When the Right talks about about economic policies, social outcomes are treated as separate. In their ideology, tax cuts or deregulation causing widening inequality is tragic – but ultimately of little consequence to the greater good of ‘the economy.’
To put it simply: this is a myth. Every social outcome comes with an economic cost. Nothing better demonstrates this than the ten million adults and four million children in the UK who live in poverty, and the one inescapable fact about their situation: poverty is expensive.
On one level, it has a huge cost for individuals. As the American novelist James Baldwin once put it: ‘Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor.’ Roughly half of the working-age population spend more than a third of their income on housing, which disproportionately hits the worst-off.
Working families face spending £113 per child per week on childcare, when the average weekly earnings for someone on minimum wage is just £294 – almost half their income. Despite the existence of government support to help with payments, the cost of childcare has been found to push as many as 133,000 children below the poverty line.
Those in poverty have less access to bank accounts and secure credit, which can cost you up to £1,300 a year. As a result, many are forced to rely on the higher interest, and ultimately crippling higher costs, of payday loans. Food too can be more expensive: without access to kitchen appliances (20 percent of households don’t have microwaves, for example) and lacking in spare time, reliance on easy-to-make ready meals becomes necessary. This all functions as a societal tax on being poor, or what experts call ‘poverty premiums‘. But the real cost of poverty is much deeper.
Poverty and its consequences come with huge price tags for everyone in society. Take education: 87 percent of surveyed teachers said low incomes affected the outcomes of their students, and facts back them up – 37 percent of children on free school meals leave education without basic qualifications. We have a huge array of policies, from pupil premiums to those free school meals, which aim to support the education and welfare of the poorest children and narrow the attainment gap between them and wealthier pupils. But all of those policies come with a cost: the more children need them, the more expensive they will be.
Or take criminal justice. Those living in poverty are more likely to be both involved in, and the victims of, crime. The more deprived a country and its citizens are, the more money will be needed to support the criminal justice system, from policing and courts to legal aid, prisons, and rehabilitation. Research found that as much 35 percent of all spending on policing and criminal justice accounts for just the most deprived parts in the country.
The social cost to all these problems are evident. Worse education outcomes can limit a child’s chances of breaking out of the poverty trap. Higher crime rates and larger police forces worsen the over-policing, racial profiling, and abuse faced by minorities in the UK. But the effect on the national economy is less often noted.
The most recent estimates put the overall cost of child poverty at £29 billion per year, while the overall figure for all poverty is around £78 billion. Nearly half of that latter figure was to pay for healthcare to deal with medical conditions associated with poverty – roughly the same as the salary of 126,000 nurses. And the ‘most recent’ here is relative. One of these figures is from a 2016 study; the other dates to 2013. Since then, relative poverty in the UK has shot up (an additional 600,000 children are now living in poverty compared with 2012) and the annual cost to the taxpayer will be billions of pounds higher.
As mentioned, higher poverty rates lead to worse educational outcomes, but a well-trained and highly educated workforce has proven to be a key factor in maintaining economic growth. High poverty and inequality also cause wealth to centralise in the hands of the few, which is then less likely to be spent than money spread more equally across society; the richest have less of an imperative to spend than those who need to pay for everyday essentials. Less money circulating through the economy means slower growth.
The Price of Inequality by Nobel Prize-winning economist Jospeh Stiglitz documents even more reasons why poverty and inequality damage the economy. He highlights that huge recessions, like the Great Depression or the 2007 financial crash, are usually preceded by high inequality. The lower spending and consumption brought about by poverty in developed economies means that supply begins to outstrip demand.
That fall in demand can cause rising unemployment, as well as artificial bubbles in the economy, like the housing bubble that underpinned the 2007 crisis. At some point, those economic bubbles have to burst, and the consequences can be dire. He also makes the point that higher poverty and inequality can worsen economic productivity; if wages stagnate as they have done in the UK (one of the causes of our rising poverty), then the rise in productivity often slows too. To put it simply, better-treated workers tend to work harder.
A recent study in the International Economics journal found that inequality alongside high poverty rates (roughly 30 percent) restricts a country’s economic growth, particularly in the poorest countries. It concluded that implementing policies to alleviate poverty is actually ‘beneficial for the economic growth’ of a country in the long-run.
And poverty can be dealt with. In Finland and Denmark, the child poverty rate is around 3-4 percent – as opposed to the roughly 30 percent recorded in the UK. The incarceration rate is almost three times higher in the UK than its Nordic counterparts, and healthcare outcomes in Nordic countries are significantly higher, often despite similar expenditure. There, the system doesn’t have to waste money dealing with the effects of poverty.
Recent estimates suggest the UK government is set to spend over £300 billion on programmes to help alleviate the affects of coronavirus – a pandemic worsened by the government’s inability to flatten infection rates and misguided policies like ‘Eat Out to Help Out’. After spending such a huge sum, it will be said that we need to ‘tighten our belts’.
Policies that try to alleviate or annihilate poverty, like a Universal Basic Income, a higher minimum wage, or subsidised housing, will likely be labelled as unaffordable extravagances. Frankly, even the few government programmes we have to help combat poverty in the UK will be under threat, as wider austerity may well be proposed (despite promises to the contrary) as the only way to ‘balance the books’.
The conversation will end up being about ‘what can we afford to do’. That conversation will fail to reflect reality until we realise the cost of doing nothing is much, much more.