufferingofatoddlerlivinginadamporovercrowdedhome,orofachildgrowingupinadeprivedcommunitywherehopeofabetterlifeisconstantlycrushed.Politicalcommitmentstoendingchildpovertyarebasedontheideathataricheconomyinthetwenty-firstcenturyshouldbeabletoensurethateverychildgrowsupwithopportunitiesandisabletoparticipateinsociety.

Followingupsuchpoliticalcommitmentsrequiresabigeffortbyawiderangeofpeopleandorganisationsinproducingtheresources,opportunitiesandsocialattitudesneededtomakechildpovertyathingofthepast.Soitisworthhighlightingthecoststhatchildpovertybrings,notjusttothosedirectlyaffected,buttoeveryone.Thesecostsarenotalwayseasilymeasurable,andincludedamagetohowsocietyfunctions,infar-reachingandcomplexways.Butsomeverytangiblepenaltiesarepaidforallowingchildpovertytopersist.Theyincludethecreationofsocialproblemsthatnecessitateextrasocialspending,andthefalloutfromadultsbeingunabletomeettheirfullpotentialasaresultofhavinggrownupinpoverty–includingreducedproductivecapacityintheeconomy,extrabenefitpaymentsandreducedtaxrevenues.

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ThisRound-upbringstogetherthreestrandsofevidenceontheimpactandcostsofchildpoverty.First,itdrawsonareviewofresearchevidencetodescribesomeoftheconsequencesofchildpovertythatarelikelytohaverepercussionsforsociety.Itassessestheextenttowhichsocialcostscanbeattributedtopovertyitself,andthedegreetowhichthesecostsmightbeexpectedtodiminishasaresultofreductionsinpoverty,alongsideothersocialimprovements.

Secondly,itestimatestheeffectsoftheconsequencesofchildpovertyonsocialspending–acosttotaxpayers.Thisestimateisbasedontheobservationofdifferentlevelsofsocialspendinginsmallareaswithdifferentlevelsofchildpoverty.

Thirdly,itpresentsanestimateoftheknock-oncoststotheeconomyofthelowerproductivecapacityandearningsofadultswhofacedpovertyaschildren.ThiscreatesbothacosttotheExchequerthroughforegonetaxrevenuesandextraspendingonbenefitsandtaxcredits,andalsoawidereconomiccostintermsofreducedeconomicactivityassociatedwithreducedproductionandprivateearnings.

Thepaperassemblestheseestimatestosuggestatotalknowncostofcontinuedchildpovertytotaxpayersandtheeconomy.Thisisnotacomprehensiveestimateofthecostofchildpoverty,butabestestimationofsomeofthetangiblefalloutfromthisphenomenon.

The consequences of child poverty

AliteraturereviewfortheJosephRowntreeFoundation(GriggsandWalker,2008)concludesthat‘theconsequencesofchildpovertyareserious,far-reachingandmulti-faceted’.Itpointstoawiderangeofevidencedemonstratingtheinteractionoflowincome,poorhousing,disadvantagedneighbourhoodsandparentalstressindisadvantagingchildrenintheirimmediateexperiencesandfuturelives.

Animportantfindingofthisreviewisthattheimpactoflowincomeissignificantinitself,aswellasinteractingwithotheraspectsofchildhooddisadvantage.Thisshouldbeborneinmindwhenconsideringthepotentialimpactofraisingfamilyincomesabovethepovertyline.Althoughthiswouldcontributetoreducingthecostsassociatedwithchildpoverty,themosteffectivestrategieswouldneedtocombineactiononincomewithotherpoliciestoreducethedisadvantagesofgrowingupindeprivedneighbourhoodsandinfamiliesfacingarangeofdifficulties.

Definitions

• ThecentraldefinitionofchildpovertyinthisRound-upisthatoflivinginafamilyonarelativelylowincome.Researchersusedifferentdefinitions,butasfaraspossibletheevidencecitedhererelatesto:(a)anincome-basedmeasureand(b)povertydefinitionsthatclassifyacomparableproportionofchildreninpoverty–aboutoneinfour–asthemainchildpovertymeasureusedbytheGovernmentinmeasuringprogresstowardsitstargets.Whileitisnotpossibletouseaprecisecommonthreshold,thebroadobjectiveistolookatcostsresultingfromthelowincomeofarelativelybroadsectionofthepopulation,ratherthanjustextremepovertyaffectingthebottom5or10percent.

