Poverty: persistence and price

5 Aug 2016 Ryan Miller    Last updated: 15 Aug 2016

Illustration by Patrick Sanders
Illustration by Patrick Sanders

The Joseph Rowntree Foundation released a report this week on the extra costs to the public purse as a consequence of poverty. Understanding some of their methodology helps put the figures in context.

Poverty puts extra strain on general public spending – totalling £70bn per year in the UK, according to a report released this week by the Joseph Rowntree Foundation.

This figure is defined within certain parameters and to better understand what it means it is important to understand these parameters and the reasons for them.

What the JRF has identified are, roughly speaking, extra costs to the public purse arising as a consequence of poverty – such as increased pressures on the health service that stem from the more difficult circumstances faced by citizens living in poverty - as well as some knock-on effects

In very brief terms, the report finds:

· the public service costs of poverty amount to around £69 billion, with identifiable knock-on effects of child poverty costing a further £6 billion and knock-on effects of adult poverty costing at least £2.7 billion;

· this gives a total cost of poverty in the UK of around £78 billion;

· a large proportion of what we spend publicly (about £1 in every £5 spent on public services) is making up for the way that poverty damages people’s lives

So, within their own methods, the JRF has identified (some of) the extent of the significance of poverty in the UK. On the other hand, the JRF is keen to flag up the limits within which its report operates; the £78bn cost of poverty to the public purse (mostly) does not include money spent on benefits to people who are, or otherwise would, themselves in poverty.

Roughly speaking – see below for more detail -  JRF classifies this as spending designed explicitly to relieve poverty (and inequality), rather than a consequential cost of poverty, and thus not included it in its study.

This makes sense. Indeed it is conceivable that a system where poverty is significantly diminished, or eradicated, might involve a very large benefits bill.


In the UK right now there is the guts of another £70bn spent on means-tested benefits and tax credits that needs to be taken into account when looking at the extent of poverty in the UK.

This does add to the significance of the situation; clearly poverty persists despite benefits or, put another way, despite this £70bn direct spend (putting money in people’s pockets) poverty still puts an extra £78bn pressure on public services.

The sum of these figures – direct spending on benefits in mitigation of poverty, and the consequential public spending surplus as a result of poverty that still occurs in that context – is £148bn per annum, or roughly £2,300 yearly for every adult and child in the UK.

The paper notes that the UK collectively earns around £1.9tn a year, or £29,000 for every adult and child, so this sum equates to around eight percent of all our earnings. This is an extremely crude and unsubtle methodology but, while there should be a reluctance to draw down fine points from this eight percent observation, it copperbottoms the fact that poverty is a truly significant problem for the UK.

In Northern Ireland, the problem is likely to be much worse per capita.

Earnings are less than the UK average, poverty is higher, and furthermore some of the other exacerbating factors, like poor mental health, are a bigger issue locally than they are in the UK generally. The BBC outlines those factors well here.

Report and methodology

The paper begins by pointing out what it is not doing. It notes the “deep material and psychological harm” that poverty has on individuals, says this cannot be adequately expressed in financial terms, and that they have instead attempted “to estimate the more tangible cost that poverty brings to society”.

Furthermore, what is presented are broad-brush figures, and do not present the full picture with regards to public spending on poverty.

Public costs are incurred either in direct measures to reduce or alleviate poverty, or as extra spending as a consequence of poverty’s existence – with JRF focusing only on the latter.

This means that, for example, extra pressures on health services resulting from individuals’ poverty is counted, but direct mitigations such as jobseekers’ allowance and other benefits are not.

Per the paper, “Since a strategy to reduce poverty is bound to combine measures to improve market incomes with the development of a sound social security system to address poverty by transferring income among those still unable to earn enough, adequate benefits are to a large degree one part of the solution to poverty.

“This would make it problematic to include the benefits bill as of poverty’s ‘cost’. Nevertheless, it is worth noting that the state spends about £70bn on means-tested benefits and tax credits to those whose incomes excluding such payments would be below the poverty line. Other things being equal, improved market incomes would reduce such expenditure, but a system capable of eradicating poverty might increase it.”

Public purse

The report considers two identifiable costs of poverty: the public service cost, gleaned from associations between higher poverty levels and increased spending on various services, totalling £69bn per year; and knock-on effects of poverty, as an effort to measure the costs or disbenefits of historic poverty on society now.

The relationship between many of these factors is difficult to unpick and the report provides a solid explanation as to the limitations on what it can achieve, and also to the subtleties involved – for instance, while benefits are not included in the public service cost, estimated additional benefit payments identified as an extra cost as a knock-on effect of poverty are included in that aspect of this quantification.

In truth it is important to bear the methodology in mind not just to know the inherent limitations of any report – but in fact to better understand, in fuller context, what it does say about the extent and stubbornness of poverty in the UK today.

And, while these figures are just broad estimates, they largely do not factor in – but still occur in the context of – billions more being spent on benefits, which themselves are a buttress against some of the worst effects of poverty.

It is extremely difficult to unpick poverty from the circumstances surrounding it but it is clear to see that poverty is a significant problem that affects, in one way or another, everyone in society.

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