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 wanted 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 set out with the ambition to estimate the return from public spending on benefits. We wanted to use evidence from the UK on the impact of benefits policy changes on children’s outcomes, and conduct cost-benefit analysis to assign a value to those outcomes. However, we found that there is not enough causal research for the UK to produce cost-benefit estimates, if we were drawing solely on UK-specific policy evidence. 

We instead undertook some cost-benefit analysis based on the international evidence base. We based our analysis on the comprehensive review of the academic research base from Garfinkel et al., first published in 2022, then updated in 2024. This cost-benefit analysis is based on rigorous evidence from the US, on the impacts of cash transfers, or near-cash transfers, paid in childhood. Garfinkel et al. bring together a range of academic studies which, together, provide evidence that cash transfers in childhood lead to higher income in adulthood, better health, higher quality of life, and lower crime rates. In their 2024 update, the authors estimate that bringing all of these benefits together, each additional US $1000 spent on child benefits corresponds to $8,342 return over a child’s lifetime.

We took this analysis as a starting point, and converted the value of all of the outcomes to the UK context. We also focused our analysis on the return from cash transfers targeted at families during pregnancy and the first five years of life, instead of throughout childhood. 

Below are two examples of the types of analysis we did:

• Based on the US evidence of how cash transfers improve children’s health, we estimated the impact of improved health on NHS expenditures. To do this, we used known correlations between health status and healthcare use in the UK (which is different from the correlation between health status and healthcare use in the US).
• Based on the US evidence on how cash transfers in childhood increase earnings in adulthood, we estimated the impact of that higher income on a household’s take-home pay. We also estimated the impact on tax revenues from and benefits paid to children throughout their lives, based on the parameters of the UK's tax and transfer system. 

In total, the return on investment that we estimated was very close to Garfinkel et al.’s estimate. We therefore decided not to publish our findings as a standalone piece of analysis. We see little value in presenting an exact figure - this will, inevitably, be based on many assumptions and is built on evidence that is not directly transferable to the current UK policy context. A single figure does not sufficiently convey the uncertainty around how applicable past evidence is to any future policy decisions. 

However, we see much more value in the details of the analysis - that is, in seeking evidence for and being able to logically explain the chain of events that leads £1 spent on benefits to yield gains that are worth orders of magnitude more than that in the long-term. We are still exploring ways we may be able to visualise the analysis to convey this story. We are also pursuing related work, including our explainer on why the early years matter, and an ongoing project which, among other goals, explores whether cash transfers can increase take-up of local services and support. Together, this work helps to explain and explore exactly how means-tested benefits can yield high long-term returns.