Estimating the return on investment from policies that affect family income

Children from disadvantaged backgrounds often face early challenges that can impact their entire lives. However, studies suggest that early support can significantly alter these outcomes and potentially offer a good return on investment.

For instance, US-based research indicates that providing financial assistance to families during pregnancy and early childhood can improve adult health, boost  educational attainment, foster economic independence and decrease interactions with social care. This, in turn, could flow through to lower public spending on healthcare, benefits and social care and higher income tax revenue. 

If a similar pattern exists in the UK, there are clear policy implications: some public spending might essentially ‘pay for itself’. But we do not know if this is the case. We also know that there are many policy options out there when it comes to families with young children. Our aim is to understand where limited resources can be targeted to ensure the best outcomes for children in the long run.

We want to estimate the wider economic returns of policies that change income for families with young children, and present this technical analysis in an accessible way. By understanding the true costs and benefits over childhood and beyond, we aim to steer policy discussions towards effective long-term investments.

We plan to start small and are basing our work on rigorous studies on the causal impacts of five UK policies affecting family incomes in pregnancy and early childhood. Then we will model wider economic returns, from potential healthcare savings to future earnings, using the best estimates available.

Finally, we will create an interactive online tool to share our analysis, encouraging users to scrutinise our methods, debate our assumptions and explore uncertainties. 

We see this project as a ‘proof of concept’. If our analysis proves useful, we may later expand it to other domains of early-years spending, beyond tax and transfer policy. For example, in the future this could help us weigh up the relative long-term returns of providing more generous parenting support and/or financial support.

Ultimately, we hope this transparent approach can inform tough policy trade-offs on where investments should be targeted to effectively reduce inequalities.

We’re consulting widely, both on the analysis methods and on how to make the end product as useful as possible. If you would like to share your thoughts or learn more, please reach out to ​​[email protected].