• The‘costofpoverty’isnottakentoincludethebenefitsandtaxcreditspaidtofamiliesonlowincomesatthetimewhenchildpovertyoccurs.Theseincometransfersaretreatedaspartofthecostofreducingchildpoverty;theycanbeoffsetagainstthecostsofallowingittocontinue,whicharethesubjectofthispaper.Thisisasimplificationofreality:itisalsopossibletoenvisageinvestmentsinitemsotherthanincometransfers(e.g.spendingoneducation)thatcontributetoreducingchildpovertyinthelongterm.However,sinceincometransfersaresodirectlytiedupwiththesolution,theyarenotseenhereaspartofthecost,exceptinthecaseofbenefitspaidtoadultsdisadvantagedbyhavinglivedinpovertyaschildren.Theserepresentpartoftheconsequenceofallowingchildpovertytocontinue,ratherthanhelpingtopreventitfromoccurringinthefirstplace.

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Thefollowingmorespecificobservationsontheimpactofpovertyaredrawnfromresearchevidence(seereferencesinGriggsandWalker,2008).Theyfocusonoutcomeslikelytoimpactonsocietyandtaxpayers,notjustindividualsinpoverty.Forthisreasontheyemphasiselong-termdamagewhichislikelytoinfluencehowindividualsfunctioninsociety,ratherthanmeasuringdirecteffectsonchildwell-being.

Damage to children’s physical health Researchcomparingoutcomesofchildrenfromfamiliesinpovertywiththosenotinpovertyshowsclear-cuthealthdifferencesateachstageofthelifecycle(HirschandSpencer,2008).Thehealthpenaltiesofpovertystartbeforebirth.Maternalcharacteristicssuchasdietandstresslevelsduringpregnancyhelptoexplainwhychildrenbornintopovertyhaveamuchhigherchanceofalowbirthweight,whichisassociatedwithextrahealthrisksthroughoutlife.Childreninlow-incomefamiliesarealsolesslikelytobebreastfed,andmorelikelytocontractvariousdiseasessuchasasthma,reportlongstandingillness,beobeseandhavecertaindisabilitiessuchascerebralpalsy.Povertycancontributeinvariouswaystodifferenthealthconditions,includingtheknock-oneffectsofpoormaternalhealthanddiet,thedietofchildrenlivinginpoverty,andpoorhousing,whichcaninfluencethecontractionofrespiratorydiseases,forexample.

Inconsideringthecosttosocietyofthesehigherhealthrisks,onequestionishowmuchimpactthishasonhealthexpenditure.Tosomeextent,thepoorerhealthofchildreninpovertyisoffsetbylow-incomefamilies’lowerusageofhealthservices,relativetotheirhealthstatus.Butsomephenomenawithamuchhigherincidenceinlow-incomefamilies,suchasaccident-relatedhospitaladmissions,incurimmediateextracosts.Moreover,conditionsthatdonotcreatelargeimmediatecostscanbecostlyinthelongerterm.Forexample,whilechildrenagedfiveindeprivedareashavesignificantlymoretoothdecaybutnotmorefillingsthanaverage(implyingunder-useofdentalservices),byage15theyhave50percentmorefillingsthanthoseinnon-deprivedareas,suggestingthattheneedfortreatmenthascaughtupwiththem.

Theassociationbetweenfactorssuchaslowbirthweightandexpensive-to-treatconditionsinadulthood(suchasdiabetesandheartdisease)illustratesthelongperiodoverwhichtheNHSneedstomeetextracostsresultingfrompovertyandsocialdeprivation.Aparticularcurrentconcernistheriseinchildhoodobesity,withlow-incomechildrenmoreatrisk,whichcreateslargelong-termcostsbecauseofassociatedillnessesinadulthood.

Interpreting evidence on the effects of child poverty

Manyharmfulphenomenaareassociatedwithchildpoverty.Thisassociation,atitssimplest,meansthatchildreninfamilieswithlowincomesarestatisticallymorelikelytodoworseatschool,havepoorhealth,andsoon.Inthemselves,suchassociationsshowneitherthatpovertycausestheseilleffects,northatifchildrenwereliftedoutofpovertythedamagewoulddisappear.However,someoftheevidencesuggeststhatasignificantpartoftheeffectisattributabletoincomepoverty,andthatraisingincomeswouldreducethedamage.Inparticular:

• Evidencetrackingchildrenwhohavegrownupinpovertyshowsthattheyfacelaterdisadvantages,evenaftercontrollingforothercharacteristics.Thisisespeciallythecaseforlong-termhealthandeducationaloutcomes;forexample,someofthelowereducationaloutcomesexperiencedbychildreninpovertycanbeattributedtothelowaverageeducationallevelsoftheirparents.However,abouttwo-thirdsoftheobservedrelationshipbetweenpovertyandpooreducationaloutcomesremains,evenaftertakingaccountofdifferencesinparents’backgrounds,

includingeducationallevel(seeBlandenet al.,2008,forsuchcalculations).

