Last week’s news that the UK treasury is reportedly blocking new ‘non-essential’ international aid payments, is a devastating blow to the world’s poorest, if true. Any block would stay in place over the summer, until a new Prime Minister is selected, and cabinet is formed. But, unless the Government shifts its current position, the block will ultimately turn into significant cuts, with crippling consequences for countless lives.
This decision has occurred for two main reasons. Last year, the Government abandoned its pledge to keep official development assistance (ODA) spending at 0.7% of Gross National Income (GNI) and instead reduced it 0.5%, despite many existing and additional commitment it made. The meant the aid budget this year (around £12 billion), and next, was largely already allocated. Further additional demands were then placed on it in March due to Russia’s invasion of Ukraine. This includes costs associated with hosting Ukrainian refugees, which although welcome, is set to be included within the 0.5% GNI budget. With the Government’s reluctance to spend more than 0.5% of GNI on international aid, it meant Treasury officials acted to prevent breaching this self-imposed ceiling.
Given the UK aid cuts of the past two years, a third round of cuts seems inevitable, almost like a tragic Groundhog Day that cannot be escaped. But this is not the only option.
To get a sense of the scale of the issue and a potential alternative approach, it is important to consider; the estimated additional cost to the aid budget of hosting Ukrainian refugees, options to cut existing departmental budgets and alternatives to increasing the aid budget.
The significant and unknown final cost to the aid budget of hosting Ukrainian refugees
Since March this year, the Government has established two main schemes to support hosting Ukrainian refugees, the Sponsorship Scheme and the Family Scheme. Under both, certain costs for hosting refugees are eligible to be counted as Official Development Assistance (ODA), such as accommodation, welfare, health, and education, for one year after arriving in the UK. Although it is not possible to definitively know how much will be counted as aid, our estimates show that it could be around £1.6 billion at present, and a further £1.4 billion should all who have visas or are waiting results of applications arrive, as highlighted in the table blow. These costs could increase further should additional people apply and have visas granted.
Much of this funding would be included in 2022’s aid budget, and will account for a significant proportion if it is maintained at 0.5% of GNI (around £12 billion) this year.
Figure 1 – the current costs of Ukrainian refugee hosting eligible to be counted as international aid
Source and notes: see bottom of page
How could Ukrainian refugee hosting costs fit into a 0.5% GNI aid budget?
Despite the increase in spending related to Russia’s invasion of Ukraine, government departments have largely continued to work under the assumption that their aid budgets for this financial year are set.
Only last week the annual report of the Foreign, Commonwealth and Development Office’s (FCDO) detailed spending plans in line with what was laid out in the Treasury’s 2021 spending review. Whilst FCDO’s Secretary of State, Liz Truss, raised concerns publicly two months ago about the impact of the Ukraine war on her aid budget, she was hopeful the Treasury would allocate additional funding, which has seemingly not been the case.
The question therefore is, what space exists to reduce departmental aid budgets to fit additional costs relating to Ukrainian Refugee hosting?
Normally, this would predominantly be managed by the Home Office, and to a lesser extent by the departments for education and health. However, given the rise in non-Ukrainian nationals seeking asylum, their aid budgets are already stretched. Additionally, other departments such as Business, Energy and Industrial Strategy (BEIS), have already made significant aid budget reductions. For this reason, as the previous two years, it would almost certainly fall on FCDO to reduce their aid budget, given it accounts for around three quarters of the total.
However, there is no spare budget within the FCDO, almost all is currently allocated (see Figure 2). This means there would have to be a substantial number of project cuts if the Government is not willing to go above 0.5% GNI.
The question therefore turns to what can the FCDO cut? The Treasury has reportedly instructed the department to stop new ‘non-essential’ payments, but what is deemed essential or non-essential is not clear. For many, ‘essential’ would likely focus on measures of impact, such as what funding will save lives, what avoids children going hungry or losing access to basic services. Yet over the past two years ‘essential’ to FCDO has keenly focused on protecting funding to public bodies, disbursing funding they are legally bound to, or funding new priority areas, whilst making deep cuts to bilateral programmes in sectors like health, education, and humanitarian assistance.
