The UK Government must heed the lessons of its 2021 aid spending

Today Rishi Sunak will present his Spring Statement to parliament, which will provide an update on the UK economy and public finances. One of the key focus areas for us will be spending announcements on UK aid, both in the short and longer term, to support global security, stability, and prosperity, especially given the current uncertain environment. The two central things we would like to see are:

1. A commitment for the reduced aid budget in 2022 and 2023 to be a floor and not a ceiling

2021 marked the first year of the Government’s promised temporary reduction in aid spending from 0.7% of gross national income (GNI) to 0.5%. This was the lowest level since 2008 and saw £4.5 billion less spent than in 2020. Much has already been written about these cuts and their impacts, but they were far more damaging for three main reasons:

The Government currently treats the aid budget as a floor and ceiling – Since the 0.7% GNI aid budget was legally mandated from 2015, the government has looked to spend exactly that amount, no more no less. This is what it also did in 2021 with the reduced 0.5% budget.

The Government had many existing aid commitments – Before cutting the aid budget to 0.5%, the government committed significant funding multilaterally, such as to the World Bank, IMF, the EU budget and to global health initiatives either just prior to or at the start of the COVID pandemic. This meant reducing the budget to 0.5% required making deeper cuts elsewhere.

Significant global crises – The prolonged COVID pandemic and crisis in Afghanistan meant additional aid spending beyond what was initial budgeted for, which further reduced aid spending elsewhere.

The result was a substantial reduction in direct funding to people living in the world’s poorest countries. For example, the crisis in Afghanistan required the Home Office to allocate substantially more resources to host refugees. This meant that to meet but not exceed 0.5%, the Foreign, Commonwealth and Development Office (FCDO) had to bear the brunt of cuts, particularly within its project spending (see Figure 1), just like it had to in 2020.

As FCDO had already committed to providing significant resources multilaterally, it meant bilateral spending had to be the focus of the cuts (see Figure 2), particularly on sectors relevent to children like health (cut by £700 million), humanitarian assistance (£762 million) and education (£180 million). In addition, given UK aid predominatly supported the world's poorest countries, these were where the reductions had to be made, across Africa, Asia and the Middle East (see Figure 3).

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Figure 1 – components of FCDOs aid spending, 2020 vs 2021

_{Source: Project spending from FCDO submission to the International Aid Transparency Initiative (IATI), accessed February 16^th 2022; EU Attribution details from the FCDO’s Annual Report & Accounts 2020/21, COVID vaccines based on the 30 million disbursed in 2021 at cost price according to CGD.}

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Figure 2 – Sectoral FCDO project spending, 2019 to 2021

_{Source: FCDO submission to the International Aid Transparency Initiative (IATI), accessed February 16^th 2022}

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Figure 3 – FCDO project spending by regional focus and country income status, 2019 to 2021

_{Source: Source: FCDO submission to the International Aid Transparency Initiative (IATI), accessed February 16^th 2022}

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If the government continues to treat the 0.5% aid budget as a floor and ceiling this year and next, then it is going to face similar challenges to 2021. It still has many existing multilateral commitments to fulfil, such as to the World Bank’s International Development Association (IDA), is planning to increase funding to the IMF and is set to count new spending like debt relief to Sudan within the budget. On top of this, the crisis in Ukraine will likely see the Home Office’s budget being maintained or increased to support further refugee hosting costs. Whilst there have been some commitments to return to past levels of spending on humanitarian assistance and to women and Girls’, ultimately this will have to come at the cost of cuts to other key spending relevent to children.

Replicating the experience of UK aid delivery in 2021 for the next two years is not in the interests of anyone, including the government, who will have to continually manage budgets and cut projects to hit a pin hole target. Therefore, there is a critical need for Rishi Sunak to understand that a continued strict adherence to 0.5% will not only impact the world's poorest, but also hamper the effectiveness of UK aid in providing safety, security and prosperity both at home and abroad. With the current global crises of conflict, COVID and climate there is a need to add provisions for a certain level of flexibility in the aid budget to go beyond 0.5%. This would enable the government to respond effectively to emerging crises, such as in Ukraine, as well as continue to show leadership to support in the global recovery and transition to green economies.  

2. Commit to returning UK aid to 0.7% from the 2024/25 financial year

In October Rishi Sunak announced in the Autumn Budget Statement that his fiscal tests for returning UK aid spending to 0.7% would be met by 2024/25, and duly added in provisions to departmental spending to account for this. However, given the uncertain global outlook there are growing concerns that these fiscal tests will now not be met, with the Office for Budget Responsibility (OBR) due to provide an update on this today in its economic and fiscal outlook report.

Although two years away, the uncertainty about exactly when a return to 0.7% might happen is already causing issues for spending decisions on UK aid, particularly for FCDO. This is because they are already making funding commitments for the 2024/25 financial year, including deciding to cut £1.7 billion to the World’s Bank IDA. They will also soon decide on the amounts to fund the African Development Fund and Global Fund replenishments. With so much uncertainty, decisions on future spending commitments being made are likely to be risk adverse rather than based on needs and impact. Therefore, it is critical that the Treasury moves to fully commit to return aid spending to 0.7% in 2024/25, even if the OBR shows the fiscal tests may not fully be met by then. The needs of children and their families in the most hostile places demand it.