• Stringsofevidencepointtothestronglikelihoodofcausallinks.Forexample,pregnantwomenlivinginpovertyaremorelikelytosufferfrompoordietandstress,andmedicalresearchshowsthatsuchconditionsinpregnancycandamagetheirbaby’sfuturehealthduringchildhoodandthroughoutlife.Suchexplanationsoflinksbetweenchildpovertyandpoorhealthoutcomes,combinedwiththeobservationofstronglinksinpractice,powerfullysuggestcausallinkswithoutdirectlyprovingthem.

• Evenwhereitisimpossibletodisentangletheeffectsofincomepovertyfromotherinfluencesinachild’slife,theevidencesuggeststhatraisingincomeisanecessarypartofapackagetoimproveoutcomes.Forexample,better-offchildrenareconsiderablyadvantagededucationallybytakingpartinout-of-schoolactivities.Theevidencesuggeststhatnotjustincomeconstraints,butalsoattitudesandculturalnormspreventworse-offchildrenfromparticipating(Wikeleyet al.,2007).However,addressingthesenormswithoutalsoaddressingthefinancialconstraintsislikelytoproveineffective.

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Suchlong-termdamagetohealthresultingfromchildpovertycreatesnotjusttreatmentcosts,butalsoeconomiccostsassociatedwithlowercapacitytowork–whethercausedbytimeoffthroughsicknessorlonger-termincapacityamongworking-ageadults.Caringcostsarealsoassociatedwithlong-termhealthdamage.Giventhatsomeestimatesputthetruecostofcaringattensofbillionsofpounds(see,forexample,CarersUK,2007),thepaybackfromthissourceofreducinglong-termill-healthcouldbehuge.

Psychological and emotional impact Atleastasimportantastheimpactonphysicalhealthisthedamagethatpovertydoestopsychologicalandemotionalwell-being.Childreninpovertyaresubstantiallymorelikelytohavementalillnesses,withfamilystressandadverselivingconditionsplayingcontributingroles.Thesedifficultiesappeartobeheightenedbylengthyperiodslivinginpoverty,andinsomecasesbystressesassociatedwithneighbourhood.TherearealsoassociationsbetweenpovertyandlowIQ,althoughevidenceonthegeneticcomponentinthisismixed.

Thecoststosocietyofmentalillness,emotionaldifficultiesandslowercognitivedevelopmentarewide-ranging(see,forexample,Meltzeret al.,2000).Socio-emotionalproblemscancontributetoanti-socialbehaviourorself-destructiveaddictions,withlargeimplicationsforsociety.Slowlearningdevelopmentcancontributetoworselabour-marketoutcomes.Thisaspectofchildhoodhealththereforehasstronglinkswiththeeducationalandbehaviouralthemesdiscussedbelow.

Educational outcomes Awiderangeofevidenceshowsthatchildreninpovertydoworseatschool,andthatthisdamagestheirfutureopportunities.Keyfeaturesofresearchfindingsinthisareaarethat:

• childhoodeducationaldisadvantagestartsearly,withmeasuredcognitiveabilityalreadyaffectedbytheageofthree,whenchildreninpovertyareestimatedtobesixmonthsbehindthenorminschoolreadiness;

• thecumulativeeffectofpovertygrowsthroughoutschooling,withthegapcontinuingtowiden–evenchildrenfromlow-incomefamilieswhostartoutwellhavereducedchancesofprogressing(Hirsch,2007);

• thereisacontinuousgradientofaverageachievement,sotherearenotjustdifferencesbetweenpeoplefromhigherandlowersocialclasses,butfurtherpenaltiesfrombeingonaverylowincome;

• anumberoffactorscombinetocontributetolowerachievement,includingfamilystress,thelevelofeducationalsupportofferedinthehomeandthelevelofparticipationinout-of-schoolactivities(whichcanhelptobuildchildren’sconfidenceaslearners);lowincomecontributestothesefactors,aswellasinteractingwithotherdisadvantages.

Achildwhogoestoschoolwithmanyhomedisadvantagesneedsextrasupportinordertobegiventhesameopportunitiesasanaveragechild;suchsupportgenerallyrequiresextraresources.Inprinciple,thiscreatesacosttotaxpayers.Thiscostarisesinreality,giventhatschoolsinmoredeprivedareashaveonaveragemorespentperpupil.However,asthisisnotenoughtoequaliselifechances,itshowsthatonlypartofthecostpaidbysocietyforchildpovertywithrespecttoeducationcomesfromspendingatthisstage.

Perhapsabiggercostarisesfromthefalloutfromallowingsomanyyoungpeoplegrowingupinpovertytofailtorealisetheirpotential.Thisleadstomuchlowerearningsprospects,withimplicationsforthenation’soveralleconomicoutput(seebelow),andinsomecasestothefalloutfromdisaffectionamongyoungpeoplewhohave‘failed’.Inparticular,thephenomenonof‘NEETs’(youngpeoplenotineducation,employmentortraining)createscostsintermsofsupportindealingwithissuessuchashomelessness,addictionsandpotentiallythecostsofanti-socialbehaviourandcrime.

