International and Commonwealth leaders will visit the UK to pay their respects and attend Queen Elizabeth’s II’s state funeral next week and many will immediately travel on to the United Nations General Assembly (UNGA) in New York. With all eyes on the UK, new Prime Minister Liz Truss faces a decision which will have a significant bearing on the UK’s standing in the world: Will her government provide additional funding to support Ukrainian refugees so that other development support is not reduced?
If the UK Chancellor and Prime Minister do not provide additional funds, then the entirety of the UK’s generosity in supporting Ukrainian refugees will be paid for by lower income countries.
Such an announcement would make good on the Prime Minister’s vision of an honest and reliable development approach, unfreeze the aid budget, and pay immediate dividends for her, the UK’s international standing, and its developing country partners.
In this blog, we look at the new PM’s international vision; examine how former Chancellor Rishi Sunak’s inflexible aid ceiling is causing problems; show how the UK is out of line with its G7 peers; and why additional funding will have a significant geopolitical pay-off for the new Prime Minister.
Countering authoritarian influence with action
As Foreign Secretary, Liz Truss set out a vision for a “network of liberty” and “economic G7” that would act together to counter geopolitical competitors—specifically China—with her brand new development strategy promising to “Deliver honest and reliable investment” as the first priority in its approach.
The Prime Minister is taking decisive action at home in response to the war, and should match that internationally. The UK is about to announce a spending package for energy for its own citizens which could, over two years, cost £150bn; and is seen as a cost of the war. Finding some £2-3bn to host Ukrainian refugees is also a cost of the war and it is clearly within the Government’s power to fund without raiding its aid budget.
This inconsistency will not be lost on the UK’s 50 plus development partners; and it will be hard to argue the UK is a more honest development partner than China with such an unstable approach. Indeed, for developing countries, this will be the third set of cuts in three years post-Brexit: “Global Britain” is being undermined with, for many countries, cuts in bilateral support of some 50 percent. The funding required is a small price to pay to avoid the damage which a third round of cancellations in the UK’s development partnerships would do.
A hard ceiling for aid
In July, Former Chancellor Rishi Sunak froze all “non-essential” aid spending, putting further strain on the UK’s relations with its developing country partners after two rounds of aid cuts in 2020 and 2021. This decision was driven by the Chancellor’s policy to keep aid spending within 0.5 percent of Gross National Income (GNI), despite there being no legal requirement to treat this target as a hard ceiling, and regardless of the scale of the unfolding crisis in Ukraine.
Funding Ukrainian refugees from a fixed aid budget will mean actively cutting the UK’s other existing programmes. The need to support Ukraine with finance and help some 180,000 Ukrainian refugees is clear. But counting those costs as Official Development Assistance (ODA) within the UK’s already-reduced aid budget would mean more cuts. We’ll be publishing a detailed analysis on this shortly, but others have made plausible estimates of a need to fund potentially £3bn in 2022, from a budget that was £11.5bn last year.
Refugee-hosting shouldn't really count as aid at all—though it qualifies under the definition agreed internationally. The definition of ODA is that it “promotes and specifically targets the economic development and welfare of developing countries” and it's clear to most observers that while refugee hosting is a very valuable international contribution, it does not meet that bar. Its inclusion creates anomalies like Turkey’s ODA spending reaching just under 1 percent of GNI). However, for most countries, the costs of refugee hosting are reported as ODA; but not used to actively reduce other aid expenditure.
A further anomaly is that refugees will contribute significant economic output and tax revenue to offset their cost. Four in ten Ukrainian refugees are already working and paying tax so, on these refugees, the Government would be making a fiscal profit by cutting more in aid than the net cost of the hosting.
G7 and key allies have taken note
The UK’s approach to funding refugees entirely from its existing aid budget is out of line with its G7 peers, nearly all of whom have pledged to increase their development resources in the light of the war and its spillovers to food security. The US has increased its aid by tens of billions; while the EU countries have seen the Commission bring forward exceptional macro-financial assistance of at least €7bn, with Germany expecting to spend above the UN target of 0.7 percent; and France and Italy also planning aid increases. Japan has announced a major new effort to counter the effects in Africa; while Canada will also increase funding.
The US, the UK’s closest ally, has implicitly criticised the UK’s approach in recent weeks. Speaking about the impact of Putin’s war in July, Head of USAID Samantha Power said:
“Unfortunately, today, when the needs are greatest, assistance budgets are either stagnating or they are being cut…. And some countries are rewriting the rules on what counts as development spending, to shield themselves from criticism as they cut funding.”
The US is hardly a glowing example on aid spend with just 0.18 percent of its GNI going in ODA last year; but it has substantially increased its funding this year and can argue it contributes 3.7 percent of GNI to the alliance on defence, whereas the UK’s strength is on development.
Outside the G7, Sweden has disappointingly funded its refugee hosting from their existing aid budget— but their ODA budget is 1 percent of GNI (double the UK’s); and even after refugee costs; their aid will still exceed the UN target of 0.7 percent.
The UK as a reliable, influential partner
Liz Truss’s foreword to her development strategy emphasised the UK’s “proud record of global leadership on international development” and to shift its intention to “focus on a more responsive development offer for developing country partners”.
Next week, the Prime Minister plans to make her debut on the international stage, as she stands in front of 193 government leaders at the UNGA. She should make clear that her international commitments are meaningful by confirming that the UK remains deeply committed to countering Russia and authoritarian actors; and that she will find additional resources to support refugees, rather than take it from the tens of other development partners desperately struggling in the current financial climate.
This means committing to extra funding to support Ukrainian refugees, and enabling the aid budget to continue its crucial work.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.