Poverty is Expensive

When people like Jeremy Corbyn talk about combating poverty, they are met with a response from people in authority that is something along the lines of ‘we all want to Jeremy’. However when it comes to government policy the response from the Tories has been to cut benefits. The motivations of this are two-fold: ideological, welfare payments ‘distort’ the market; and financial, they view public finances as a zero-sum game where cuts are the way to reduce government expenditure. New evidence conclusively shows the second of these motivations is false.

The Joseph Rowntree Foundation was established in 1904 by the philanthropist of the same name. It’s focus is looking at social issues particularly those concerning poverty and general societal alienation. A recent report by the group, in partnership with Heriot-Watt and Loughborough universities, found that not only is poverty a social evil, but it is incredibly pricey. The report stated that the total cost of poverty in the UK is £78 billion per year. Specifically, the report argues that: poverty-related illnesses due to poor nutrition etc. costs the NHS £29 billion per year; school programmes to help the poor like free school meals costs £10 billion per year; dealing with higher crime rates in poorer areas costs £9 billion per year; childcare and other children’s services for underprivileged families costs £7.5 billion per year; poverty-related adult social care cost £4.6 billion per year; and £4 billion is spent on social housing.
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They didn’t sugar coat it. (jrf.org.uk)
This report is invaluable as it looks at poverty from a perspective that Tories can understand, however there is one thing that the report doesn’t account for and it the unquantifiable loss of potential success. What I mean by this is we cannot know how much more economic activity would have occurred if these people in poverty were not. Take the information about crime I just mentioned. Countless studies have shown that there is a socio-economic cause of certain crimes. If areas with high-crime rates because of poverty were invested in, the police would have more resources without needing additional state funding and as crime rates declined businesses would be more willing to start-up in these areas. In economics these situations are called ‘virtuous circles’ and this is the clearest example of the potential benefits that eradicating poverty would bring.
However it is also not just an issue of economics, it is a matter of social policy. The deficit of the NHS in England, which is by far the largest part of the NHS, is around £2.3 billion. If there was a conscious effort to eradicate poverty in the UK, the NHS would have huge amounts of money. Not only would this put the NHS back in the black, but it would free up resources to improve the care of patients. Further, returning to policing, the quality of policing could well increase. One major problem with the police is that it is seen as an oppressive force in communities, which is a view particularly held in ethnic minority communities. If the officers didn’t have to police areas as much because poverty was lower, they would have more time to be in touch with communities and thus animosity would decline.
So what is the solution to this problem? How do we tackle poverty in the UK? Those are difficult questions to answer as there is no one thing that causes all poverty. For example if someone is physically disabled there are less likely to be hired by employers and the cost of living is higher for related equipment, and thus live in poverty. In this hypothetical there are a number of issues including welfare programmes, increasing NHS provision, potential employment discrimination against the disabled etc. No one policy can deal with all these things. However there are practical measures that can be done.
One that I mention a lot is rent caps. If you are struggling to keep above the water, financially speaking, rent caps would allow you to live more comfortably and reduce the number of people living in poverty. If you are a middle class person living in a rented house or flat a rent cap would give you more money which would then be spent in the local economy on goods and services, and thus boost employment. Employment, as if this had to be stated, is also a route out of poverty.
Another solution is boosting the minimum wage and crackdown on minimum wage violations. If the minimum wage was increased to a living wage, by definition there would be fewer people in poverty, and this would also free up state resources in the welfare budget to be spent on other things. On the issue of compliance, increasing the number of people investigating wage violations would prevent exploitation. The minimum wage is already not enough to live off so the people being paid even less than the minimum wage are almost certainly in poverty.
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Poverty is not just a moral problem. Eradicating it would bring real financial benefits. (Getty)
I’m not suggesting that poverty would be completely wiped out if these two suggestions were implemented but there would be a significant dent in the problem if these policies were enacted. Poverty is a multifaceted problem and anyone who claims to have a silver bullet to deal with the problem is wrong. What this report clearly shows is that poverty is only a social ill, but is a financial drain on the state. It is therefore a financial prudent thing for the government to inject money into the economy to tackle poverty. The basic maths shows that if the government spends less than £78 billion per year on eradicating poverty, the country has a net benefit.
As I said, this report talks about tangible finances and doesn’t really mention the secondary economic benefits of lower poverty, some of which I have spoken about. I am not in the business of crystal ball gazing, but I am confident that there would be a noticeable economic boost if poverty was significantly reduced. The Labour Party should make this a serious set of policies and use this to dismantle the electorate’s perception of their financial mismanagement. If Labour frame the debate around poverty as both morally and financially reckless and cite these figures from the Joseph Rowntree Foundation, voters will look at poverty in a whole different way. The Tories are not dealing with poverty, and Labour should make this financial case to the electorate.
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