Impact of poverty costs the UK £78bn a year, says report

Dealing with the effects of poverty costs the public purse £78bn a year, or £1,200 for every person in the UK, according to the first wide-ranging report into the impact of deprivation on Britain’s finances.

Related: More than a million people in UK living in destitution, study shows

The Joseph Rowntree Foundation (JRF) estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services.

The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues.

The research, carried out for JRF by Heriot-Watt and Loughborough universities, is designed to highlight the economic case, on top of the social arguments, for tackling poverty in the UK. The prime minister, Theresa May, has made cutting inequality a central pledge.

Julia Unwin, the chief executive of the foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too.

“Taking real action to tackle the causes of poverty would bring down the huge £78bn yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together.”

Responding to the research, a spokeswoman for the government pointed to the former chancellor George Osborne’s introduction of the “national living wage” for over-25s and May’s pledge to share out economic gains more fairly.

“We’re committed to creating a Britain that works for everyone and that means tackling the root causes of poverty,” the spokeswoman said. “Employment is key and we’ve made good progress – there are now more people in work than ever before, millions are receiving a pay rise thanks to the national living wage and we’ve doubled free childcare to 30 hours.

“But there’s more to do and we’re taking action across other areas like education and family breakdown so we can help more people to succeed in life.”

The JRF report, called “counting the cost of UK poverty”, estimates that 25% of healthcare spending is associated with treating conditions connected to poverty.

In education, an extra £10bn – 20% of the schools budget – is spent every year to cope with the impact of poverty through initiatives such as free school meals and the pupil premium, which is funding given to schools to help children from socio-economically disadvantaged backgrounds improve their academic performance.

Police and criminal justiceaccount for £9bn of the annual poverty cost, due to the higher incidence of crime in more deprived areas.

An estimated £7.5bn of spending in children’s services is associated with poverty. This represents 40% of the early years budget and 60% of the children’s social care budget.

The report’s authors said their estimates did not include the full cost of benefits aimed at preventing poverty or helping people to find a way out of it, such as working tax credits or jobseeker’s allowance. Nor did they include the amount that experiencing poverty in adulthood costs the public purse through reduced tax revenue. The estimates for lost tax revenue that the report included were only based on individuals who grew up in poverty.

Prof Donald Hirsch from the Centre for Research in Social Policy at Loughborough University said: “It is hard even to estimate the full cost of poverty, not least its full scarring effect on those who experience it. What our figures show is that there are very large, tangible effects on the public purse.

“The experience of poverty, for example, makes it more likely that you’ll suffer ill health or that you’ll grow up with poor employment prospects and rely more on the state for your income. The very large amounts we spend on the NHS and on benefits means that making a section of the population more likely to need them is extremely costly to the Treasury.”

The researchers noted that a concerted effort to eradicate poverty “may well involve spending more initially on services that help break the long-term cycle of family poverty and its consequences, but bring longer-term social and economic benefits”.

Impact of poverty costs the UK £78bn a year, says report