Should we cut foreign aid?

Britain gives more than most in international aid, but is the money well spent? James McKeigue reports.

What's happened?

A fierce debate has erupted over Britain's international aid. An investigation by The Daily Telegraph found that a large proportion of British aid was spent on wages for well-paid British consultants, or "poverty barons".

The new international development secretary, Justine Greening, has launched an investigation. It follows a string of exposs that have revealed that British aid often ends up funding questionable projects (see below). Yet David Cameron confirmed at last week's UN General Assembly that Britain's international aid budget would continue to increase.

How much does Britain spend on aid?

Around £8.57bn. The majority is spent by the Department for International Development (DfID), with the rest coming from the Foreign Office and UK Borders Agency. At the Gleneagles G8 meeting in 2005, the then prime minister, Tony Blair, committed Britain to increase overseas aid spending to 0.7% of GDP by 2015.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

David Cameron has not only stuck to the commitment, a departure from Tory policy, but promised to reach the target two years early. As a result, Britain now gives more in overseas aid in proportion to the size of its economy than any other G20 country. For example, Germany only gives 0.4% and America just 0.2%.

Who are the poverty barons?

A growing criticism is that too much aid goes on Western staff rather than on the needy. The DfID "paid almost £500m last year to consultants, mostly British, many of whom earn six, even seven-figure incomes", says Andrew Gilligan in The Daily Telegraph. Some of these so-called poverty barons become millionaires by working in overseas aid.

William Morrison, managing director of London-based development consultancy Adam Smith International (ASI), which gets most of its income from the DfID, paid himself a salary and dividends totalling almost £1.3m in 2010. The links between the DfID and the consultancies also seem too close for comfort, says Gilligan.

"Several of the best-paid consultants are former DfID officials who appear to have gained substantial increases in their personal wealth since leaving the department, even though they are still doing essentially the same work." Due to corruption it's not even certain that the remaining aid money hits the right target.

What corruption?

In Britain, DfID claims that well under 1% of spending was lost to fraud in 2010/2011 a figure that Parliament's Public Account Committee slated for being "unbelievably low". Last year the number of countries receiving aid was cut to 27 from 43.

The idea is that funds are "tightly focused" on countries with the greatest need. Unfortunately, these are often places where fraud is most prevalent. Afghanistan survived the cut and will have received £710m between 2011 and 2014, but the country's elite has a terrible record of stealing aid.

This year a US government report found that insiders at Kabul Bank had stolen $1bn from foreign donors, including DfID. Somalia is another extreme example. It's estimated that up to 80% of the value of food aid is spent on "entrance fees" to local warlords.

But does aid work?

A growing number of critics, both in the Western and developing world, feel that even without corruption aid doesn't achieve its aims. They argue that Western consultants get rich administering hand outs while local institutions don't get the opportunity to improve. The focus should be more on development.

Kenya is a potent example of the failure of the old aid model, says The Economist. "Tens of billions of dollars of aid have been spent, yet in many respects the country's infrastructure is worse than it was 40 years ago." Indeed, the country's few success stories involve private firms, such as the mobile-phone providers.

The problem with international aid is that we spend too much, says Professor Rosa Brooks in The European Magazine. "Our presence and aid distorts local economies, fuelling corruption" and giving talented locals an incentive "to abandon other jobs and serve instead as our interpreters or drivers".

Food aid is an even bigger problem, says Rasna Warah, a journalist with Kenya's Daily Nation newspaper. In Somalia, in "an environment where free food is readily available farmers do not get value for their produce". Instead, "the food aid industry allows countries such as the US to offload food surpluses to poor countries. This distorts local markets and disrupts local food production".

And too much is spent on countries that no longer need help. India was sent £280m last year, yet its economy is growing far faster than Britain's and the Indian government spends billions of pounds on defence, an ambitious space programme, and on its own international aid programme.

Where does the money go?

Britain's aid contribution to the EU has been spent in a number of strange ways. Iceland, a country with a higher GDP per capita than Britain, receives £4.2m of aid, while the EU is also spending aid money on a television series about itself to air in Turkey.

But Britain isn't all give it receives too. In 2007, Venezuelan president Hugo Chavez signed a deal with Ken Livingstone to give London a £14m-a-year discount on bus fuel. The aim was to help finance a cut in bus fares for poor people in London.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.