Labour must not forget the economic costs of child poverty

By Alison Garnham

As the Chancellor prepares the ground for this month’s spending review and Labour starts to provide more detail on its spending approach for 2015, the three main political parties sometimes sound as if they believe social justice and economic efficiency are mutually exclusive. That the toughest of all tough choices is choosing between the head and the heart.

As new research released today shows, that’s just not true. Ending child poverty is a head and a heart argument.

Building on previous work undertaken for the Joseph Rowntree Foundation in 2008, academic Donald Hirsch estimates that current levels of child poverty cost the UK at least £29 billion, or the equivalent of almost 2.5 per cent of GDP, a year.

This figure is composed of two elements. First, it reflects the costs of interventions required to correct for the effects of poverty in the here and now. We know that poverty damages childhoods and therefore as a country, we have to spend extra as a result. Additional social services, criminal justice programmes and educational support are all required to mitigate the worst effects of deprivation. This new estimate places the current cost of this type of spending at £15 billion a year.

Second, the estimate also captures the losses that stem from the fact that growing up in poverty affects life chances. With their poorer educational and health outcomes, many adults who grow up in poverty fail to meet their full potential in later life.

Hirsch’s figure puts a price tag on this in three ways: by estimating the earnings lost to individuals as a result of lower wages and spells of unemployment (£8.5 billion); by estimating the attendant losses to the Revenue of the taxes forgone as a result (£3.5 billion); and by estimating the cost of benefits required to support individuals when they are out of work (£2 billion).

Naturally, as the number of children growing up in poverty increases the associated costs rise too. This looks set to be the case for the foreseeable future: we know that the downward child poverty trend of the Labour years has already been reversed while last month the Institute for Fiscal Studies projected that coalition policies would increase child poverty by 1.1 million by 2020.

Under these conditions, the economic costs of child poverty would rise to at least £35 billion a year in today’s terms, equivalent to about 3 per cent of GDP. Few could consider this to be anything but an extraordinary waste of economic resources that sits alongside the human costs of child poverty.

The reductions in child poverty achieved between 1999 and 2010 should warm the heart of anyone who cares about poverty: lifting over 1 million children out of poverty in little more than a decade has few, if any precedents either over time or across comparable wealthy countries.  So it would be a genuine tragedy if this enormous achievement was undone because the evidence on the economic price we all pay for child poverty is ignored.

Alison Garnham is the CEO of the Child Poverty Action Group