Lower future employment prospects Thosewhogrowupinlow-incomehouseholdsaremorelikelytobeunemployed,toworkinloworunskilledjobs,andtobepoorlypaidinadultlife.Thiseffectpersistsaftercontrollingforeducationalachievement,andhasgrownovertime.Theresearchsuggeststhatacriticalfactoristhedifficultyinmakingthetransitionintostablework.Pastgenerationswereabletopursueclearer,morewell-troddenroutesintolow-skilledandskilled-manualemployment,eveniftheyheldlimitededucationalqualifications.Butmanyofthejobstheywentintonolongerexist,andmanyoftoday’sjobsrequirearangeof‘softskills’thatchildrenfromdeprivedfamiliesoftenlack(see,forexample,MargoandDixon,2006).

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Crime and negative behaviours Povertyitselfdoesnotcausechildrenandyoungpeopletocommitcrimes.Yettherearestrongassociationsbetweensocialandeconomicdisadvantageandratesofoffendingandanti-socialbehaviours.Anothertellingassociationisthestronglinkbetweenpovertyandsuiciderisk.Thissuggeststhatnegativebehavioursshownbysomechildreninpovertyarelinkedtodeep-seateddamagetotheirlives.Thosegrowingupindeprivedareasalsohaveamuchgreaterchanceofbeingavictimofcrime,combinedwithastrongassociationbetweenhavingexperiencedcrimeasavictimandbecominganoffender(see,forexample,Aberet al.,1997).

Theevidencesuggeststhatdifficultiessuchaspoorfamilyfunctioningandlowself-esteem,whichcanbecontributingfactorstoanti-socialactivities,areinturnfedbychildhoodpoverty.Thesemediatingfactorshelptoexplainwhyyoungpeoplewhogrowupinpovertyaremorelikelythanaveragetobecomeinvolvedinanti-socialbehaviourandcrime.However,thisconclusionneedstobeusedwithcare,sinceitdoesnotpointtoaclear,directcausallink:itcannotbesaidthatchildrencommitcrimessimplybecausetheyarelivinginpoverty.

Thelargecoststosocietyofincreasedanti-socialbehaviourandcriminalityareself-evident.Whenpeoplegetinvolvedinsuchactivityatayoungage,thereareimmediatecoststhroughtheyouthjusticesystemandalsolonger-termcoststhroughpatternsofrepeatedoffendingandfailuretobecomeproductiveearnersandtaxpayers.

Family relationships Theresearchsuggeststhatmanagingonalowincomemakesgoodfamilyfunctioningmoredifficultandcanaffectthequalityofparent–childrelationships.Whetherornotpovertyitselfcausesstress,itcanaffectparents’abilitytomanageotherstressfuleventsanddifficulties.Whilethereisnoclear-cutevidencetoshowthatparentsinpovertyaremorelikelytoengageinpracticessuchasphysicalviolenceagainsttheirchildren,acorrelationhasbeenidentifiedbetweenfamilyincomeandchildrenbeingremovedfromtheirparents’care(Barthet al.,2006).

Aconcentrationofchildren’ssocialservicesresourcesonfamiliesonlowerincomesrepresentsanimmediatecosttotaxpayers.Inthelongerterm,childrenfaceextensivepenaltiesfromgrowingupinfamilieswithnegativerelationships.Theyfindithardertoformrelationshipsthemselves,andtobuildupnetworksand‘socialcapital’.Researchhashighlightedtheimportanceofastablehomeenvironmentforchildren’sdevelopmentandmentalwell-being,withknock-oneffectsonmentalhealth,learning,behaviouralandultimatelyemploymentoutcomes.Anotherimportantoutcomeisthechanceofbecomingaloneparent,whichishigherforthosewhohavegrownupinpoverty.

Strength and well-being of communitiesChildpovertycanalsohavenegativeimpactsontheresourcerepresentedbyacommunity.Forexample,povertycanlimitafamily’sabilitytobecomeintegratedintothelocalcommunityandformsocialnetworks.Inaddition,stigmaassociatedwithpovertycanbedetrimentaltocommunityrelationshipsandcanreinforceinequalities.Thisstigmacanbeexacerbatedforthoselivingincommunitieswhereoutsidersassociatehighratesofdeprivationwithhighratesofanti-socialbehaviourandcrime.

Interpreting consequences and costsMuchoftheaboveevidencesuggeststhatchildpovertyinteractswithmanyotherfactorstoproducenegativeconsequencesandcosts.However,thereisconsiderablecomplexityinidentifyinghowconsequencesfeedintocosts.Understandingthisprocessaswellaspossibleisvaluablefordevelopingstrategiestoreducepovertyanditscosts,alongsidestrategiestotacklerelatedsocialills.

