Britain faces ’colossal’ child poverty bill, report shows

Alison Garnham of the Child Poverty Action Group : ’This research shows that policies which increase child poverty are a false economy’.

Britain faces a "colossal bill" for child poverty with the cost of increasing rates of destitution calculated to reach £35bn a year by 2020, according to a report.

Donald Hirsch, an academic at Loughborough University, says that one-in-four children in Britain – 3.4 million – is forecast to be in relative poverty by the end of the decade.

At those levels about 3% of the country’s GDP would be consumed, as well as the longer term losses to the economy that result from lower educational attainment and poorer physical and mental health in later life.

The result is a bill in 2020 of £35bn – an amount that exceeds the cost of HS2, the proposed high-speed rail network. Hirsch first calculated the cost to the country of "very high levels" of child poverty in 2008 and warned then that the economy was losing £25bn a year because of impoverished childhoods.

Today child poverty rates are back up to 2008 levels. With cuts to public services balanced by increases in spending via the pupil premium and new nursery places for poor families, there has been a rise in the cost of child poverty to the country – taking the bill to £29bn.

In his report Hirsch says that £15bn of this is for spending on services to deal with the consequences of child poverty while £8.5bn is the loss in private post-tax earnings by adults who having grown up in poverty.

Charities are concerned that the chancellor will use this month’s spending review to cut working age benefits under his plans to limit the government’s "annually managed expenditure" and want to highlight that such a move would simply store up costs for the future. Such is the political potency of the coalition’s move that on Thursday Labour’s Ed Miliband will lay out plans for his party’s version of a cap on such managed expenditure – which includes pensions, benefits and tax credits.

Alison Garnham, chief executive of the charity Child Poverty Action Group, which commissioned the research, said : "This research shows that policies which increase child poverty are a false economy, costing the country as well as poor children themselves dear. In the last three years families with children have had to bear the brunt of the government’s austerity programme – it is no surprise that child poverty is projected to increase as a result. The spending review later this month is an opportunity to change course and prioritise families with children once again."

A child is considered to be in relative poverty if he or she lives in a household whose income is below 60% of the average in that year. The report uses figures from the Institute for Fiscal Studies to show that child poverty will rise by 6% between 2010-11 and 2020-21 – in effect reversing all of the reductions that took place under Labour between 2000-01 and 2010-11.

"The prospect of facing this colossal bill for allowing child poverty to return to around its high point last seen in the late 1990s is a powerful incentive to devote resources instead to fulfilling the commitment of its eradication," said Hirsch.

Labour’s welfare spokesman Liam Byrne said : "This report shows that the price of ministers’ failure on child poverty isn’t just a million more children growing up poor – it’s a gigantic £35bn bill for the tax payer. It’s not just a moral failure, but an economic disaster.

"Ministers should be doing everything they can for struggling families but instead they are slashing working families’ tax credits whilst handing a massive tax cut to the richest people in the country. That tells you all you need to know about this government’s priorities."

Not only is there a cost attached to rising levels of child poverty but the trend is illegal. Left unabated child poverty will reach 24% in 2020, compared with the goal of 10% written in law. Iain Duncan Smith, the welfare and pensions secretary, has publicly questioned whether poverty targets are useful – arguing that feckless parents only spend money on themselves. Nick Pearce of the left-leaning Institute for Public Policy Research has also called for ’another way" to tackle child poverty and called for the targets to be dropped.

A DWP spokesperson said : "Despite paying out £171bn in benefits and tax credits over the last decade, the previous Government failed to meet their target to halve child poverty by 2010 and far too many children were left behind.

"This government remains committed to eradicating child poverty, but we want to take a new approach by tackling the root causes including worklessness, educational failure and family breakdown.

"Our welfare reforms will improve the lives of some of the poorest families in our communities, with Universal Credit making 3 million households better off and lifting up to 250,000 children out of poverty."