A toxic fiscal legacy
If to govern is to choose then the coalition government is going to be responsible for an awful lot of money being spent in years to come because of not choosing children today. The Purple Papers, published by Progress, are a welcome call for an approach that sees the wisdom in taking strategic decisions to switch government spending to priority areas, but if we’re serious about a smarter state then switch-spending must prioritise ending child poverty and be across government, not just within existing budgets.
The current government is making its choices. Spending cuts rather than tax rises, and cuts in social protection for families rather than cuts in protection for other groups or in other Whitehall budgets.
But spending cuts that end up increasing child poverty aren’t actually spending cuts – they are a multitude of cast-iron guarantees of extra public spending dumped on future governments and to be honoured by taxpayers in the future – this is not fiscal realism but a toxic fiscal legacy.
The effects of child poverty are far-reaching and long-lasting. In looking at the money government spends to blunt the effects of child poverty and the economic costs of children failing to reach their potential, the Joseph Rowntree Foundation estimates the cost of child poverty to be £25bn a year.
So, what of Labour? As Patrick Diamond notes in his chapter, Labour’s commitment to end child poverty drove action to (i) make work pay (ii) invest in childcare and early years services, and (iii) boost the incomes of families with children using the tax and benefits system. As a result, between the mid-1990s and 2008 the UK had the largest reduction in child poverty in the OECD. In all 1.1 million children were lifted out of poverty by 2010 – an unprecedented achievement. A CPAG report by leading experts found that the progress made on child poverty was significant and transformed lives.
But despite these improvements we are still a long way from where we should be. For too many people work does not pay. Six in 10 children in poverty come from a working family. Children are much more likely to be in poverty because they have a parent who is a security guard or a cleaner than one who is a drug addict or ‘feckless’, but the coalition is offering the working poor little help. Graeme Cooke’s suggestion that Labour should aim to ensure no one working full-time is in poverty would be a good and politically wise goal to support hard-working families.
The Purple Papers are also right to call for universal childcare. As our recent report on the cost of a child confirmed, childcare is one of the factors most responsible for the costs of children’s needs rising faster than inflation – childcare contributes £60,000 towards the £143,000 it costs to meet the basic needs of a child until adulthood.
Unfortunately, this proposal is presented as a tough choice rather than a big decision; families can have universal childcare but they will have to pay for it through real terms cuts in child benefit or child tax credits.
If the arguments for universal childcare are so compelling on national economic interest grounds – and they are – then funding it should be a priority across government, not just from within current children and family budgets which have been already repeatedly raided by the coalition. There’s nothing progressive about benefit freezes that plunge families into poverty and rack up spending bills for the future.
It is suggested that this type of switch-spending will bring us closer to countries like Denmark which have better employment and child poverty rates and channel more spending on families through services than benefits. But this seems flimsy. Countries like Denmark have much lower levels of income inequality, higher parental employment, higher benefits and higher wages. The international evidence is clear that the association between services and child poverty is weak, between financial help and child poverty much stronger and between financial help and child poverty reductions even stronger. It is the relationship between total spending on families – cash benefits and services – that is most closely associated with low child poverty. Choosing services over benefits is a false choice and a progressive dead end.
The switch we need to make on spending is to move from spending billions dealing with the social and economic fallout of child poverty to investing in preventing child poverty happening in the first place. This is not about making tough choices as we pitch progressive ideas against each other. It’s more ambitious and urgent than that – it is a big decision driven by the demands of both social justice and economic efficiency and one which should drive us to rethink public spending across the whole of government.
child poverty, Child Poverty Action Group, Denmark, Purple Papers, social justice, working poor