Figure1illustratesonewayoflookingattherelationshipsbetweenthecostsandoutcomesofchildpoverty.Thetoppartofthediagram(thestatusquo)suggeststhatthenegativeconsequencesbringbroadlytwokindsofcost.Oneistheresourcesdevotedtotryingtoamelioratetheseconsequences;theotheristhelonger-termcostsoffailuretoamelioratethemfully.Thelattercanberegardedasthecostofhaving‘unmetneed’.

Forexample,ineducationthefirsttypeofcostmightincludeextrahelpforachildwhosefamilypovertyhasmadeithardertolearn,whilethesecondtypemightincludefutureunemploymentbenefitresultingfromthatchildgrowingupwithlowqualificationsandfindingithardertogetwork.

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Thesecondtypeofcostimpliesadegreeoffailureorlimitationinthefirst,sinceiftheeducationsystemweretosucceedinlevellingtheplayingfield,subsequentdisadvantagewouldnotensue.Butthisdoesnotmeanthatextraspendingoneducationforchildreninpoverty,evencombinedwiththemosteffectiveeducationalstrategies,couldeverfullycompensatefortheirdisadvantageseducationally.

Inreality,theevidencesuggeststhatsomeconsequencesofpovertycannotbefullyreversed,sotheonlywayofavoidinganylong-termcostsisapreventativeapproach.Thebottompartofthediagramindicatesthatupfronteffortstoavoidpovertycanreducecostslateron.Italsoaccepts,however,thatreducingpovertywillnoteliminateallsocialdisadvantage,butitwillmakeothersocialspendingmorecost-effective.Thiscanbeinferredfromevidencethateffortstohelp,say,underachievingstudentsatschool,haveenjoyedverylimitedsuccessinraisingoutcomesforchildrenimpededbyfamilypoverty.Childrenwhostartoutdoingbadlyatschoolhavemuchbetterchanceofbeinghelpedtohigherachievementiftheyarenotinpoverty.Someasurestocutpovertyandtohelpunderachievingstudentscantogetherimproveoutcomesmuchmorethaneitherpolicyinisolation.

Thefollowingtwo-partcalculationofactualcostsassociatedwithchildpovertyisbasedonthesequencesuggestedinFigure1.Itlooksfirstathowservicescostmorewherechildpovertyishigher,andsecondlyatcostsassociatedwithanimportantlong-termconsequenceofchildpoverty–theeffectonthelabourmarket.

Estimating extra public service costs

Basedontheabovereviewofresearchevidence,highersocialspendingwouldbeexpectedtoresultfromhigherchildpoverty,asservicesattempttomitigatethedamagethatpovertydoestothelivesofchildren,familiesandcommunities.Socialspendingisindeedhigherinareaswithgreaterchildpoverty.Butthisdoesnotmeanthatifallchildrenwereliftedoutofpoverty,spendingintheseareaswouldreverttothenorm,sinceotherfeaturesthatcharacterisedeprivedareasmaystillbepresent.However,itispossibletoestimatetheeffectofpovertyonextraservicecostsbyconsideringtheassociationbetweentheproportionofchildreninpovertyinalocalareaandthecostofservicesinthatarea,controllingforotherfactorsthatcausespendingtobehigh.

Figure 1: Illustration of relationship between costs and outcomes

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BramleyandWatkins(2008)haveusedthebestdataavailableonlocalspendingvariationstoconductsuchanexercise.Thiscalculationinvolvedthefollowingstepsforeachofanumberofpubliclyfundedservicesthatchildpovertycouldmakemoreexpensive:

• Considertheaveragespendingperchildineachlocalarea.Theareausedvariedaccordingtodataavailability;mostcommonlyitwaswardorpostcodedistrict.

• Considerthepercentageofchildreninpovertyinthatarea.Thedefinitionofpovertyalsovariedaccordingtodataavailability,butgenerallymeasuredincomedeprivationaffectingroughly20–25percentofchildren,acomparablefiguretothenumberinpovertyontheGovernment’spreferreddefinition(i.e.livinginhouseholdswithbelow60percentmedianincomebeforehousingcosts).

• Calculatetherelationshipbetweenchildpovertyandspending:howmuchextraspendingisassociatedwitheachpercentagepointdifferenceintheproportionofchildreninanareaclassifiedasbeinginpoverty.

• Modifytheabovecalculationbycontrollingforotherfactorssuchasdemographyandsocio-economicstatuswhichcanalsoimpactonspendingandwhichwouldnotchangeifpovertywerereduced.NB:someotherfactorssuchasunemploymentaresocloselyassociatedwithpovertythattheyweretreatedaspartofthesamephenomenon.

