1 year out of the EU, what is the future for UK development?

At 11 p.m. Greenwich Mean Time on Jan. 31, the United Kingdom quietly marked the second anniversary of its departure from the European Union and 13 months since the end of a transition period intended to ease the impact. That split created a rift between two of the largest development funders in the world, changing the way NGOs in the U.K. operate, seek funding, and attempt to influence policy. But the changes wrought by Brexit are just starting to become clear for the battered U.K. aid sector. First, some numbers For development organizations, there’s a lot of money at stake. In 2020, the EU institutions committed around $19.4 billion in official development assistance, according to grant-equivalent figures from the Organisation for Economic Co-operation and Development — equal to around a quarter of the aid committed by EU member states. The U.K. spent around $18.6 billion. But these figures contain some double counting. Although the U.K. left the bloc early in 2020, it was still paying into EU budgets. In 2020, around 10% of the United Kingdom’s aid budget went to the EU, according to U.K. government figures — meaning roughly £1.5 billion was counted as part of ODA totals for both the U.K. and EU. Now that the U.K. has left the EU, the two budgets will gradually become separated. However the divorce settlement is taking a long time to play out. The bloc sets its budgets on seven-year cycles, which are agreed on many years in advance. The U.K. contributed in full to the previous budget, which ended in 2020, and had already made commitments for the next budget cycle before Brexit took place. Even though the previous budget ended in 2020, money from it is still being spent, and U.K. commitments agreed on before the leave date are still to be honored. The U.K. is expected to spend another $1.3 billion for ODA this year — and while contributions are set to taper off after that, they should still average around $500 million annually until 2027. EU-quilibrium While there were concerns the United Kingdom’s absence from EU budget negotiations for 2021-2027 would lead to “a significant reduction” in the amounts spent on foreign aid, that’s not what happened, according to Andrew Sherriff, associate director of institutional relations and partnerships at the European Centre for Development Policy Management. The EU’s development budget has already been set until 2027 and shows that the bloc’s development spending will be maintained at the same levels, with member states making up for any shortfall from the United Kingdom’s departure. The EU has pressed ahead with its major initiatives, such as the Global Gateway — a strategy to create a narrative around its development work elsewhere in the world, partly as a counterpoint to China’s Belt and Road Initiative. Still, secondary effects could possibly emerge for EU member states. While they have agreed to foot an increased bill to cover the gap left by the U.K., it is not clear whether they will spend more money or simply carve out the additional funding from other parts of their ODA budgets. But across the channel … At one point, the U.K. no longer contributing to the EU appeared to mean more funding for the country’s own ODA. Organizations based in Britain that spoke with Devex said they had been hopeful that U.K. NGOs could access this money to make up for lost EU funding. But since Brexit, the U.K. Parliament has cut the ODA target from 0.7% to 0.5% of gross national income, meaning the country’s development budget has fallen by around $5.3 billion in grant-equivalent terms — more than double the amount saved by not contributing to the EU. The cut has been promoted as temporary. However the U.K. will only return to former levels of spending when there is a sustainable budget surplus, which appears unlikely in the near future. And the ODA cuts, unlike those to the EU, are immediate — so budgets must first be reduced and then, if funding allows, gradually increased. Meanwhile, Brexit means that U.K. NGOs will no longer be able to apply for EU funding on the same basis as organizations based in member states. That’s a significant shift. U.K. organizations were overperformers when bidding for EU funding: Infrastructure organizations estimate they won around a quarter of all available grants and contracts. This, alongside the cuts to U.K. aid, has created a difficult funding environment. According to a recent analysis by Humentum, a membership organization for people working in core functions at NGOs, up to £1 billion ($1.3 billion) in funding — out of £6 billion in total income — is estimated to be at risk. The impact cannot yet be measured because of the long time delay associated with EU budget cycles. Until almost the end of 2021, all new EU funding being made available was from the previous budget, which the U.K. contributed to. As a result, U.K. organizations were until recently able to bid for all EU funding as if the country were still a member state, despite months having passed since the end of the post-Brexit transition period. Even now, U.K. organizations have not lost all access to EU grants. U.K. NGOs will still be able to apply for much of the funding they accessed before. In practice, “this might mean that half to two-thirds of all EU funding to NGOs is still open to U.K. organizations,” said David McCauley, chair of the steering committee in the EU funding and policy group at NGO membership organization Bond. “Organizations based in [non-EU] countries can generally only apply for development funding if it’s for work in least-developed countries or highly indebted countries,” McCauley said. But he noted that there are a few exceptions — and that “with humanitarian funding, the lead organization in an application has to be based in an EU member state, but any nationality can partner on the application.” He said much of the decision-making comes from EU delegations in countries where aid is spent, which frequently have strong existing relationships with U.K. NGOs. “I wouldn’t be surprised if, post-Brexit, a lot of EU funding still goes through U.K. organizations,” he said, “but it will be extremely hard to track.” McCauley also said that many U.K.