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The EU faces a substantial drop in its development resources following Brexit. Still, the amount will depend on how “hard” that exit is, and the UK’s ongoing involvement in voluntary EU-level arrangements. Here we assess the potential size of the Overseas Development Assistance (ODA) funding drop that EU institutions could face.

At the UN General Assembly, Theresa May already confirmed that the UK will continue to “honour its commitment” to spend 0.7 percent of national income on development. However, following Brexit, this aid may be spent very differently, particularly the 9.8 percent of UK aid spent via EU institutions in 2014.[1] One short-term change is that UK Sterling contributions to the EU are likely to see a steep increase over the next two years before full Brexit since the EU budget is assessed in a strengthening Euro. 

But what about after Brexit? The EU itself is a major contributor to development—together its members are the largest aid donor and account for over half of the total $132bn development aid in 2015.[2] The EU’s institutions (see below) are responsible for around a fifth of total EU aid spent (so over 10 percent of all aid). Of course, EU members’ trade, environment, migration, finance, and other policies also have a significant bearing on poverty and development—and CGD considers these in our Commitment to Development Index—but aid is a critical element.

Without the UK, the EU would need to cope with significantly reduced funding on development. Funding flows through two main channels: directly, under the EU’s Global Europe budget, and via the European Development Fund (EDF), which sits outside the EU’s budget.

EU Institutions Overseas Development Assistance, 2014 (€bn)

 

EU

UK

UK share*

Total EU Institutions 10.0 1.4 14%
Of which:      
EU budget including 'Global Europe' 6.9 1.0 13%
European Development Fund (EDF) 3.1 0.4 15%
Sources: Author's calculations, OECD Development Assistance Committee data.
*This share may alter from year to year. In 2013, the UK share was 15 percent in all three categories.

 

The main UK contribution is via the EU budget ‘Global Europe’ heading which includes development assistance and humanitarian aid beyond the EU, including to potential future EU members. Total EU ODA spending was €6.9bn in 2014 (some 5 percent of EU total spend). In a “hard” Brexit, where the UK makes no EU budget contribution, this would reduce the EU (ODA) budget by some €1bn, or 13 percent. Without the UK, the EU would need to decide whether to seek higher contributions from other members, reduce activity, or to salami slice funding across programmes.

The European Development Fund (EDF) received €0.4bn from the UK in 2014. The fund is outside of the EU budget and so is effectively voluntary. The UK is a major funder—contributing around an eighth of total funds—so the UK’s absence would have a significant impact. Over 95 percent of EDF spend is on African, Caribbean, and Pacific (ACP) countries.[3] This originated from the colonial ties of the main funders and the UK has used its influence to focus funding on the poorest countries.[4] Denmark and the Netherlands have argued for the EDF to be formally part of the EU budget to provide greater predictability in the funding. That proposal will be considered in the EU’s forthcoming negotiations on the post-2020 budget and could in principle lead to new funding from, for example, more recent EU members. The four accession states for which (OECD DAC) data are available each contributed less than 0.13 percent of GNI in ODA, and a combined €73m to the EDF in 2014.

A third funding route is via the European Investment Bank (EIB) where the UK holds around a sixth of the capital (and no ongoing budget commitment). Currently, only EU members can be shareholders. The UK recorded ODA of €28m and €25m via EIB in 2013 and 2014. The UK’s roles in the European Bank for Reconstruction and Development (EBRD) and the Council of Europe are not dependent on EU membership.

Finally, the UK contributes voluntarily to EU trust funds established for particular purposes, for example in response to the Syrian crisis. This funding is more ad-hoc but OECD record additional UK contributions to the EU (“non-core”) which average roughly €50m since 2010.

In summary then, in a “hard” Brexit, EU institutions ODA spend would be at least €1bn lower and could be reduced by more than €1.4bn, or 14-15 percent. This raises a number of questions: will future generations of aid watchers look back on this change as a landmark, or as a minor accounting adjustment? For the EU, how should it reconfigure its development budget and spending without the UK? Are there risks that the quality of EU aid will decline? Or are there opportunities to see improvement? 

Similarly, for the UK, what are the alternative options to spending via EU institutions? Many Brexiteers are trumpeting that the UK will spend the aid more effectively—what are the prospects? How do the various EU vs UK options score in terms of a common scale like the Quality of ODA Assessment?

Given the size of the funding involved, these are major questions that CGD will be exploring as part of our ongoing work on the issues and opportunities for development beyond Brexit.



[1] Statistics on Overseas Development 2015, DfID

[3] See Table 3.2 European Development Fund, European Parliament Research Service November 2014

[4] See DfID’s Dec 2014 Annual Review of the EDF