UK aid budget could face third round of cuts, experts warn

An aircraft being loaded with U.K. aid-funded humanitarian aid supplies bound for Nepal. Photo by: Sgt Neil Bryden RAF / DFID / CC BY

The United Kingdom’s bilateral aid budget is likely to be cut for a third time in spring 2022, potentially by billions, development economists have warned.

On Oct. 27, Chancellor Rishi Sunak will publish a spending review, set to allocate departmental budgets for the next three years. It will decide the financing of the Foreign, Commonwealth & Development Office, which controls the majority of the U.K.’s official development assistance.

In a worst-case scenario, the bilateral aid budget could fall by billions, turning the U.K. into a “near non-entity as a bilateral development actor as early as next year,” warned Ranil Dissanayake, policy fellow at the Center for Global Development, in a paper for the think tank.

“If the government treats the [0.5% aid spending] target as a ceiling … it will undermine the UK's standing and its ability to plan effectively.”

— Ian Mitchell, also a senior policy fellow, Center for Global Development

There are currently “a plausible set of circumstances — which some in Whitehall are already considering — under which the UK’s status as a serious bilateral donor would be under existential threat,” wrote Dissanayake.

The U.K.’s aid budget has already gone through two rounds of spending cuts, the first in 2020 as the value of the then 0.7% aid spending target fell amid the economic fallout of the COVID-19 pandemic, and in 2021 after Sunak announced the U.K. would reduce aid spending from 0.7% to 0.5% of the gross national income.

Despite both rounds of spending cuts having axed an unknown number of development and humanitarian programs, politicians voted against returning to 0.7% until tough fiscal conditions were met.

Dissanayake warned that charging the aid budget with Sudanese debt relief, COVID-19 vaccines, the British Council, financial transactions, expenditure limits, and, as reported by Devex, Special Drawing Rights issued by the International Monetary Fund, could cause significant reductions. He told Devex: “The portion of the FCDO’s budget over which it has full control and flexibility [could fall] to around £2 billion [$2.71 billion] — out of an initial allocation of at least £8.5 billion.”

In a separate paper, Ian Mitchell, also a senior policy fellow at CGD, wrote that “the chancellor is inclined to classify all and any items as ODA to minimise real expenditure” and also cited debt relief and the SDRs as likely pressures on the aid budget.

UK aid cuts hit poorest countries hardest, Devex analysis finds

The FCDO quietly released its annual report this week and shared information for the first time on how it intends to spend its shrunken aid budget. The new spending allocations were said to mark a "strategic shift" for the U.K. government.

“If the government treats the [0.5% aid spending] target as a ceiling — and combines this with including particular accounting items with no real cost — it will undermine the UK's standing and its ability to plan effectively,” wrote Mitchell.

Both economists suggested such a sharp reduction to the aid budget was not inevitable and suggested ways it could be avoided — but that it required new Foreign Secretary Liz Truss to wage a political fight with Sunak. Doing this “could remove the worst excesses,” Dissanayake told Devex. He added: “There are lots of ways out of this should the government want to take them.”

But if his worst-case scenario did play out, Dissanayake said the consequences of such a sharp budget would go beyond closing programs.

He said it was hard to see how an FCDO with such a reduced budget would “hold on to all of the expertise and the people … the institutional memory of working on specific problems in specific places, I would expect all of that to be lost.”