The United Kingdom flag in the foreground and the European Union’s and member countries’ flags in the background. The drop in the value of British pound following the results of the EU referendum shrunk aid budgets of U.K.-based organizations by 8 percent. Photo by: © European Union 2016 - European Parliament / CC BY-NC-ND

The United Kingdom voted on June 23 to leave the European Union, sending financial markets into an historic spiral and intensifying worries in the aid community about how jobs, funding streams and EU development cooperation will shift in the wake of the Brexit referendum.

The precipitous drop in the value of the British pound immediately shrunk aid budgets globally by about 8 percent for U.K.-based organizations. The U.K.’s 11.8 billion pound aid budget lost more than 1 billion pounds in global value overnight, and aid organization heads are facing tough decisions about where and how regional offices will make savings if markets don’t recover.

Contracts and grants from EU institutions are also in jeopardy, as stakeholders on both the EU and U.K. sides prepare for what looks to be a long and unprecedented period of readjustment.

The loss of the European Commission and its various departments, such as the Humanitarian Aid and Civil Protection Department, known as ECHO, as a resource, will mean a significant decrease in funding for many international groups.

“Humanitarian NGOs will be particularly vulnerable because ECHO is such an important donor of the not-for-profit sector,” Toby Porter, CEO of HelpAge International, told Devex.

“For most of the INGOs, between 5-15 percent of restricted fundraising come from those sources, so it’s a bitter blow for us,” he said.

UK-based stakeholders

The U.K.’s relatively new cross-government aid strategy, announced in November 2015, calls for around 1 billion pounds in aid to be spent through European Union institutions, an arrangement that will now need a serious rethink, said Amy Dodd, director of the U.K. Aid Network, a coalition of NGOs that lobby the government jointly.

The U.K. Department for International Development’s forthcoming Multilateral and Bilateral Aid Reviews — which set out spending for bilateral and multilateral organizations until the period 2020 and are due out this year — are also likely to change significantly. Funding to the EU could be withdrawn, though this remains unclear.

“If that money comes back to DfID, the really immediate question is whether it will be spent bilaterally or multilaterally, or if there will be some other arrangement with the EU to keep that funding,” she said.

If funding is returned, the organizations implementing EuropeAid projects could see their programs cut. And if those organizations are U.K.-based, without offices in EU or EU-candidate countries, they may lose their relationship with Europe Aid altogether.

“The U.K. government could create mechanisms to allow its NGOs to somehow get the funds they would’ve got through ECHO,” Porter said, but added this is unlikely, and could lead to the U.K. backtracking in its commitment to untie its aid from British firms.

“It’s a bit behind the times, that idea of tied aid and looking out for your own NGOs,” he said. “It’s not really how the sector’s evolving or should be evolving.”

Political winds of change

A cascade of politicians have stepped down in the wake of the vote, led by U.K. Prime Minister David Cameron on Friday. More than half of the Labour Party’s shadow cabinet has resigned, triggering uncertainty about future leadership on long-held U.K. aid priorities, such as the commitment to spend 0.7 percent of gross national income on overseas aid.

The U.K. government passed in 2015 the 0.7 percent legal mandate under Cameron’s government, making it the first Group of Eight country to meet the 46-year-old United Nations resolution.

“Obviously one thing on our minds is, who’s going to be the next prime minister?” Dodd asked. “Is he going to have the same international aid bent that Cameron had?”

Depending on that next administration, trade deals and international commitments, such as COP21 and the Sustainable Development Goals, which the U.K. negotiated as part of the EU bloc, may need to be renegotiated on an individual basis.

Stakeholders in partner countries

The pound’s plunge in value will also have an impact in developing markets that export to the U.K.; producers saw their products become more expensive overnight.

“Assuming sterling stays low for some time, you’re going to have a trade effect, that developing country exports to the U.K. are going to be less competitive,” Andrew Rogerson, senior research associate at the Overseas Development Institute told Devex. The poorest countries are typically insulated from large shocks in currencies, due to the relative isolation of their financial markets.

Uncertainty over the volatile pound has also prompted some tough decisions from development heads. HelpAge International’s regional offices are already feeling the strain, Porter told Devex.

“The absolute worst thing that could have happened was having to write, as I did, on Friday morning to regional directors to say, I can’t help by giving you any financial leeway, you’ve got to end the year within your GBP-approved budget,” he said.

EU stakeholders

EU leaders on Friday made a point of reassuring U.K. employees working for the EU that they remain an important part of the EU workforce.

“I know that many of you are concerned about your future after this vote,” said European Commission President Jean-Claude Juncker in an email to staff obtained by POLITICO.  “I fully understand that. So I want to send a clear message to you, colleagues, and especially to colleagues of British nationality.”

Donald Tusk, president of the European Council, also attempted to allay concerns, assuring a press conference on Friday, “there will be no legal vacuum.”

“Until the U.K. formally leaves the EU, EU law will continue to and within the U.K., and by this I mean rights as well as obligations,” he said.

Nor is the U.K. likely to “walk away from its multi-year commitments” to the EU, Rogerson said. The future of EuropeAid’s pooled funds, such as its budget assistance instruments, will be determined over years, rather than months.

Still, the long-term impacts could be dire. The most recent annual report from European Commission shows that the U.K. currently contributes around 19 percent of ECHO’s budget.

The two-year period of withdrawal from the EU outlined in Article 50 of the Lisbon Treaty must be triggered by a head of state or government. Cameron said during his resignation speech that he would not trigger the article. Shortly thereafter, Cameron’s likely replacement Boris Johnson, former mayor of London, said he saw no need to “rush the process” of Brexit and hinted he would not trigger the article.

Despite calls from EU leaders and officials for a speedy Brexit, it remains unclear whether the U.K. Parliament will validate the referendum results, and many aid thinkers continue to call for EU reform and potentially a second referendum vote.

For more U.K. news, views and analysis visit the Future of DfID series page, follow @devex on Twitter and tweet using the hashtag #FutureofDfID.

About the author

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    Molly Anders

    Molly Anders is a former U.K. correspondent for Devex. Based in London, she reports on development finance trends with a focus on British and European institutions. She is especially interested in evidence-based development and women’s economic empowerment, as well as innovative financing for the protection of migrants and refugees. Molly is a former Fulbright Scholar and studied Arabic in Syria, Jordan, Egypt and Morocco.