7 June 2021

The foreign aid rebels are right – here’s why


MPs will hopefully soon have the chance to vote on whether the UK should restore spending on foreign aid to the mandated level of 0.7% of GNI (gross national income). This is surely the right thing to do.

First, the arguments in favour of cutting the target to 0.5% are weak.

The Government’s case is that the pandemic is a game-changer that justifies the triggering of the escape clauses in the International Development Act and breaking the manifesto promise to “proudly maintain” the 0.7% target. The economy has indeed been hit by the worst recession since the Great Frost of 1709, driving public borrowing to more than £300 billion in 2020-21.

Nonetheless, the economy is now rebounding far more strongly than expected when the decision to cut aid was made last year. In the meantime, the Government has had no difficulty financing the increase in debt. If the hawks want to make a point, the fall in GNI means that the aid budget could already be cut by about £1.5 billion a year without missing the 0.7% target.

Lowering the bar to 0.5% would save an additional £4 billion a year. But that is less than the typical forecast error in government borrowing in a single month. Put another way, a one-off saving of £4 billion would amount to less than 0.2% of the outstanding public debt (£2,171 billion) at the end of April. It is ridiculous to argue that this is money that we can no longer afford, or that the only way to meet domestic priorities is to divert money from the aid budget.

There is more merit in the argument that some aid spending is wasteful, and that some may actually do more harm than good. There is also plenty of evidence that foreign aid is neither necessary nor sufficient for economic development, and that free market solutions – based on economic rights and trade liberalisation – are far more effective.

However, these are points in favour of continuing the fundamental reforms of the aid budget made in recent years. They do not justify a piecemeal cut in the midst of a global crisis, especially when the Government itself has said the cut will only be temporary.

What about the politics? Poll after poll has shown that cutting aid is popular with the general public and especially with Conservative voters. But just because something is popular does not mean it is right, particularly when opinion has been distorted by a hostile press.

People might respond differently if they were more aware of the importance of UK aid in helping child victims of the conflict in Yemen, or providing clean water and training health workers in Africa. Politicians should attempt to correct popular misperceptions, not play to them

Unfortunately, some newspapers have spent years rooting out examples of aid projects that look bad. Often these are presented in a misleading way. But even if you accept all the tabloid examples of wasteful spending, and multiply them many times, they would still only represent a tiny proportion of the total aid budget of more than £15 billion – and certainly far less than the £4 billion at risk.

A depressingly large number of people are also willing to believe that we still donate vast sums to China. In fact, the UK stopped sending traditional aid to the PRC in 2011. The small amount of taxpayer cash that is spent there (less than £100 million annually) is now mainly used to promote UK research, diplomatic and business interests, and to help China deliver its own international programmes more effectively. Even this is already being cut as political relations have deteriorated.

So, what are the positive arguments in favour of keeping the aid target at 0.7%?

For a start, there’s the pandemic itself. The World Bank has estimated that up to 100 million more people could fall into extreme poverty as a result of the crisis. We are therefore cutting spending at exactly the time when aid is likely to do the most good.

What’s more, aid is not a tap that can easily be turned off and on again. Charities have had to cut projects where commitments have already been made, exacerbating the harm. That £4 billion may be peanuts to the UK, but it is a game-changer for many of the world’s most vulnerable people.

Yes, the 0.7% target is itself arbitrary, and even at 0.5% the UK would be more generous than most of our peers. But our aid budget should be assessed on its own merits. If anything, maintaining spending at 0.7% could encourage others to raise their game. As it stands, the UK is the only major economy to be reneging on its aid promises – not a great look for ‘Global Britain’.

Above all, it really is in the UK’s own interests to maintain aid spending, even if this means borrowing a little more. Official aid is now rarely given without the prospect of something in return.

Some critics of aid spending argue that the only worthwhile spending is what is classified as ‘humanitarian’ (essentially, disaster relief). But take a look at the Development Tracker updated regularly by the FCDO. The spending priorities are ‘health’ (surely the pandemic has underlined the benefits of this?), and ‘banking and financial services’ (essential for the development of market economies). It should be trade and aid, not just one or the other.

Aid spending is also rigorously scrutinised by the Independent Commission on Aid Impact (ICAI). The vast majority is judged to provide good value for money. A 2019 study looking back over eight years found that almost 80% of the UK aid assessed was well spent even with a focus on risker projects. The track record is also improving over time. Most of those tabloid examples are ancient history.

The upshot is that you do not have to be a ‘bleeding heart liberal’ to think that foreign aid cuts are short-sighted, especially given the potential for Africa to become a much bigger market for UK businesses. Would we rather leave the field clear for China? Or allow more countries to fail, encouraging more people to try to migrate illegally to the UK?

Charity may begin at home, but investing in overseas development helps us too – and we can and should do both.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Julian Jessop is an independent economist.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.