• Basedontheassociationbetweentheproportionofchildreninpovertyandthecostoftheservice,estimatewhatpercentageofoverallspendingontheserviceisattributabletopoverty.

• Applythispercentagetoactualspendontheservicetoestimatethenationalcostofchildpovertyfortheservice.

Basedonthesecalculations,BramleyandWatkinshaveestimatedthecostofservicesattributabletochildpoverty,asshowninTable1.

Table 1: Estimates of the cost of child poverty by service, England and UK, 2006/07 (£ million)

Expenditure attributed to child poverty

a) amount b) as percentage of all spending in each service area

Service England £m UK £m

Low High Low High Low High

Personalsocialservices 2,414 2,414 2,849 2,849 71 71

Acutehealthcare 1007 1007 1211 1211 2 2

Primaryhealthcare 730 730 859 859 5 5

Schooleducation 2,300 2,300 2,888 2,888 10 10

Newsocialhousing 527 1,166 748 1,654 37 98

HousingbenefitandCTB* 0 3,757 0 4,420 32

DecentHomesprogramme 0 1,477 0 1,697 31

Policeandcriminaljustice 1,060 2,502 1,240 2,927 5 12

Fireandrescue 724 724 926 926 33 42

Localenvironmental 338 675 395 790 11 22

Area-basedprogramme 405 405 477 478 43 43

Total 9,506 17,159 11,593 20,699

*CouncilTaxBenefit

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Foreachservice,Table1estimateshowmuchspendingcanbeassociatedwithchildpoverty.Thisisthenshownasapercentageshareofallspendingonthatservice(finaltwocolumns).Insomecases,higherandlowerestimatesaregiven,toreflectparticularuncertaintiesabouttheextenttowhichtheextracostsshouldbeassociatedwithchildpoverty–mostnotablyforhousingandcriminaljusticeservices(seeBramleyandWatkins,2008forfulldetails).

ThetotalsinTable1givealowerestimateof£11.6billionandahigherestimateof£20.7billionforthecostofchildpovertytoUKpublicexpenditure.Adjustingto2008/09values(relativetoGDP,basedona6percentnominalgrowthrateovertwoyearsasshowninbudgetestimatesofGDPbetween2006and2008),thesefiguresriseto£12.3billionand£21.9billionrespectively.Thebiggestitemsincashtermsarepersonalsocialservices,schooleducationandthepolice/criminaljustice,whichaccountforwelloverhalfofthetotalcost(onthelowerestimate).

Spendingonsocialservicesstandsoutascomprisingthegreatestconcentrationofexpenditureindeprivedareas.Mostofthespendingontheserviceisassociatedwithchildpoverty–i.e.theserviceisneededinlargepartbecausechildrengrowingupindeprivedfamiliesfaceparticularproblems.Thisisclearlynotthecaseforservicessuchaseducation,whicheverybodyneeds.Here,expenditureisskewedtodisadvantagedareastoamuchsmallerdegreethanforsocialservices,asshownbythepercentagefiguresinthefinalcolumnofTable1.Butthehightotallevelofspendingoneducationmeansthatthecostassociatedwithchildpovertyisstilllargeinabsoluteterms,asisthecasewiththepoliceandcriminaljustice.

Inthecaseofhealthcare,theveryweakskewingofresourcestowardsareaswheremanychildrenareinpovertytosomeextentconfirmsthehypothesisthatpoorhealthoutcomesforpeopleonlowincomesarenotfullyreflectedinextrauseofhealthcare.However,thereisameasurementprobleminseparatingouthealthspendingonchildrenandattributingittochildpoverty.Shouldthelowerorupperestimatebeused?Intheserviceswheretheseestimatesdiffer,ithasprovenhardtodistinguishfullytheeffectsofchildpovertyfromthoseofotherrelatedphenomena.BramleyandWatkinssuggestcautionregardinghowmuchofthecosttoattributetochildpovertyassuch.Thisconsiderationsuggestthatitwouldbeprudenttotakethelowerfigureof£12billionastheestimateofthecostofchildpovertyforservicespending.Thisfigureshouldbeinterpretedasaminimumitmightbehopedtosaveinthelongtermasaresultofabolishingchildpovertyinconjunctionwithaddressingrelatedsocialproblems.

Knock-on costs of child poverty

Inadditiontothecoststoservicesoutlinedabove,childpovertybringsimportantlong-termeconomiccoststosociety.Inparticular,childrenwhogrowupinpovertyarelesslikelythantheaveragetoworkasadults,andcangenerallyexpectlowerearningsiftheydo.Thecostofthiscanbeillustratedbyestimatinghowmuchlessnationalincomeisgeneratedasaresultofchildpoverty,howmuchthisextraincomewouldhavecontributedtotaxrevenues,andtheextracostofsupportingpeoplewhoarenotworking.Thispartofthecalculationcombinesthefuturepubliccostofchildpovertywiththecosttothefutureincomeoftheindividualsaffected.Thelattercanhaveknock-oneffectsforsocietyintermsofoverallproductivepotentialandthespendingpowerthatthoseindividualswouldhavecontributedtotheeconomy.

