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Poverty costs UK £78 billion per year, research reveals

A new report – co-authored by Loughborough University – reveals that dealing with the effects of poverty costs the UK £78 billion a year, £1,200 for every person.

The research entitled Counting the cost of UK poverty was produced by Loughborough University’s Centre for Research in Social Policy (CRSP) and Heriot-Watt University on behalf of the Joseph Rowntree Foundation (JRF). 

It is the first research to illustrate the cost poverty among all age groups has on the public purse[1]. It found that £69 billion of all spending on public services – £1 in every £5 – goes on services which are needed to pick up the pieces from the damage and cost poverty has on the lives of the 13 million people living in it in the UK today. 

The total £78 billion also includes £9 billion lost tax revenue and additional benefits spending resulting from the experience of poverty. It is equivalent to 4% of the UK’s GDP. 

The report shows how poverty cuts across all government departments and areas of public spending[2], 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 justiceaccount for £9 billion of the total 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 include £7.5 billion additional spending because of 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
  • Housingadds £4 billion to the annual public service cost of poverty, 37% of spending on housing and communities.

As well as looking at public services spending, the report considers the knock on effect that experiencing poverty has on future costs to the public purse. It estimates that experiencing poverty in childhood results in more adults being out of work, requiring £2 billion to be spent on their benefits, and those in work earning £13 billion less, which causes £4 billion of lost tax revenue each year. 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. 

One of the report’s authors, Director of CRSP and Professor of Social Policy Donald Hirsch, 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.” 

Julia Unwin, Chief Executive of the JRF, said: “The UK’s shamefully high levels of poverty are a waste of people’s potential, a waste of economic opportunity and a waste of public money. This report lays bare the huge harm that poverty causes for people who are struggling to make ends meet and, shows the impact that dealing with poverty has on the public finances. 

“UK poverty is a problem that can be solved. Taking real action to cut 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. It won’t happen overnight, but a more prosperous society is possible if Government, businesses and individuals work together to solve poverty in the UK once and for all. That way, we will all be better off.” 

Glen Bramley, Professor of Urban Studies at Heriot-Watt University and one of the report’s authors, said: “The £69bn extra cost of public services is our best estimate based on reviewing evidence on the patterns of service utilisation and spending across individuals, neighbourhoods and localities with different levels of poverty. We have taken account of the actual resource allocation mechanisms in use and applied statistical analysis techniques to allow for other factors which affect the amount of services used. These costs include the effects of both current poverty and past experiences of poverty, including other social problems which are closely inter-related with poverty.”

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