The Treasury has made changes to the way that Official Development Assistance is allocated so that it will no longer fluctuate between spending reviews.
Aid spend, which is being reduced by this government from 0.5% to 0.3% of gross national income over the next three years, will be set in cash terms from 2027. This means it will be based on the Office for Budget Responsibility's GNI forecast preceding the spending review, with these budgets not adjusted for later GNI fluctuations. Under the current rules, ODA budgets increase and decrease as GNI is projected up and down.
The Treasury has committed to holding a spending review every two years, with the first under the new government to take place in June. The ODA budget will be reviewed at each spending review.
The FCDO also confirmed it will also no longer hold the ODA “spender and saver of last resort” role, meaning the department is no longer required to adjust budgets to hit a calendar-year spending commitment.
Development minister Jennifer Chapman said the decision is a “significant and positive change to the way the FCDO manages its ODA budget”.
In a letter to the International Development Committee, Baroness Chapman said the FCDO “will no longer be automatically exposed to the volatility of GNI fluctuations or ODA spending by other departments, including demand-driven in-donor refugee costs, thereby increasing the predictability of our budgets and allowing us to plan with more certainty”.
Around 28% of the aid budget was spent on domestic refugee costs in 2023, with most of this spent by the Home Office on hotel accommodation.
Bond, the UK network for organisations working in international development and humanitarian assistance, has taken a less positive view on the changes.
Gideon Rabinowitz, director of policy and advocacy at Bond, said ending the FCDO’s role as spender and saver of last resort is a “stealth cut to the UK aid budget since FCDO will not be able to benefit from any improved GNI or any money that is recovered back from spending on asylum accommodation”.
International Development Committee chair Sarah Champion also expressed concerns about the reforms.
She said: “I'm very nervous about what these changes signify. Aid programmes deliver benefits over years and decades, not months. What UK aid needs above all is stability. Vital programmes for the world’s most vulnerable people must be protected from the ebb and flow of domestic priorities.
“The measures announced could represent a positive step forward. Unshackling aid from percentage targets could protect aid spending from drains on its resources like reckless Home Office spending on asylum hotels at home. But we need more information.
“Will the aid budget rise as well as fall, if income forecasts improve? Which specific programmes are set to be cut? Which areas are high priorities for ministers? Until we know, it is impossible to assess whether the government is serious about its international commitments and the potential risks these changes present.”