Four ways the government can manage the planned UK aid cuts to limit their damage

Bond’s members have been left reeling by the Prime Minister’s announcement to Parliament on 25 February that the UK’s Official Development Assistance (ODA) budget will be ‘temporarily’ cut from 0.5% to 0.3% of gross national income (GNI) by 2027, a reduction of around £6 billion.

At a time of acute humanitarian, development and climate financing need, this decision is a dereliction of responsibility and will affect many millions of people in low- and middle-income countries, with potentially more than 600,000 lives at risk. It also breaks Labour’s manifesto pledge to rebuild the UK’s reputation on international development, which was so deeply damaged by the previous government’s decision to cut the ODA budget from the legally mandated level of 0.7% of GNI, with disastrous consequences. Bond and our members have therefore been calling for this decision to be reversed.

However, we are aware that the government is moving ahead with plans to introduce these cuts. In taking these steps the government therefore faces another decision – whether to pursue an approach that limits damage to lives, livelihoods and the UK’s development ambitions as much as possible, or to once again puts these considerations aside.

In announcing these cuts, the Prime Minister said this was “a very difficult decision, and not one that I wanted or am happy to take”, and the new Development Minister, Baroness Chapman, has stated that “[We] do not wish to turn away from our global commitments to development.” If these statements are sincere, then there should be no question about what options the government should choose.

So, what approach to implementing these cuts will help to limit their negative impacts while maximising the UK’s development ambitions?

We believe there are four key elements:

1. The government should maintain the UK ODA budget at 0.5% of GNI in both 2025 and 2026.

Maintaining these ODA levels will allow FCDO to make important multilateral payments over the next two years, including frontloading delivery of the UK’s recent £2 billion pledge to World Bank IDA and new ambitious commitments to the Global Fund, GAVI and other important global funds being replenished in the coming months.

This will then allow for lower multilateral spending from 2027 onwards, helping to protect vital bilateral and centrally managed programmes, which FCDO had just started to rebuild following the last wave of ODA cuts in 2020-21. This approach would not create a ‘cliff-edge’ in spending, but in fact the opposite, instead smoothing ODA spending during the rest of this parliament.

2. The government should take more ambitious action to reduce the use of the ODA budget to support refugees in the UK, and return the savings made to the Foreign Commonwealth and Development Office (FCDO).

In 2023 28% of the UK ODA budget was reportedly spent on in-donor refugee costs (IDRCs), limiting resources available for spending on vital overseas aid programmes. The government has been taking action to reduce these costs which are projected to fall gradually. However, these costs need to fall faster, especially considering the dramatic reduction in the UK ODA budget. The government could achieve this by committing to end the use of hotels for housing asylum seekers by 2026 at the latest and scale up the use of more cost-effective and appropriate community housing for these vulnerable people.

The government must also respond to the findings of the OECD’s Development Assistance Committee (DAC) that state the UK is yet to apply its requirements to report IDRCs conservatively. It could do this through exploring the introduction of a cap on the costs the UK reports per refugee, which are currently three times the average of all OECD DAC members. Finally, it will be important for the reductions in IDRCs secured from these measures to be allocated to FCDO to supplement its highly constrained budget.

3. The government should pause capital contributions to British International Investment (BII), allowing this funding to be reallocated towards protecting programmes supporting humanitarian support and basic services in lower income and fragile countries.

BII, the UK’s Development Finance Institution, invests predominantly in middle income countries, and has faced extensive scrutiny from civil society about its impacts on development and poverty reduction. BII has stated that it can sustain its current level of investments (£1.3 billion in 2023) without additional capital contributions from the UK, especially given it received £0.9 billion from the ODA budget in 2024/25.

Therefore, pausing new government capital contributions to BII, for at least the period of the ‘temporary’ reduction in UK ODA to 0.3% of GNI, would have limited impact on BII’s operations and allow more ODA funding to be allocated towards protecting vital FCDO humanitarian and development programming in lower income and crisis-hit countries.

4. In taking forward the ODA cuts, the government must also set out an evidence-driven, needs-based and participatory process for deciding on its priorities for a smaller ODA budget.

This must involve assessing the potential impacts of different options for directing the cuts in terms of their implications for the most marginalised people (in line with the principle of ‘Leave No One Behind’, which is central to the SDGs) and more vulnerable countries. It must also involve meaningful consultation of civil society and relevant stakeholders, to ensure that sector expertise informs the decision-making process.

In addition to taking these steps on managing the ODA cuts, the government must also act to rapidly secure the release of the proceeds of the sale of Chelsea FC (£2.3 billion, frozen in UK bank accounts following sanctions on its owners) for supporting Ukraine, and potentially other vital global needs. It must also explore a range of proposals for mobilising broader sources of financing for low- and middle-income countries, including through scaling up global debt relief efforts, allocating additional Special Drawing Rights (SDRs), expanding the World Bank’s concessional resourcing capacity and cutting the cost of remittance flows.

The government has an opportunity to avoid truly catastrophic cuts to the UK’s ODA programme as it moves towards reducing the ODA budget to 0.3% of GNI by 2027. If the Prime Minister is sincere in his concern for the future of UK ODA and the UK’s global leadership, he must do all he can to limit the impacts of these cuts.