On Wednesday (25 November), the Chancellor’s Spending Review announced a reduction in the overseas aid budget. In 2021 the Government will allocate 0.5 per cent of Gross National Income (GNI) for Official Development Assistance (ODA).
This means, for the first time since 2013, the UK will not meet the UN recommended target of spending 0.7 per cent of GNI on ODA.
This Insight looks at the history of that commitment and implications of the proposed changes.
The 0.7 per cent commitment
In 2015, the Coalition Government enshrined in law the commitment to provide 0.7 per cent of GNI as ODA. The UK has met this target each year since 2013. It was one of only five countries to meet the target in 2019.
In the 2019 General Election, despite continuing calls from opponents within its ranks to abandon the target, the Conservative Party renewed its commitment to 0.7 per cent.
The creation of the FCDO
A new department, the Foreign, Commonwealth and Development Office (FCDO), was launched on 2 September 2020. This is a merger of the Department for International Development (DFID) and the Foreign and Commonwealth Office (FCO).
Following announcement of the merger, there were concerns the aid budget would be cut. The Government said its manifesto made clear:
we would proudly maintain our commitment to spending 0.7 percent of our national income on development—a commitment enshrined in law and one to which the new Department will honour its responsibilities.
Economic impact of Covid-19
Restrictions on economic activity during the Covid-19 pandemic have reduced GNI. This means meeting the 0.7 per cent of GNI target will require less funding.
In July 2020 Foreign Secretary Dominic Raab said ODA would be cut by £2.9 billion in 2020. He said the cut was in anticipation of a potential shrinkage of the economy, but that spending on ODA would remain at 0.7 per cent of GNI.
The Government said it would ensure a continued focus on poverty reduction:
the money we will still spend in 2020 remains prioritised on poverty reduction for the ‘bottom billion’, as well as tackling climate change and reversing biodiversity loss, championing girls education, UK leadership in the global response to COVID-19, and campaigning on issues such as media freedom and freedom of religious belief, thereby ensuring that the UK is a global force for good.
The World Bank has shared fears the impacts of Covid-19 and the global recession may push 150 million people into extreme poverty and cause a “lost decade” of reverses and long-term economic “scarring”.
While debt service suspension initiatives may free up some additional funding to respond to the pandemic, there are concerns that donor responses have lacked leadership. Charities such as WaterAid have also expressed fears that other OECD countries will reduce ODA as a result of their own recessions and worsening public finances.
What was said in the Spending Review?
The Government has now said the cost of the coronavirus, already more than £280 billion, means the UK cannot meet the 0.7 per cent target this year.
In the Spending Review, the Chancellor said that sticking rigidly to the target was difficult to justify under current economic circumstances. He confirmed that aid would be cut to 0.5 per cent of GNI in 2021 and that he intended to return it to 0.7 per cent “when the fiscal situation allows.”
Implications of the reduction in aid
Last year the UK spent £15.2 billion on foreign aid. If the target was reduced to 0.5 per cent it would have spent approximately £11.1 billion, as shown in the table below This uses the current definition of GNI, which has not remained constant over time.
Gross national income (GNI) and aid spending
| Source: OBR, Economic and fiscal outlook: November 2020; and FCDO, Statistics on International Development: Final UK Aid Spend 2019, 24 September 2020 | ||||
| Year | GNI | Actual aid spending | 0.5% of GNI | 0.7% of GNI |
|---|---|---|---|---|
| 2010 | 1,606.0 | 8.5 | 8.0 | 11.2 |
| 2011 | 1,660.1 | 8.6 | 8.3 | 11.6 |
| 2012 | 1,711.8 | 8.8 | 8.6 | 12.0 |
| 2013 | 1,780.3 | 11.4 | 8.9 | 12.5 |
| 2014 | 1,863.0 | 11.7 | 9.3 | 13.0 |
| 2015 | 1,919.6 | 12.1 | 9.6 | 13.4 |
| 2016 | 1,994.7 | 13.4 | 10.0 | 14.0 |
| 2017 | 2,068.8 | 14.1 | 10.3 | 14.5 |
| 2018 | 2,141.8 | 14.6 | 10.7 | 15.0 |
| 2019 | 2,214.4 | 15.2 | 11.1 | 15.5 |
| 2020 | 2,095.1 | – | 10.5 | 14.7 |
| 2021 | 2,176.3 | – | 10.9 | 15.2 |
| 2022 | 2,324.3 | – | 11.6 | 16.3 |
| 2023 | 2,418.8 | – | 12.1 | 16.9 |
| 2024 | 2,510.9 | – | 12.6 | 17.6 |
| 2025 | 2,611.3 | – | 13.1 | 18.3 |
Note: The Office for National Statistics has changed its methodology for calculating GNI a number of times. Actual aid spending was 0.7% of GNI every year between 2013 and 2019 based on the methodology in use at the time.
The UK’s legal duty to spend 0.7 per cent of national income on aid comes under the International Development (Official Development Assistance Target) Act 2015. If the target is not met, the Government must lay a statement before Parliament explaining the reason for this. This may include a “substantial change” in GNI, fiscal reasons or because of “circumstances outside the UK.”
The legislation also says the Government must set out how it will ensure that it meets the target next year. The report to Parliament is the only accountability mechanism in the legislation.
In a statement to the House on 26 November, the Foreign Secretary announced that the Government would bring forward new legislation in due course.
Reactions
Five former Prime Ministers have opposed the cut to the aid budget.
Preet Kaur Gill, shadow Foreign Office minister, said the 0.7 per cent aid commitment sent a strong signal that “the UK is a reliable partner for long-term economic, social, environmental and educational advancement across the globe, and this is cheaper than fighting wars.”
Former International Development Secretary, Andrew Mitchell also expressed his opposition to the plan saying that:
It would be an extraordinary decision at the very point at which Britain is about to take over the chairmanship of the G7, with a new administration in the White House which will strongly champion the international system. It will diminish us on the world stage. Covid has to be beaten everywhere, and Britain’s development budget is playing a key role in vulnerable parts of the world where no effective health system exists.
The Independent Commission on Aid Impact (ICAI) has suggested that the target be loosened to allow the Government more flexibility:
The UK government should explore ways of introducing greater flexibility into the management of the 0.7% target, including, for example, introducing a ‘tolerance range’ for hitting the target of between 0.69% to 0.71% of GNI, or specifying the target as a three-year rolling average.
Conservative MP Philip Davies said the cut would be widely welcomed by the British people.
Global Britain?
Announcing his plans to merge the FCO and DFID, the Prime Minister said the pandemic offered proof of “the seminal importance of international engagement and exactly why our country must perform its global role.”
On 19 November the Government announced a four-year funding settlement for the Ministry of Defence, worth an additional £16.5 billion. Taken together with the increase in defence expenditure, international development experts warn that “Britain is rapidly becoming a parochial rather than progressive presence in the world.”
About the author: Anna Dickson is the Head of the International Affairs and Defence Section of the House of Commons Library.
Table produced by Philip Brien in the Economic Policy and Statistics Section.
Photo: ‘Chancellor of the Exchequer on Spending Review 2020’ under CC BY 3.0 , ©UK Parliament/Jessica Taylor (Cropped)