-based groups have sister organizations in other countries. In many cases, where the U.K. arm might have led on a bid, that may now be done by an NGO with the same name in a different country. This could make it look as though EU funding to the U.K. is radically reduced, but the practical impact will be limited; an NGO with the same name will still be getting the money. In other cases, NGOs have moved their headquarters and opened up new branches to ensure that they are able to continue to access funding. Diana Eggleston, business adviser for the impact economy and NGOs at The Hague Business Agency, said that she was seeing around 15 organizations a year move into The Hague from abroad. Some were British organizations looking to move their headquarters, she said, while others were international NGOs that were expanding and looking to open a European base. The U.K. has previously been a popular destination for INGOs, for many reasons: It has a well-established system of nonprofit law, staffers are likely to already speak the language, and the U.K. was perceived as having a gold-standard development department that could be a valuable source of funding. But Eggleston said that these organizations gave many reasons why they now preferred to be based in other countries. They wanted to continue to collaborate easily with European partners, influence policy across Europe, and attract international talent, she said. “Some that have the word ‘international’ in their name say they don’t reflect a truly international organization if they continue to be based in Brexit Britain,” she said. McCauley said his Bond steering committee is trying to help organizations without sister organizations in other countries. “One of the most common questions I got asked was: ‘If I open an office in Brussels, can I get funding?’” he said. “The answer was: ‘No, you need to set up an independent organization based in an EU member state.’ We’re going to be concentrating our efforts on helping small-to-medium organizations so they understand what funding they can apply for.” And even if British NGOs can apply for funding, questions remain over whether they will realize it’s still an option and whether the costs will outweigh the benefits. EU funding is relatively difficult to bid for, and organizations may feel that doing so is no longer worthwhile, due to the added barriers of being in a third-party country and the potential prejudice against U.K.-based organizations after Brexit. Additionally, staffers who specialize in bidding for EU money may not remain in the U.K. over the long term, instead finding a move abroad more profitable. “There’s a definite chance that some NGOs are ruling themselves out from grants they can still get,” McCauley said. No seat at the table In addition to the financial implications, the policy implications of the split are substantial. U.K. institutions feel that they and the U.K. government have lost influence in the EU. For many U.K. NGOs, funding was a way to influence the bloc’s development priorities. But some organizations say this is no longer possible. Similarly, such organizations often used EU funding as a means of collaborating with colleagues in other European countries — an opportunity that no longer exists. “For us, our focus has narrowed,” said Sandra Martinsone, policy manager at Bond. “We don’t feel we have the same legitimacy when dealing with the EU.” Optics aside, two of the world’s largest donors are no longer coordinating, said Mikaela Gavas, a co-director of development cooperation in Europe at the Center for Global Development, who called the current funding arrangement “a terrible, terrible deal” for the U.K. “The U.K. and EU have settled into an uncomfortable coexistence framed by mistrust and lingering resentment,” she said. “The friction around trading arrangements is contaminating other aspects of the relationship, including development.” Much of the U.K. funding will go into “Team Europe” initiatives — a series of high-profile interventions aimed at funding work abroad in a more strategic way. Team Europe involves a collaboration of EU member states and development banks, along with non-EU countries such as Norway and Switzerland. “The U.K. is still contributing to it,” Gavas said, “but it has no information [about what is being funded] and no decision-making power.” She called that a “political choice” on the United Kingdom’s part, saying it’s worried about the optics of participating as Norway and Switzerland do. The diminished relationship between the EU and U.K. has also created potential for the British government to change its policy approach, Martinsone said, which could pose a problem for recipients of aid. With the U.K. looking toward a new wave of trade deals, it could possibly reduce market access for low- and middle-income countries and thus negatively impact development. “The EU came with policies and principles that member states had to follow and agree on,” Martinsone said. “Following Brexit, the U.K. government is much less constrained in what it feels it can do. In the EU, there was much more peer pressure and consensus.”