Counting the cost of poverty

A new report, Counting the cost of UK poverty by Heriot Watt and Loughborough Universities, is the first research to illustrate how much poverty across all age groups costs the public purse. It finds that £69 billion, £1 in every £5 of all spending on public services, is needed because of the impact and cost poverty has on people’s lives.

The total, £78 billion, also includes £9 billion in lost tax revenue and additional benefits spending resulting from dealing with the symptoms of poverty. It is equivalent to 4 per cent of the UK’s GDP.

It shows how poverty impacts on different government departments and areas of public spending, including:

• Health care accounts for the largest chunk of the spending, with £29 billion every year spent treating health conditions associated with poverty. This is enough to pay the salaries of 126,000 nurses, and is almost equal to the £30 billion shortfall which the NHS has said will appear by 2020. The £29 billion makes up 25% of all health spending.
•  Schools spend an extra £10 billion every year coping with the impact of poverty through initiatives such as free school meals and the Pupil Premium. This is nearly 20% of the total schools budget.
• Police and criminal justice account for £9 billion of the annual poverty cost, due to the higher incidence of crime in more deprived areas. This represents 35% of all spending on police and criminal justice.
• Children’s services, including children’s social services and early years provision, such as free childcare for deprived two year olds, include £7.5 billion spending associated with poverty. The amount spent on poverty represents 40% of the early years budget and 60% of the children’s social care budget.
• Adult social care is associated with £4.6 billion of the cost of poverty, 26% of spending
• Housing adds £4 billion to the annual public service cost of poverty, 37% of spending on housing and communities.

The report also considers the knock on effect that experiencing poverty has on future costs to the public purse.  Experiencing poverty in childhood makes it more likely that a person will be out of work as an adult. The report estimates that this results in £13 billion in lost earnings each year, causing £4 billion of lost tax revenues and £2 billion extra benefit spending. The £78 billion also includes the cost of additional spending on some benefits, such as Pension Credits and Employment and Support Allowance, in more deprived constituencies.

The total does not include the full cost of benefits aimed at preventing poverty or helping people to find a way out, such as Income Support, Working Tax Credits or Job Seeker’s Allowance. It also does not include the amount that experiencing poverty in adulthood costs the public purse through reduced tax revenue.

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too.

“Poverty wastes people’s potential, depriving our society of the skills and talents of those who have valuable contributions to make. This drags down the productivity of our economy, hinders economic growth, and reduces tax revenue.

“Taking real action to tackle the causes of poverty would bring down the huge £78 billion yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together. If we fail to do so poverty will create an even bigger risk to our country today, and for future generations.”

Professor Donald Hirsch, from the Centre for Research in Social Policy at Loughborough University and one of the report’s authors, said: “It is hard even to estimate the full cost of poverty, not least its full scarring effect on those who experience it. What our figures show is that there are very large, tangible effects on the public purse.

The experience of poverty, for example, makes it more likely that you’ll suffer ill health or that you’ll grow up with poor employment prospects and rely more on the state for your income. The very large amounts we spend on the NHS and on benefits means that making a section of the population more likely to need them is extremely costly to the Treasury.

Next month JRF will launch a comprehensive plan to Solve UK poverty. It will set out what government, businesses and individuals can do to support families and communities, improve educational attainment and build skills, promote growth and boost incomes and ensure that everyone has the chance of a decent and secure life.