Stopping the raid on aid is critical to rebuilding the UK’s reputation as an international development superpower

The UK is at a crossroads for international development, and in an interview with The Times, Andrew Mitchell, the Minister for Development, stated that the UK is no longer a “development superpower”.

Successive aid cuts and irresponsible budget management by the Home Office have severely damaged our reputation as a trusted and valued global partner. Yet, in recent months, we have seen positive attempts to rectify this. Minister Mitchell has set out an ambitious, forward-looking vision to get the UK back on track. However, he will need to be equipped with a fully functioning arsenal to make his vision a reality.

Currently, a large proportion of the UK’s international aid budget is spent domestically. The government has taken the decision to charge in-donor refugee costs (IDRCs) to the Official Development Assistance (ODA) budget, and in 2022 it spent £3.7bn of ODA on IDRCs. While supporting refugees is without doubt the right thing to do, UK aid is becoming too stretched to fulfil its purpose. The way in which the Home Office utilises the ODA budget as a blank cheque disincentivises efficiency, and this in turn drives up costs. To make matters more complex, there is a serious lack of transparency surrounding Home Office data, and significant concerns can be expressed regarding the opacity of Home Office spending.

Unprecedented and unsustainable

Earlier this year, in response to this unprecedented rise in domestic ODA spend, the House of Commons’ International Development Select Committee (IDC) launched an inquiry into aid spending in the UK. The Committee’s report, released in March, called upon the Treasury to ring-fence the equivalent of 0.5% GNI in the ODA budget for expenditure in development assistance delivered outside the UK. The report described the current proportion of ODA spent on supporting refugees as “unprecedented” and “unsustainable”.

The government response to the report dismissed the recommendation, arguing it is unaffordable in the current economic and fiscal context. The two-page letter, penned by the Chief Secretary to the Treasury, makes clear that the government does not intend to budge. This is a disappointing stance, especially given the impact ODA budget pressures are having upon the UK’s ability to respond to other global crises.

Despite the government’s claims that economic factors prevent further action in this area, a recent rapid review from the government’s aid watchdog, the Independent Commission for Aid Impact (ICAI), found the UK’s method for calculating IDRCs does not follow OECD guidelines on a conservative approach. The UK has almost doubled how much in-donor refugee aid it reports per recipient compared to pre-pandemic levels. According to Home Office figures provided to the ICAI in March 2023, the average cost of hotel use per person per night is £120 contrasted to £18 per person per night for ‘dispersed accommodation’ in houses or flats.

An international outlier on refugee spending

The cost of living crisis is a global phenomenon and economic challenges are wreaking havoc across all nations, yet the UK stands out amongst its allies. Some members of the Organisation for Economic Cooperation and Development’s Development Assistance Committee (OECD-DAC) have set a ceiling for in-donor refugee costs. For example, the Swedish Government’s 2023-24 budget states that IDRCs should be limited to no more than 8% of its total aid budget. Australia has made the decision not to report in-donor refugee costs as ODA and while Canada reports in-donor refugee costs as ODA, this spending is additional to the international assistance envelope. Further, France does not include education for refugee and asylum-seeking children within ODA costs.

The impact of the UK’s approach to IDRCs can be clearly seen through analysis of the FCDO’s most recent Statistics on International Development report. The document presents a rosy picture stating that in 2022, the UK provided £12.8bn of ODA – an increase of 11.8% on 2021. However, FCDO data is presented as nominal change rather than real change, and if inflation is taken into account, the real terms increase stands at 6.7%. Crucially, when IDRCs are excluded, total UK ODA has actually fallen by 16.4%. This is a much sharper decrease than has been seen in any other G7 nation.

The UK is an outlier in the way in which it approaches refugee spending, and although OECD-DAC rules allow for in-donor refugee spend to be classified as ODA, this does not mean the UK has to do so. Especially not in such a way as to displace and delay funding for responding to international crises and supporting development programmes.

The Home Office’s raid on aid must be halted, and we urge the government to take a different approach so that the UK can both support the settlement of refugees and restore its position as a trusted development partner. The UK’s spending on IDRCs should be additional to the government budget earmarked for development spending, whether that is set at 0.5% or 0.7%. The reforms planned by Minister Mitchell are a welcome first step, but they must only form part of an overhaul to the UK’s approach.