Figure 2 below reflects on this and groups FCDO’s budgeted spending this financial year into what is likely deemed ‘essential’ and ‘non-essential’. Overall, whilst most spending is expected to be termed essential, there are £2.8 billion of bilateral projects the department would almost certainly focus on reducing. However, focusing on this spending would further deplete funding relevant to children living in the poorest countries at a time of their greatest need given the multiple global crises the we are facing.
This would have unimaginable consequences and be counterproductive to the UK’s national interest.
Figure 2 – FCDO's aid budget this year is largely already allocated
Source: Data based on FCDOs end of June 2022 reporting to the International Aid Transparency Initiative (IATI); FCDO’s 2021-22 Annual Report; Various government statements committing funding to a range of areas, including to Ukraine, Afghanistan and Covid Vaccine donations.
Notes: The selection of the essential and non-essential categories is the authors own interpretation based priorities setting in the last two years of FCDO re-prioritisation processes.
Is there another way?
The short answer is, yes. The Government’s likely course of action seems inevitable, but it does not have to come to pass. Critically, in the short-term, solutions are required to avert or halt the payment block. This could be done by urgently committing to count certain international aid as additional of the 0.5% budget, such as:
Donated surplus COVID-19 vaccines - The Government has already said it would count surplus covid vaccine donations outside of the 0.5% GNI aid budget ‘if needed’, and surely now is the time. Given they are surplus, it means they have been budgeted for, therefore attributing this within the 0.5% GNI aid budget is a cost recovery effort. Oher countries like the US and the Netherlands have chosen not to count this as aid. The Treasury can and should urgently confirm this spending as additional to 0.5% aid budget. In doing so it would free up around £300 million and save countless lives.
Debt relief to Sudan – This year the UK government cancelled £500 million of debt it claims it was owed by the Sudanese Government, which they plan to count within the 0.5% GNI budget. However, this debt is over 30 years old, and almost all is just interest accrued over time. This means they would make a significant profit claiming this within the 0.5% budget. It is inconceivable that a government could look to try and balance their books on the backs of the world’s poorest. There is no recent president for this approach. The last time the UK gave significant debt relief to developing countries, between 2004 and 2006, it was additional and total aid increased. The Treasury can and should urgently announce this cost will come in addition to the 0.5% GNI aid budget.
Although immediate action in these two areas could provide the vital leeway for Treasury officials to roll back the planned payment freeze this summer, it would still not prevent an additional round of cuts later in the year. To remove the threat of cuts ultimately will require the Treasury to allocate additional resources to support aid spending associated with Ukraine, such as refugee hosting, just like it has done with military spending. Given Ukrainian refugees arriving under the visa schemes can work, it is clear there will be benefits to UK public finances and not just costs.
Whilst these three actions would fix the critical funding crisis in UK aid this year, the UK government needs to restore aid spending to 0.7% of GNI to prevent a continual yearly cycle of uncertainty and project cuts, which leads to devastating consequences for the world’s poorest people. Although the Treasury continues to allocate funding to do this in 2024, there is an urgent need to confirm this will happen, to enable effective planning and management.
Figure 1 sources and notes
Visa scheme data – based on Home office data from the 28th July 2022
Accommodation costs – Estimate based on every adult being in separate accommodation and all sponsors receiving full payment of £350 per month for one year. Demographic split base on Department for Levelling Up, Housing and Communities data published 14th July 2022
Local authority payment – Based on local authorises using the full £10,500 payment per Ukrainian Refugee arriving under the Sponsorship scheme. Note that potentially not all these services under this payment will be eligible to count as international aid, and councils may not use the full amount.
Cash support – based on the average per capita figure of £37.75 per week, as outlined by the UK government’s past report to the OECD.
Provision of education – based on government figures of education funding per child under the Sponsorship Scheme provided to councils. Demographic data highlighted above was used to determine the number of children under 18, and primary education funding was taken as a middle estimate, given specific ages of children are not known.
Provision of healthcare – Based on average cost per capita of public healthcare in the UK. This cost may be less as UK refugee hosting costs are disaggregated by age, and there are proportionally less people over 65 arriving than in UK demographics.