Breaking Down Prime Minister Starmer’s Aid Cut

Yesterday, the UK’s Prime Minister Keir Starmer announced that he would fund an increase in the UK’s defence spending by cutting its aid budget from 0.5 percent of gross national income (GNI) now, to 0.3 percent in 2027.

In this blog, we explain what this will mean in practice. Getting the budget down to this historic low will require significant cuts to programmes that save lives. These cuts will be even deeper than the reduction from 0.7 to 0.5 percent implemented by Boris Johnson’s government in 2020; though this time there will be two years to plan for them. The government is hoping that costs for supporting refugees and asylum seekers within the UK will fall, and that will free up funds for truly international development. But it’s not clear whether—or at least how quickly—this will happen. Even if these costs fall by 30 percent, the UK’s actual international spend will be closer to 0.17 percent of GNI—the lowest in the G7 by far, and with a bilateral budget that is 57 percent lower, and comparable to that of Switzerland.

The UK will undoubtedly face fundamental choices on what it continues to support; and at the upcoming spending review it must make concrete commitments to prevent true overseas aid falling below 0.25 percent of GNI.

The cuts in numbers

Just a few months ago, the Prime Minister committed at the UN to restore Britain's reputation on international development. But instead, he’s planning a reduction in aid to 0.3 percent of GNI which means a 40 percent cut, and the lowest share of GNI on aid going to overseas development since 1999. The only other time a Labour Government spent under 0.3 percent of GNI on aid since 1960 was in 1997-99 when Tony Blair took on Conservative spending plans when he first came to power.

Figure 1. UK Official Development Assistance

Source: UK 2023 Statistics on International Development, Table C1 & Office for Budget Responsibility, October 2024 Economic and Fiscal Outlook– Detailed Forecast Tables: Economy, Table 1.2

In cash terms, the OBR projections of national income suggest this means an official development assistance (ODA) budget of £9.2 billion in 2027. The UK spent £15.3 billion on ODA in 2023, which included an additional £2 billion provided by then chancellor Jeremy Hunt, to cover some of the cost of hosting refugees. We expect the ODA spend in 2024 to be £13.7 billion and so the projected 2027 figure would be a third lower than now in cash terms.

How much will be spent overseas?

The UK spent over 0.2 percent of GNI on ODA within the UK in 2023—if this doesn’t change, the UK’s overseas aid budget will be just 0.1 percent of GNI. The only DAC donor to spend less than this in 2023 was Hungary. The UK is an outlier in the amount of ODA it reports per hosted refugee. In 2022 and 2023, it recorded 0.15 percent (£3.7 billion) and 0.16 percent (£4.3 billion) of GNI respectively on refugee hosting. Ukrainian arrivals have fallen substantially but the number of refugee arrivals has been relatively steady in recent years. If per head refugee costs remain at current levels, we expect ODA-related costs to be around £3 billion going forward (0.1 percent of GNI in 2027). If per head refugee costs fell to their average in the late 2010s of £10,000 per head (which is still above the average across DAC countries), then costs would be around £1 billion.

Another £1 billion in 2023 (0.04 percent of GNI) was spent within the UK on administration, students and research. So total “domestic ODA” could be £4 billion.

Without reforms to reduce refugee spending from ODA, the UK’s actual international spending seems likely to be more like 0.17 percent of GNI, or around £5.2 billion. In 2023; that would have put the UK 5^th lowest out of the OECD’s 27 Development Assistance Committee members on a comparable metric, below all of the G7, and just above Greece.

Will Parliament need to vote on this change?

The UK is still legally bound to spend 0.7 percent of GNI on ODA—but Parliament voted in July 2021 to suspend the commitment until two fiscal tests were met. Although the Chancellor recently confirmed she would honor these tests, in practice the government can avoid triggering them indefinitely. Furthermore, while the Parliamentary vote included reference to the government planning to spend 0.5 percent of GNI on development, the text did not commit the government to doing so.

Still, under the legislation, the Foreign Secretary must update Parliament on the government’s plans to return to the 0.7 percent target, and we understand he will write before the summer.

What will the UK prioritise?

The UK is already committed to contribute to several multilaterals, and has just agreed to host the replenishment of the Global Fund to Fight AIDS, Tuberculosis and Malaria later this year.

Since the aid budget was last cut in 2020, the UK has spent an average of £4.2 billion per year on multilateral commitments. Payments to the EU were still substantial (almost £0.5 billion in 2023) but are expected to fall under £100m by 2027; and commitments to the World Bank’s IDA fund are also much lower. But if existing replenishment commitments were spread evenly across the relevant period we estimate the UK would spend around £3.3 billion in 2025, and £3 billion in 2027 (see table).

Table: UK multilateral commitments 

Source: Authors analysis

If those commitments were maintained in cash terms, that would leave around £6 billion for the UK’s bilateral aid budget in 2027 though as above, domestic ODA costs could take up £4 billion of that. That would leave £2 billion to spend bilaterally overseas, relative to £4.7 billion in 2023, a cut of 57 percent. This is only slightly more than we estimate Switzerland—a country one eighth the size of the UK in population terms—spent in 2023 ($2.4 billion bilateral FID).

This will leave ministers with fundamental decisions on what the UK can continue to fund. The prior government had committed to a humanitarian budget of £1 billion—but maintaining that would leave just £1 billion for all other areas.

Another relevant commitment is on climate change; where the government pledged to fulfil the commitment to spend £11.6 billion in climate ODA across five years to 2025/26. In that final year, the government expects to spend just over £3.5 billion on climate; of which around £2 billion may be bilateral.

Without refugee savings then, the UK’s bilateral aid budget would be exhausted by its climate spend—that would mean no bilateral support for growth, health, nutrition, education, women and girls, conflict prevention or governance.

Where next for UK Aid?

There will be important decisions for FCDO about how to focus aid allocations; and the role that policies beyond aid will now have to play. However, the immediate job is for FCDO Ministers to negotiate with the Treasury (or HMT) on the spending review. There are three priorities:

First, with a much-reduced budget, ministers must insist that the Home Office are given a sharply reducing amount of ODA for refugees and HMT must bear the risk of Home Office overspend (as in any other spending review agreement). We would suggest the Home Office should be expected to return to its historic per refugee ODA spend of £10,000. If the numbers arriving stay flat, that would mean a budget of around £1 billion ODA allocated to refugee costs in 2027.

Second, any remaining ODA in other government departments must achieve the same or greater results than the best aid spend. And the admin costs in ODA should be scrutinized and reduced.

Third, FCDO must not be subject to spending targets on financial transactions. In the last Parliament, these forced the FCDO to capitalize British International Investment (BII) with hundreds of millions a year while other programmes experienced huge cuts. BII may still be a priority—but this must not be forced on FCDO by the Treasury.

Finally, the focus of aid must be to maximize its impact where it matters most. The Labour government plans to decimate aid volumes, but it must not be the Government to corrupt the purpose of aid with dodgy deals or wasting it in futile attempts to slow migration.

It must maintain its manifesto commitment to focus on poverty on a liveable planet; and that will mean a major focus on Africa in its remaining aid.
 

Note: This blog was updated on 14th March to clarify the estimate of future EU multilateral payments related to 2027 and corrected the multilateral total in the table.