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Summary
i. This paper considers evidence indicating the cost to the public purse of having one in five of Scotland's million children in poverty. Its central aim is to give an idea how much public money would be saved by improving the economic situation of these children. It also considers how much we are spending on supporting children in poverty, how much more it would cost to lift them out of poverty through the benefits and tax credits system and what alternative means may be available to prevent poverty through early intervention or by helping parents into work.
ii. In most of these areas, it is difficult to pin down definitive evidence of the true cost of child poverty. However, this paper focuses on an area where tangible data can be drawn on, namely the extra cost associated with poverty or area deprivation of a range of public services providing for children. For example, higher crime rates, poorer levels of health, greater housing need and a higher incidence of problems encountered by children at school all lead to higher spending on relevant services in deprived areas. The analysis considers what would happen if the root causes of these extra problems were removed, and if this resulted in spending in such areas being the same as in non-deprived areas. It also looks at further possible savings outside deprived areas as a result of fewer children being in poverty. This is based on ward data covering spending on various mainstream services from selected local authorities in England and Scotland, and also on more detailed breakdowns of spending in small areas across one Scottish local authority: Fife.
iii. The figures show some services (especially housing and children's social services) where there is a very strong skew of resources to more deprived individuals and areas. Less child poverty seems sure to reduce the need for spending on children's social services; this is less clearly evident for housing. In education, the skew towards deprived areas and children is comparatively less, but since the overall cost of this service is so high, total potential savings are of a similar order to that of social services - around £125m for each of these two services based on deprived areas becoming like non-deprived areas, and potentially as much again if individual children in poverty outside deprived areas were helped to a comparable degree. Overall, the extra cost of services associated with child poverty can be estimated very broadly in the range £½-¾ billion.
iv. Looking at the longer term costs of child poverty, one of the most important effects is via under-achievement at school, and knock-on consequences in early adulthood and beyond. The overall cost of NEETs could add up to roughly a further £1bn a year, although not all of this phenomenon can be attributed to child poverty.
v. Conversely, to reduce child poverty using income transfers would in the first instance cost roughly £4000 to £5000 per child - the equivalent of £1 billion for all Scottish children in poverty. But there are also potentially more cost-effective ways of addressing the problem, involving measures that help parents get jobs and improve children's long-term prospects. Spending on jobs measures are likely to more than pay for themselves. Early intervention to help children may well do so as well, but the financial benefits of this are both more distant and much less certain.
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