Inashortmodellingexercise,Blandenet al.(2008)havemadeaconservativeestimateofthesecosts.Themodellingstartedbyusingcohortstudiestolookattheassociationbetweenbeinginpovertyatage16withearningsandemploymentchancesuptoage34.Inestimatingthe‘povertypenalty’onearningsandemploymentrates,themodellingcontrolledforparentalcharacteristicstogetascloseaspossibletoaneffectcausedbypovertyitselfratherthanotheraspectsofanindividual’sbackground.

Havingestablishedthatrelationship,theanalysisfirstlyconsideredhowmuchwouldbegainedinextraearningsandreducedbenefitpaymentsifalladultswhogrewupinpovertywereinsteadtoavoidpovertyandtherebyimprovetheiremploymentandearningprospects.Inmakingthiscalculation,itwasnotassumedthatallthoseindividualswouldgointojobsonaverageearnings,sinceliftingchildrenabovethepovertylinewouldnotmaketheminto‘average’individuals–theirsocio-economicbackgroundandfamilyincomeswouldstillbebelowaverage.

Rather,theanalysisassumedthatthoseinworkwhonolongerhadgrownupinpovertywouldhavetheirincomesraisedtotheaverageforpeoplewhohadgrownupinfamiliesabovethepovertylinebutstillonmodestincomes.(Specifically,theaverageforpeoplewithbetween60%and120%medianincome.)Further,itassumedthattheprobabilityofemploymentforpeoplewhowouldotherwisehavegrownupinpovertywouldrisetotheaverageemploymentrateforallgroups,andthatthe‘extra’peopleemployedasaresultwouldearnatthe25thpercentileofearnings.Thislastassumptionwasanarbitrarywayofacknowledgingthatsuchindividualswouldbelikelytobeinlower-payingjobs:the25thpercentileputstheminthemiddleofthedistributionofthelower-earninghalfofthepopulation.

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Theauthorsofthisresearchare,however,cautiousaboutpredictingthatemploymentandearningswouldgrowbyasmuchasthismodelassumesonthisfirstestimate.Theassumptionssuggestthattheconsequenceofadultsnothavingtheexperienceofchildpovertywouldbetomakethemmorelikeotheradultswhodidnotexperiencechildpoverty.However,insofarasthisoccursbecausetheybecomemoreemployable,withhigherskills,itisnotclearthatthedemandforlabourwiththeseimprovedcharacteristicswouldexpandfullytoabsorbthesenewworkers.Lookedatanotherway,theremaybeanextenttowhichthepenaltypaidforgrowingupinpovertyisagreaterchanceofbeingatthe‘bottomoftheheap’inadulthood,buttakingawaythisdisadvantagemaynotnecessarilychangetheshapeoftheheap,andthereforetheoverallearningsandtaxrevenuesgeneratedbytheeconomy.

Blandenet al.dealwiththisissuebymakingcautiousassumptionsabouttheextenttowhichthelabourmarketmightadapttotheinfluxofabetter-qualifiedcohortofworkers,basedonpriorevidencerelatedtotheentryofimmigrants.Theresultofthiscalculationistosuggestthathalvingtheestimatedescribedaboveproducesalowerboundtothetrueestimatedgainsfromendingchildpoverty;experiencesuggeststhatafigureclosetothislowerboundisamoreplausibleestimatethanamidpoint.Onthisbasis,thecalculationsproducethefollowingcautiousfigures:

• Thecombinedcostinhigherbenefitpaymentsandlowergrossearningsresultingfromtheeffectsofpastchildpovertyamountstoatleast1 per cent of GDP,or£13billion(calculationsusingfiguresfromBlandenet al.,adjustedfrom2006to2008GDPlevels–estimatedtobe£1.28trillionratherthan£1.2trillionin2006).

• Thisfigurecomprisesapproximately£2 billioninbenefitcostsand£11 billioninforegoneearnings.

• Oftheearningssacrifice,£3 billionwouldhavebeenpaidtotheExchequerinextraincometaxandNationalInsurance(NI),and£8 billionwouldbekeptbyprivateindividuals.

• Therefore,ofthe£13billionthatmightbegainedfromendingchildpoverty,about£8 billion representsmoremoneyforthoseadultsfromfamiliesliftedoutofpoverty(andextraspendingthatcouldhelptoboosttheeconomy),while£5 billionwouldbeagaintotheExchequer.

Figure 2: Adding up the costs

.

