Robert Chote: Fated to repeat the income of their parents? Pre-school cash could break the poverty cycle

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In his 1956 book The Future of Socialism, the Labour thinker Tony Crosland famously argued: "The essential thing is that every citizen should have an equal chance - that is his democratic right. But provided that the start is fair, let there be maximum scope for individual self-advancement."

In his 1956 book The Future of Socialism, the Labour thinker Tony Crosland famously argued: "The essential thing is that every citizen should have an equal chance - that is his democratic right. But provided that the start is fair, let there be maximum scope for individual self-advancement."

Almost 50 years later, the extent to which governments are able to give people from disadvantaged backgrounds a "fairer" start in the economic race - and how best to achieve it - remains a lively policy debate. It involves tough choices about where to put limited resources, especially with the public finances not as strong as they were.

Seeking equality of opportunity is sometimes seen as a cop-out by those who believe governments should commit themselves more explicitly to equality of outcomes. But, in practice, all governments pursue both to some degree - primarily through spending on education and the redistribution of income through the tax and benefit systems.

We can see that opportunities help determine outcomes because inequality cascades through the generations. Someone on a relatively low income today is more likely to have had parents on low incomes - and in turn is more likely to have children who end up on low incomes - than someone plucked randomly from the population. Similarly, people from better-off backgrounds are more likely to end up near the top themselves.

This lack of social mobility seems to have worsened. Jo Blanden, at the London School of Economics, and others have shown that 31 per cent of men born in 1958 to parents in the poorest quarter of the population themselves ended up in the poorest quarter in their thirties. But among men born in 1970 the proportion has risen to 39 per cent, with a similar increase in immobility at the top - perhaps because the expansion of higher education has benefited young people from wealthier families more than the less well-off.

Several factors may explain why many people end up in similar economic circumstances to their parents. Not all are easily influenced by government - for example, any inherited component of IQ or skills in social interaction. But an obvious way in which government can help those from disadvantaged backgrounds is through education, which can be seen as an investment in an individual's future earning power. But where will government get the most bangs for its bucks?

As the first chart illustrates, spending per head in the relevant age group is highest at primary and secondary school, somewhat lower for higher and further education, and much lower for the under-fives. But a growing body of research suggests, as the second chart (based on work by economists Jim Heckman and Pedro Carneiro) illustrates, that the earlier you invest in children the better. This makes intuitive sense. Attending a good pre-school means children get greater benefit from primary school, which in turn means they get greater benefit from secondary school, and so on.

There is also plenty of evidence that the early years matter enormously for a child's development and subsequent life chances. During this period, the brain develops extensively and rapidly, influenced by nurture as well as nature. Early development has a lasting impact, as Leon Feinstein from the Centre for Research on the Wider Benefits of Learning has shown: among children born in 1970, those in the top quarter of child development measures at age three-and-a-half are twice as likely to have A-levels by age 26 than those in the bottom quarter. Schooling does not necessarily narrow early gaps, and on some evidence actually widens them.

But can government influence early-years development in a way that will have lasting outcomes? Evidence over many years from pre-school programmes in the US suggests it can, even though the ability to affect measured IQ for more than a short period is limited.

One of the most famous examples is the Perry pre-school scheme, designed to help disadvantaged African-American children in a depressed area of Michigan. One evaluation showed that children going through this scheme were significantly more likely by their mid-20s to be on reasonable incomes, to have their own homes and to have avoided being on welfare than those who did not participate.

Value for money? One analysis suggests that while the Perry scheme cost a hefty $12,000 per child, the participant subsequently benefited to the tune of $20,000 (mostly through higher earnings and better employment prospects) and the general public gained $76,000 (because of lower crime rates, lower welfare payments and higher tax revenues). Quite a return.

The Labour Government will be hoping for similar results from its flagship Sure Start programme, which combines early-years education, childcare and parenting support in disadvantaged areas of the UK. Ministers point to some favourable outcomes already and hope to create children's centres in every community. But the formal evaluation of the scheme is still in its early stages so the jury is out.

If we really believe that greater state involvement in early development will be the most effective way to break the poverty cycle, then policymakers face some hard choices. Are they prepared to re-allocate money from schools, colleges and adult training? Should services such as Sure Start take priority over cash transfers, such as increasing the child tax credit? Should early-years help be aimed at the most disadvantaged or spread more widely to secure middle-class support? And should we eventually make pre-school compulsory? All are important questions, but none of them is easy to answer.

Robert Chote is director of the Institute for Fiscal Studies

Hamish McRae is away

Chancellor at the crossroads on fuel duty, but no U-turns please

Britain's road haulage and motoring lobbies flexed their political muscles impressively last week, prompting Conservative leader Michael Howard to offer support for any protests against September's planned rise in fuel duty, and Tony Blair and Gordon Brown to concede that the Government might not go ahead with it.

Duty on sulphur-free fuel should have risen at the time of the Budget by 1.42p a litre, in line with inflation. But the Chancellor chose to delay the increase from March until September, confirming that the duty on more harmful ultra-low sulphur fuel would rise by an additional 0.5p at the same time.

Since the Budget, instability in the Middle East has pushed the oil price towards $40 a barrel, putting upward pressure on petrol prices at the pumps. Hence the pressure on the Chancellor not to add insult to injury by going ahead with the increase in the autumn. But can he afford not to?

Mr Brown clearly has less room for manoeuvre on the public finances than at the time of the last fuel protests four years ago. At that point, he appeared to be on course to meet his rules for borrowing with miles to spare. Now, though, it is touch and go.

But delaying the increase in duty for another six months would only cost the Treasury £300m. Even if oil prices fall back in line with the latest independent forecasts, the extra revenue from producers in the North Sea over the next two years would more than fill the gap - although a rise in fuel costs for industry and consumers could hit receipts from other taxes.

The bigger danger is that the fuel lobby would scent blood and that the Chancellor might face pressure to abandon the increase altogether, costing £600m a year. If the current jump in the oil price subsided, that would put a lasting dent in the public finances at just the wrong time.

So Mr Brown needs to think carefully in August: to cave in once four years ago may have been unfortunate; to do so twice could look like carelessness.