Labour is likely to win the UK election. What would that mean for aid?

Unless every opinion poll is wrong, Keir Starmer will be the Labour prime minister in July, on a promise to restore the United Kingdom’s reputation after 14 years of power for the Conservative Party and four tumultuous years for foreign and development policy. But until this week, the general election was not expected until the autumn — leaving Labour scrambling to agree on key aspects of its plans in the next few days and weeks. So what do we know already? A separate aid department? Labour will announce in the next two or three weeks — before its preelection manifesto is launched — whether it will restore the aid department axed by the Conservatives in 2020, when the merged Foreign, Commonwealth & Development Office, or FCDO, was created. It is no secret that Lisa Nandy, the party’s shadow international development minister, favors a return to something like the department for international development that Labour set up in 1997 — or that David Lammy, her immediate boss as shadow foreign secretary, is skeptical of the idea if not openly hostile to it. Notably, in a speech just one week ago, Lammy argued foreign affairs, development, and defense must “work together in unison,” adding that “diplomacy and development no longer operate within the old institutional boundaries.” Is he winning an internal battle? There is surprise in Labour circles that Starmer has left his decision as late as this, not least because Devex understands he told the French President Emmanuel Macron he favors separating the aid department in their meeting last September. The alternative is a ring-fenced development “agency” within FCDO — with greater operational independence — to avoid what some fear will be the “disruption and cost” of another big institutional shake-up. A return to 0.7%? Nandy told Devex she intended to outline her own economic tests for reversing the Conservative cut to spending 0.5% of national income on aid — down from the United Nations benchmark of 0.7% — which swiped about £4 billion ($4.9 billion) a year from the budget from 2021. However, this has not happened. Labour’s overall fiscal rules are very similar to the Conservatives’, under which there is forecast to be no return to 0.7% before 2029 due to a stagnant economy and stubbornly high debt. Indeed, the current international development minister, Andrew Mitchell — then a rebel backbencher — was among MPs who argued the tough tests were explicitly designed to be unachievable, to ensure the budget remained at 0.5%. The good news is that the aid budget nevertheless crept up to 0.58% in 2023, allowing FCDO to boost spending on humanitarian relief and climate finance. Stopping aid spending on refugees at home? However, the bad news is that a huge chunk of that money is paying the ballooning accommodation and subsistence bills for a huge backlog of asylum seekers in the U.K., despite mounting domestic and international criticism. Labour has ducked calls to end the practice — despite choosing not to divert aid in this way before losing power in 2010 — instead suggesting these in-donor refugee costs will only fall over time, as it gets a grip on a shambolic immigration system. However, the backlog stands at more than 80,000 and is expected to grow over the summer as more small boats cross from France. And the sums at stake are also huge: In 2023, £4.3 billion — 27.9% of the aid budget — was spent within the U.K. That means spending overseas was only around 0.42% of national income. There will be intense pressure on Labour to move swiftly on this controversy. Will UK aid target fewer countries? In a major speech in February, Nandy vowed to return spending to its “original purpose of eliminating global poverty,” criticizing a dramatic leap in recipient countries — from just 33 when Labour left office in 2010 to 88 currently. She argued rising indebtedness and tackling the effects of climate change has led to aid being “diverted to middle-income countries” when Labour wants to “spend our aid money on the poorest people, in the poorest countries in the world.” Nandy promised a Starmer government would never “pull out the rug from under countries that rely on us,” acknowledging that difficult decisions would have to be made and that change is likely to be slow. Labour would also shift the aid budget toward greater multilateral, rather than bilateral, spending, she said — even as U.K. bilateral allocations are rising sharply again. Debt: ‘The single biggest thing we can do’ This is Nandy’s description of the debt crisis, which has seen restructuring deals for Ghana and Sri Lanka collapse and left the global south repaying more in debt than it receives in grants and loans. She has acknowledged the crucial role played by U.K. “jurisdiction” — the fact that most international debt agreements are written in London and New York, which has prompted calls for the U.K. to change its law to force private creditors to sign up to debt relief deals. New York is poised to change its law. Could Labour do the same in the U.K., adopting what is seen as a “cost-free” advance rejected by the Conservative government as too “complex”? Devex understands that Nandy’s current preference is to explore incentives to bring private creditors to the table rather than pull the legislative lever. Aid as a tool of geopolitics Liz Truss, in her brief leadership of the FCDO, was attacked for using development as “a key part of our foreign policy” to counter China’s perceived threat — a shift Mitchell sought to reverse in last year’s well-received development blueprint. Nandy revealed she was warned by a different Conservative predecessor, Justine Greening, to beware of “aid sweeties” — the “idea you can use overseas development as a short-term tactical sweetener to achieve foreign policy goals.” “We are very alive to the risks of that,” she said in an event this month, referring to herself and Lammy and to the crucial difference between fast-paced diplomatic decisions and “longer-term partnerships” to develop economies. “You have to respect the difference between them,” Nandy said — arguing that was “one of the reasons” DFID was created in 1997.