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Conclusion

Itisclearfromtheevidencepresentedabovethatchildpovertybringslargecosts–notjustintermsofthehardshipexperiencedbythoseaffected,butalsointermsofpublicexpenditureandfutureeconomicpotential.Theexactsizeofthesecostsisimpossibletodetermine,buttheestimatescompiledhereshowthattheyaresubstantial.Figure2summarisesthetangiblecostsestimatedonthebasisofthemodellingcarriedoutfortheJosephRowntreeFoundationbyBramleyandWatkinsandbyBlandenet al.(2008)

Thus,theestimatedtotalidentifiablecostsofchildpovertyare£25billionayear(equivalenttoabout2percentofGDP),ofwhich£17billioncomprisessavingstotheExchequer.Inusingthesefigures,thefollowingpointsneedtobeborneinmind:

• Theestimatestakethelowerendoftherangeofpotentialcosts,andsoshouldbetakenasacautiousestimateinthesenseofidentifyingtheminimumcostineachcase.

• Whiletheestimatesareconservativeaboutthequantityofcostidentified,theyneedtobetreatedwithcautionintermsoftheextenttowhichchildpovertyitselfhasbroughtaboutthesecosts,andabolishingchildpovertywouldbringaboutequivalentsavings.Thetotalfigureencompassesarangeofdifferentlevelsofevidence.Thelabour-marketestimatesarebasedonresearchthatcancompareovertimethetrajectoriesofthosewhodidanddidnotgrowupinpovertyandtakeaccountoftheimpactofotherinfluenceslikeparentaleducation.Thisproducesarelativelyrobustestimateoftheconsequencesofchildpoverty,atleastforindividuals.Theservicescostestimatesdonotpermitsuchcomparisonsovertime.Therefore,thereisgreateruncertaintyregardingtheextenttowhichchildpovertycausesratherthanisjustassociatedwiththehighercosts.

• ThefairestinterpretationofthesecostsistoseethemasthepotentialbenefitstotheExchequerandtheeconomyofabolishingchildpoverty.Anarrowfocusonraisingfamilyincomesaboveanarbitrarythresholdmaynotachievethesebenefits.Butifactiontoaddresschildpovertyispartofastrategytohelpfamiliestoimprovetheirlivesmoregenerally,thesearesomeofthesavingsthatcouldresult.

• Alltheevidenceusedforthispaperemphasisestheextenttowhichsuchbenefitswillaccruenotthroughsingleshort-termpolicies,butthroughaprocessthatbuildsovertime.Improvingfamilyoutcomesfromonegenerationtothenextcancreatevirtuouscircles.Forexample,theeffectsofimprovedlabour-marketoutcomesforagenerationthatgrowsuppoverty-freewouldnotjustreducebenefitsexpenditureandimprovetaxrevenues.Itwouldalsohelptoreducetheneedforfuturesocialspendingbyproducingfewer‘casualties’inthenextgenerationofchildren.

Takeninthiscontext,the£25billionannualcostofchildpovertycanbeseenasaclearjustificationformakingstrenuouseffortstofollowthroughonthepledgeoferadicatingchildpoverty,evenifittakesconsiderableresourcestoachievethisend.TheJosephRowntreeFoundationestimatedin2006thatitwouldtakeintheorderofanextra£30billionayeartoeradicatechildpovertyby2020solelythroughgovernment-orderedredistribution.NeithertheJRFnorothercommentatorssuggest,however,thatthisamountshouldbespent,sincepublicredistributionshouldnotbetheonlytool.Rather,solutionswillrequireacombinationofredistributionwithcost-effectivemeasuresthathelpfamiliestoenhancetheirprivateincomes,makingthetotalcosttotheTreasuryoferadicationlikelytobefarlessthan£30billion.

Theidentificationhereofapotential£17billionayearinpublicsavingsthereforesuggeststhatinthelongtermapolicycombiningredistributionwiththepromotingofopportunitiescouldlargelypayforitself.Putanotherway,thelargeamountspresentlywastedonpayingforthefalloutfromchildpovertycouldbemoreproductivelyemployedinpreventingitfromoccurringinthefirstplace.Thiswouldbringadoublebenefit–forthefamilieswhosequalityoflifewouldbeimprovedandforsociety,whichwouldnolongerhavetopaytopickupthepieces.

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PublishedbytheJosephRowntreeFoundation,TheHomestead,40WaterEnd,YorkYO306WP.ThisprojectispartoftheJRF’sresearchanddevelopmentprogramme.Thesefindings,however,arethoseoftheauthorsandnotnecessarilythoseoftheFoundation.ISSN0958-3084

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About this paper

ThisRound-up isbasedonthreereportscommissionedbytheJosephRowntreeFoundation,examiningtheconsequencesofchildpovertyandestimatingthecoststhatresult:Blandenet al.,BramleyandWatkins,andGriggsandWalker(seebelow).

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