Addressing Child Poverty could save the economy billions of euro

The OECD launched its new Observatory on Social Mobility and Equal Opportunity late last year (2022), providing insights into social disadvantage, its causes and consequences as well as how to tackle it, across OECD countries. But Social Mobility, or lack of it, is not just an individual issue. It affects all of society and, as a recent OECD report examines, whole economies.

According to the OECD, children who grow up in socio-economically deprived households are more likely to fall behind with their education; have skills deficits; gain lower paid employment; and have poorer physical and mental health than their more affluent peers. 

When it comes to the impact of childhood socio-economic disadvantage on employment, the average across the European OECD Member Countries studied showed men and women in the bottom quintile on the Index of Childhood Socio-Economic Status (ICSES) are, respectively, 3 and 6 percentage points less likely to have been employed in the income reference year than individuals in the third (or middle) quintile. Ireland is among the worst here, with a gap of 8 percentage points in male employment between those in the bottom quintile and those in the middle (second highest across the countries studied), and a gap in female employment of 21 percentage points (highest of the countries studied). The estimated monetary value of lost employment and lost earnings among 25 to 59-year-olds who grew up in relative disadvantage based on the Index of Childhood Socio-Economic Status in Ireland in 2018 was almost €5 billion.

When it comes to socio-economic disadvantage and health, on average across the countries studied, men and women in the bottom quintile on the ICSES score, respectively, 3 and 4 percentage points lower on the Health and Activity Limitation Index than those in the middle quintile. This is equivalent on average to about a two-week per year reduction in time lived in full health without limitation (p.46). Ireland's has the second highest gap (5.5 percentage points) in respect of men's health, while the gap in women's health was 4.6 percentage points. The estimated monetary value of lost health among 25 to 59-year-olds who grew up in relative disadvantage based on the Index of Childhood Socio-Economic Status in Ireland 2018 was over €6.5 billion. 

The report goes on to estimate the proportion of GDP forgone by the selected European OECD Member Countries due to childhood economic disadvantage. On average it is estimated that governments are losing 3.6 per cent of total potential income tax and social contribution revenue from non-old-age households because of the impact of childhood disadvantage on employment and earnings. These losses are lowest in Finland and the Netherlands, at an estimated 1.5 per cent of the total government revenue coming from these households, and highest at around 7 per cent in Ireland and Spain, "where the labour market penalties associated with childhood disadvantage are large" (p.53).

Ireland also has the highest estimated increase in non-pension benefit spending attributable to childhood social and economic disadvantage through its impact on adult employment and earnings, as a percentage of total non-pension benefits paid to non-old age households, 2019 at more than 6 per cent, ahead of Greece, Spain and Portugal. 

Costing Poverty

A report published in 2020 has also provided important insights into the impact of Ireland’s level of poverty on annual expenditure by the State. The report, commissioned by the Society of St Vincent DePaul and authored by UCD Social Policy academic Dr Micheál Collins, examined The Hidden Cost of Poverty by estimating the public service cost of poverty in Ireland. The analysis identified the additional public service costs that Irish society carries as a result of current and past experiences of poverty.

The main estimate presented in the report found that the annual public service cost of poverty to Ireland is almost €4.5 billion. Expressed in per capita terms this finding implies that poverty imposes a public service cost equivalent to a sum of €913 per person in the state each year (€2,600 per household). The report also noted that this additional public sector expenditure is equivalent to 5.1% of total General Government Revenue and 5% of total General Government Expenditure. Put another way, €1 in every €20 collected by the state from taxes, social insurance and charges ends up being allocated by the state to make up for the way that poverty damages people’s lives.

The €4.5 billion estimate contained in this report was the average based on the data available. Compared to the figures contained in the OECD Report, this is a very conservative estimate.

Need for an Anti-Poverty Strategy

In his speech last December, incoming Taoiseach Leo Varadkar TD committed to the establishment of a Child Poverty Unit within the Department of An Taoiseach with the aim "to make Ireland the best country in Europe to be a child". While this is a very welcome development, and one we look forward to being implemented, it is a development that needs to be underpinned by real strategic action.

The 2020 report referred to above highlighted the broad benefits that are to be gained from the adoption of focused anti-poverty strategies. Not only will these bring benefits to the individuals and families lifted out of poverty, but they will also generate long-term savings for the state and provide opportunities for alternative uses of these resources.

Social Justice Ireland believes that it should be a national priority to provide all with sufficient income to live life with dignity. This would require enough income to provide a minimum floor of social and economic resources in such a way as to ensure that no person in Ireland falls below the threshold of social provision necessary to enable him or her to participate in activities that are considered the norm for society generally.

If poverty rates are to fall in the years ahead, Social Justice Ireland believes that the following are required:

• increase in social welfare payments.
• equity of social welfare rates.
• adequate payments for children.
• refundable tax credits.
• decent rates of pay for low paid workers.
• a universal state pension.
• a cost of disability payment.

Social Justice Ireland believes that in the period ahead Government and policy-makers generally should:

• Acknowledge that Ireland has an on-going poverty problem.
• Increase core social welfare rates by at least a further €8 per week.
• Adopt targets aimed at reducing poverty among particular vulnerable groups such as children, lone parents, jobless households and those in social rented housing.
• Examine and support viable, alternative policy options aimed at giving priority to protecting vulnerable sectors of society.
• Carry out in-depth social impact assessments prior to implementing proposed policy initiatives that impact on the income and public services that many low income households depend on. This should include the poverty-proofing of all public policy initiatives.
• Recognise the problem of the ‘working poor’. Make tax credits refundable to address the situation of households in poverty which are headed by a person with a job.
• Support the widespread adoption of the Living Wage so that low paid workers receive an adequate income and can afford a minimum, but decent, standard of living.
• Introduce a cost of disability allowance to address poverty and social exclusion of people with a disability.
• Recognise the reality of poverty among migrants and adopt policies to assist this group. In addressing this issue also replace direct provision with a fairer system that ensures adequate allowances are paid to asylum seekers.
• Accept that persistent poverty should be used as the primary indicator of poverty measurement and assist the CSO in allocating sufficient resources to collect this data.
• Move towards introducing a basic income system. No other approach has the capacity to ensure all members of society have sufficient income to live life with dignity.
• Acknowledge the failure to meet repeated policy targets on poverty reduction and commit sufficient resources to achieve credible new targets.