Senior Labour MP said a tweak in calculation of the overseas aid spend could result in a significant fall in its value, and was “unacceptable”
An extra “stealth cut” to aid spending – on top of the cut to boost defence – means that more than half the aid budget is now likely to be spent on managing the asylum crisis in the UK.
A senior Labour MP warned that it also risks an “unacceptable” breach of the government’s own commitments.
Chair of the international development committee, Sarah Champion, said a tweak in the calculation of the overseas aid spend could result in a significant fall in its real-term value and cast doubt on Sir Keir Starmer’s pledge to retain a spend 0.3 of per cent of gross national income on aid.
Paying for refugees and asylum seekers in the UK is taken out of the aid budget.
The previously announced cut to aid – from 0.5 per cent of GNI to 0.3 per cent, announced in February – would already mean an increasing proportion of the cash will be spent on refugees or asylum seekers in the UK.
This latest calculation tweak is estimated to cut the aid budget by an additional £1bn a year.
This would mean the UK could spend more than half of the £7.5bn remaining budget on asylum and refugee costs.
In 2023, the UK spent more than £4.2bn – 28 per cent – of overseas development assistance on refugees or asylum seekers in the UK or other donor countries.
The i Paper reported in February that cutting the aid budget to 0.3 per cent of national income would leave it at £8.5bn, meaning almost half would go to asylum seekers. Taking another £1bn off this, reducing the aid budget to an estimated £7.5bn, means more than half the total is spent on managing asylum seekers.
Responding to the latest development, Champion told The i Paper: “The aid cuts were already going to be devastating, but now we learn the government is quietly changing its rules in a way that could remove an extra £1 billion a year from this shrinking budget.”
She added: “This is unacceptable and also casts doubt on the commitment the Prime Minister made to spend 0.3 per cent of national income on aid – because it’s now likely to be less than 0.3 per cent, taking the UK down to levels not seen since the Conservative government of the 1990s.”
The Center for Global Development had already estimated the previously announced cut would leave the UK with little more cash for aid outside existing military agreements and climate commitments.
Outside of these, the Center said there would be little to spend on humanitarian causes unless the government makes significant savings on how much is spent on asylum seekers and related challenges.
“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,” a recent report by the Centre said.
It comes after the Prime Minister announced in February the UK would reduce aid spending in order to spend more on defence.
Former Labour Foreign Secretary and current head of the International Rescue Committee (IRC) David Miliband criticised the aid cuts, describing them as a “blow to Britain’s reputation”.
In a rare intervention, Miliband told the Financial Times the aid sector was facing “growing humanitarian need” and the cuts could not have come at a “worse time”.
The UN has a target for countries to spend 0.7 per cent of GNI on aid – known as official development assistance (ODA).
In 2013, the UK achieved this target for the first time, and since 2015, the government has been under a legal duty to meet it.
But in 2021, in the wake of the Covid-19 pandemic, the Conservative government announced it would reduce spending to 0.5 per cent.
In 2024, the Labour Government said it would restore spending to 0.7 per cent “as soon as fiscal circumstances allow,” but – in February – the Prime Minister announced the ODA budget would be cut from 0.5 per cent to 0.3 per cent.
This is to fund an increase in defence spending to 2.5 per cent of gross domestic product (GDP) in 2027 and 3 per cent in the next parliament.
The decision prompted the resignation of foreign office minister Anneliese Dodds, who said the cut would harm the UK’s overseas reputation.
What are the latest changes?
The UK previously set a percentage of gross national income (GNI) as the spending target for aid.
But the government confirmed last week that it would now be set in cash terms, meaning it will not be adjusted for any fluctuations.
In essence, the government estimated GNI, worked out the percentage for aid, and if GNI increased beyond expectations, topped up the aid budget.
Now there will be a flat payment based on the estimate, with no update for fluctuations.
This latest change in aid calculation emerged last week in a letter from International Development Minister Baroness Chapman to the committee.
She wrote that the detail of Rachel Reeves’ Spring Statement “confirms a change in the way HMT allocates ODA [Official Development Assistance] with implications for the FCDO.
“Whereas the UK previously set a percentage of GNI ODA spending commitment, the ODA allocations will now be in cash equivalent terms,” she said.
“This means the UK now sets the ODA budget based on GNI forecasts at a spending review and these will not be adjusted for GNI fluctuations.”
This is in contrast to previous rules which would have seen the budget topped up if there was a higher than expected GNI figure.
Bond, a network of organisations working in international development, calculated the loss to the aid budget if the new system was already in place – using OBR forecasts – of £3.77bn over four years.
Gideon Rabinowitz, director of policy and advocacy at Bond said: “If this approach had been applied in the 2021 Spending Review, UK aid would have been £1 billion less this year, last year and the year before that, with the Treasury pocketing the difference.”
The Minister also said “bilateral aid spending has been set to meet only existing contracts”, suggesting that with a few exceptions there will be no new additional bilateral aid programming in 2025/26, Bond said.
Exceptions include full UK aid allocations for Ukraine, the Occupied Palestinian Territories, Sudan, and the Overseas Territories, while funding for British International Investment (BII), the British Council and scholarships to UK universities will also be protected.
The government said that the decision to set annual aid budgets from 2027 onwards in cash terms would “bring more stability and certainty”
“It will also increase the predictability of international development budgets, which will no longer be automatically exposed to the volatility of GNI fluctuations or spending by other government departments, including demand-driven refugee and asylum costs in the UK,” the Foreign Office said.