Should Britain really be cutting foreign aid now?

Faced with a black hole in the public finances, chancellor Rishi Sunak has targeted the foreign aid budget. Is he right to do so? And will it save us much money?

What’s happened?

Last week, chancellor Rishi Sunak set out details of the fiscal hole facing the UK as a result of the pandemic and associated slump, and announced a cut in the foreign aid budget from 0.7% of gross national income to 0.5%. The exact size of the cut will depend on the size of the slump, but it adds up to a third – from about £15bn a year to £10bn. The move breaks a promise most recently reaffirmed in the Conservatives’ 2019 election manifesto to keep the target. All five living ex-prime ministers (two Labour, three Tory) criticised the move. It prompted Baroness Liz Sugg to resign as a foreign office minister, while the Archbishop of Canterbury branded the cut “shameful and wrong”. Andrew Mitchell, a former international development secretary (whose old department has been swallowed by the Foreign Office) warned it would mean four million people losing access to clean water and “100,000 preventable deaths, mainly among children”. He plans to lead a Tory rebellion when MPs vote in January; some expect the numbers to be close. 

Why the anger?

The 0.7% target is a totemic figure in the international development field and many politicians are proud that Britain is one of the few countries to actually hit it. The United Nations first set a target for donor countries to contribute 0.7% of their income in 1970. The UK signed up to the target in 1974, finally hitting it for the first time in 2013 under the coalition government. Since 2015 the target has been enshrined in law, which in practice means that the international development secretary (or now the foreign secretary) has to explain themselves to Parliament if we miss it.  

What do we spend it all on?

About two thirds of the £15.2bn spend in 2019 was “bilateral” aid, meaning direct assistance to specific countries, regions or programmes (this accounted for £10.3bn, or 67.5% of UK aid). The other third (£4.9bn, 32.5%) was spent via “core funding to multilaterals”, meaning bodies such as UN development agencies. Africa accounted for 50.6% of region-specific bilateral aid, while the three biggest recipient countries were Pakistan (£305m), Ethiopia (£300m) and Afghanistan (£292m). UK aid to Yemen was £260m, up £94m on 2018, the biggest year-on-year rise. Other than Ethiopia, the next biggest African recipients were Nigeria, South Sudan and the DR Congo. Outside Africa, the next biggest recipients (after Pakistan and Afghanistan) were Bangladesh, Syria, Lebanon and Jordan. 

How does the UK compare?

We’re unusually generous. Last year, the UK ranked fifth in the international table for government spending on foreign aid. It was one of only five countries to hit the UN target of 0.7% – and the only large economy to do so. The four small rich countries to beat the target were Luxembourg (top with 1.05%), Norway, Denmark and Sweden. Germany managed 0.6%, France 0.44%, the US just 0.16%. China reported a figure of 0.36%. It’s true such figures can be misleading, since state spending is not the only form of aid. Foreign aid donated by private US foundations totalled $150bn last year, dwarfing the government’s $34bn. The Bill & Melinda Gates Foundation alone made direct grants of $5.1bn in 2019, more than most countries. Even so, most nations – even rich European countries and the likes of Japan, New Zealand and Canada – fail to hit the 0.7% target by a long way (they are typically in the range of 0.2% to 0.4%). To put the UK’s aid cut in context, if we had contributed just 0.5% of gross national income (GNI) last year, instead of 0.7%, we would have fallen just two places in the table, from fifth to seventh. Even with the cut, we’ll still be the second-most generous G7 nation behind Germany.

So let’s not be too hard on ourselves?

Voters seem to agree that charity begins at home, said Daniel Johnson in The Article – YouGov polling shows about two-thirds support for Sunak’s aid cut. Britons presumably find it odd that the establishment’s wrath has been focused on this issue rather than, say, the predicted rise in unemployment to 2.6 million. The “cynical” explanation for the explosion of anger from former prime ministers and the like is that “foreign aid enables rich people to feel good about their wealth. It is the collective equivalent of individual charity and it salves our national conscience”. In fact, the UK remains a global leader in aid and we should “hold our heads high”. Moreover, this excessive focus on “inputs” rather than “outputs” is fundamentally wrong-headed, said Madeline Grant inThe Daily Telegraph. Sticking to a rigid target of this kind helps fuel the lack of scrutiny, waste and corruption for which foreign aid is notorious. 

What’s the counter-argument?

The UK has become a development superpower in recent decades and by first dismantling the Department for International Development, and now slashing the aid budget, we’re trashing our leadership role at the very time we’re supposed to be promoting standalone “Global Britain”. Former foreign secretaries Jeremy Hunt and Malcolm Rifkind are among those Tories who view the 0.7% aid budget as a core pillar of the UK’s global soft power. “To cut our aid budget by a third in a year when millions more will fall into extreme poverty will make not just them poorer, but us poorer in the eyes of the world,” says Hunt. What makes it so odd is that it’s such bad politics, says Larry Elliott in The Guardian. The aid budget was falling anyway in line with GDP, so the government’s actual saving is only around £3.4bn. Given projected borrowing of £400bn next year, that’s “chicken feed” – a minimal gain at the cost of a likely Tory rebellion. It’s also a self-inflicted diplomatic wound in a year when we’re hosting the G7 and COP26 climate talks. “If ever there was an example of spoiling the ship for a ha’p’orth of tar, this is it.”

Recommended

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
A beginner’s guide to inflation
Inflation

A beginner’s guide to inflation

One of the most frequently mentioned topics in the news these days is inflation. But what exactly is inflation and how does it affect the economy and …
18 Jan 2021
Why the City should create a single financial market with the Swiss
Economy

Why the City should create a single financial market with the Swiss

A tie-up between London and Zurich, two global financial centres, could pay huge dividends for both, says Matthew Lynn.
17 Jan 2021
How to make sure your business doesn't lose out in lockdown
Small business

How to make sure your business doesn't lose out in lockdown

Money is still available via government schemes to help small companies cope with the latest Covid restrictions. David Prosser outlines what you can g…
16 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021