Concerns have been expressed about the UK’s future aid spending after the government this week announced changes to how it calculates its budget.
NGO umbrella body Bond warned that changes to the Official Development Assistance (ODA) allocations could result in the government falling below its recently reduced target to spend 0.3% of gross national income (GNI) on aid.
In her first spring statement on Wednesday, chancellor Rachel Reeves confirmed the government’s plans to cut the ODA budget from 0.5% of GNI to 0.3% by 2027 to boost defence spending, putting UK aid at its lowest level in over 25 years.
In a letter to the international development committee yesterday, development minister Baroness Chapman said the Treasury would no longer allocate ODA based on a percentage of GNI.
Instead, the ODA allocations will “now be in cash equivalent terms”, meaning that the budget will be based on GNI forecasts that will not be later adjusted for fluctuations.
Bond said if the Office for Budget Responsibility’s (OBR) March 2023 projections for GNI for 2023-24 and 2025-26 “were used to fix the ODA budget over this period”, then there would have been billions less than the level required to meet 0.5% of GNI target.
The government estimated that reducing the ODA budget could save it £500m in 2025-26; £4.8bn in 2026-27; and £6.5bn in 2027-28, with final ODA allocations due to be set after its spending review concludes on 11 June.
Minister: ‘Significant and positive change’
Baroness Darlington said the transition to spending 0.3% of GNI on ODA “demands significant shifts in the scale and shape of our ODA spending, in line with the shifts underway as we modernise our approach to development”.
She said the government is prioritising maximising the Foreign, Commonwealth & Development’s (FCDO) flexibility in 2025-26 “while meeting legally binding commitments and existing live contracts and agreements”.
The change to ODA allocations will result in the FCDO no longer holding the ODA “spender and saver of last resort” role, meaning it will “no longer required to adjust budgets to hit a calendar year spending commitment”.
“This is a significant and positive change to the way the FCDO manages its ODA budget,” Baroness Darlington said.
“The FCDO will no longer be automatically exposed to the volatility of GNI fluctuations or ODA spending by other departments, including demand-driven in-donor refugee costs, thereby increasing the predictability of our budgets and allowing us to plan with more certainty.”
Bond: ‘0.3% of GNI no longer a firm government target’
In a statement, Bond said that for 2023-24 and 2025-26, the GNI projections made by the OBR “have been [nearly] consistently revised upwards over the last two years”.
“So much so, that if the March 2023 OBR projections for GNI for 2023-24 to 2025-26 were used to fix the ODA budget over this period, then UK ODA would have been around £1bn less in each of these three years than the level currently estimated to be required to meet the 0.5% of GNI target,” it said.
“Unless the OBR has found a way to avoid under-estimating GNI in future years, then the move to fix the ODA budget for 2025-26 to 2029-30 based on current projections of GNI over this period means that it’s very possible that UK ODA will fall below 0.3% of GNI in the coming years.”
In recent years, FCDO has “lost out” from having its status of spender and saver, Bond said, “especially with the ballooning levels of in-donor refugee costs reported as ODA by the Home Office during 2021-23, which led to FCDO sacrificing huge portions of its budget”.
However, Bond added that the FCDO received an extra £540m in ODA last year due to higher-than-expected GNI and lower-than-expected levels of in-donor refugee costs.
“It’s also the case that, as the government has ambitions to reduce in-donor refugee costs further, and could speed these efforts up with added reforms, there’s significant potential for FCDO to benefit as ‘spender of last resort’ in the coming years.
“Losing this status means that FCDO won’t benefit from the upside of these costs coming down faster than planned.”
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