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

Which companies will lose the most from the energy windfall tax?
Energy stocks

Which companies will lose the most from the energy windfall tax?

The government’s new energy windfall tax has muddied the waters for investors and companies alike. Rupert Hargreaves explains how it might affect some…
27 May 2022
The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
Cryptocurrency roundup: another torrid week for crypto
Bitcoin & crypto

Cryptocurrency roundup: another torrid week for crypto

Cryptocurrencies suffered yet another intense week. Saloni Sardana rounds up the week's crypto news.
27 May 2022
Ocado faces a “crunch” year – should you buy or avoid?
Share tips

Ocado faces a “crunch” year – should you buy or avoid?

Ocado was one of the big winners from the pandemic as customers moved online. But now it’s struggling, and losses are growing. So, asks Rupert Hargrea…
27 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?
Investment trusts

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by almost 45% so far this year. Rupert Hargreaves asks if no…
26 May 2022