UK puts City of London finance at heart of new development strategy

A new United Kingdom development strategy will turn to the wealth of insurance firms, pension funds, and private investors to halt the global rise in poverty — arguing aid budgets can never provide the finance needed. The plan, which experts have called the first detailed blueprint for more than a decade, will focus on using the financial muscle of the City of London to “mobilize the money,” Devex understands, while offering no timetable for reversing cuts to government spending. The “white paper” will be published by Prime Minister Rishi Sunak on Monday. It will set out a seven-year strategy, arguing that the goal of “ending extreme poverty” by 2030 can still be met, despite the setbacks since the COVID-19 pandemic, but only if policy is powered by private finance. In contrast to previous U.K. claims to be a development superpower, the document will make no claims of world leadership after fierce criticism of the massive aid cuts seen in the country since 2020 and the botched scrapping of its aid department. But it will argue that the U.K.’s financial superpower status enables it to pioneer a different approach toward achieving the 2030 Sustainable Development Goals. However, with the unpopular Conservative government almost certain to lose power at next year’s general election, it will likely fall to the Labour Party to decide how much of the seven-year strategy to adopt. Devex has learned that the white paper will make specific pledges and proposals to: • Use the U.K.’s large insurance sector to expand the balance sheets of multilateral development banks — also restating “conditional support” for capital increases for the MDBs in return for significant reforms. • Partner with insurance firms to underwrite prearranged insurance deals against disasters in vulnerable countries — as Devex revealed last month. • Deliver an Illicit Finance Action Plan by March next year to combat the drain of stolen assets and wealth from low- and middle-income countries to advanced economies. • Expand the poverty-tackling role of British International Investment, or BII, the country’s development finance arm by expecting BII to make more than half of its investments in the lowest-income and most fragile countries by 2030. • Use the City of London to devise new technologies to drive down the transaction costs of remittances sent back by migrants to their countries of origin, from the current range of between 6% and 35% to a target of 3%. • Support the creation of a 25th chair on the executive board of the International Monetary Fund to represent sub-Saharan Africa, as part of efforts to boost the presence and voice of low-income countries. • Set a target to spend at least 50% of bilateral Official Development Assistance in the least developed countries and give at least 0.2% of gross national income to LDCs. • Create a new fund worth up to 15% of the annual £1 billion ($1.24 billion) humanitarian budget for climate resilience and adaptation projects. The strategy has been drawn up by Andrew Mitchell, the development minister brought back last year to restore order after the chaos of the cuts and the folding of the Department of International Development, or DFID, into an expanded Foreign Office. Mitchell has pointed out that exploiting just a fraction of the $60 trillion held in pension funds worldwide looking for safe investments would dwarf the size of worldwide government development budgets. He has sought to secure the strategy’s survival if Labour wins power by urging the party to contribute and by holding talks with Lisa Nandy, his Labour shadow. A September consultation prompted more than 450 responses from more than 40 countries which, government sources told Devex, showed a continued faith in U.K. expertise and convening power despite the billions slashed from its aid budget. Ahead of the launch, Mark Lowcock, a former top civil servant at DFID and then in charge of humanitarian affairs at the United Nations, called the white paper the U.K.’s first “credible” development policy statement “for more than a decade”. Another “international development strategy” had been released just 18 months ago by then-Foreign Secretary Liz Truss. But the plan was widely criticized for focusing on U.K. power and so-called aid for trade, and in his blog post for the Center for Global Development think tank Lowcock called it “notorious” and not “worth the paper” it was written on. But Lowcock also cautioned against excessive faith in BII, criticizing the current ring-fencing of up to £1 billion a year of the aid budget for asset buying, mostly by BII. “BII has its virtues but it is currently ill equipped to play a major role in addressing the core poverty problem,” he wrote, adding: “If BII is still going to get hundreds of millions of pounds in extra money every year, what is going to change so they can actually spend it on the espoused goal?” Meanwhile, aid funding to a basket of 18 most-in-need countries in Africa and Asia has plunged by 80% to just £642 million this year from £3.4 billion in 2013-14, his own calculations showed.