Last week, Rishi Sunak, the Chancellor of the exchequer published his comprehensive spending review and budget.
We pulled out the good, the bad, and the messy implications for the UK’s Official Development Assistance (ODA) to give you an overview of where we are.
After months of speculation, there was a rhetorical commitment by the Chancellor to return ODA back to 0.7% Gross National Income in 2024-25, should the fiscal tests be met. The return to 0.7% was referenced at least 10 times either as a commitment in principle or to outline the fiscal steps taken to secure the return. This year’s spending review allocates £5.2bn additional ODA in FY24/25 in case conditions are met to return to 0.7%. In the meantime, the commitment to spend 0.5% on ODA in 2022 remains in place.
The spending review also reconfirmed the government’s commitment to double international climate finance from 2021, including a minimum of £6.6 billion on international climate finance and at least £1.7 bn to protect nature and biodiversity. This will come from the existing ODA budget rather than being additional as stipulated in the Paris Agreement.
0.5% is here to stay (for now). The two fiscal tests remain in place, representing a major hurdle to a return to 0.7% in practice because their requirements, that the current budget must be in surplus and underlying debt be falling, are so difficult to meet. The earliest possible return to 0.7% will not be until FY24/25, it is unclear whether that means 2024 or 2025 because the commitment is based on calendar years. That is still 3 or 4 years away and a lot can happen to both the UK economy and the world before then.
The spending review posits an immediate increase in the ODA budget of an estimated £5.2 billion in FY24/25 if the conditions are met to return to 0.7%, raising huge risks around aid quality.
Despite the Chancellor’s claims that ODA will grow by 23% by 2024-25 (to £12.3bn) using the 2021 ODA budget (£10bn) as a benchmark, departmental ODA will still be over £1.1 bn less than it was in 2020 when the 0.7% target was met.1
Finally, but most importantly, poverty reduction is completely missing. The Chancellor didn’t mention it and neither did those words appear in any of the accompanying documents. This year’s spending review talks about diplomacy, development and global challenges but nothing about ODA’s core remit: poverty reduction.
The spending review only sets out departmental budgets, so we don’t actually know the total ODA envelopes for the coming years.2 While departmental spending is the most significant portion of UK ODA, in 2020 7.3% or £1.05bn was non-departmental spending including non-DFID EU attribution, funding to the IMF’s PRGT, gift aid, BBC world service, funding for devolved administrations’ ODA and some in donor refugee costs and colonial pensions.
The allocation of ODA between departments is also unclear at this point.
The spending review confirms the UK’s pledge of a £1 bn SDRs3 loan to the Poverty Reduction and Growth Trust (PRGT) as part of their commitment to recycle 20% of their Special Drawing Rights (SDR) allocation. There is no timeframe for this commitment, and SDRs will be spent over the life of this spending review and possible beyond. Discussions are still ongoing about possible alternative vehicles for SDR rechanneling, including the IMF’s proposed Resilience and Sustainability Trust fund. The Treasury are saying SDR channeling will be in line with OECD DAC rules and the UK’s established approach. This most likely means SDRs will be counted both as ODA and under the target but fall outside departmental ODA allocations.
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The other two areas of spend which may fall within the 0.5% target and cause further cuts are vaccine dose-sharing and planned debt relief to Sudan. The spending review touts the UK’s generosity on vaccine donations, but does not clarify if the donations will be additional to the 0.5% GNI target. For 2021-22, the UK has confirmed they will be additional to £10bn, but not to 0.5%. The OECD DAC are currently considering pricing vaccine dose sharing at US$6.72 a dose, which would add up to a huge proportion of the UK’s ODA budget should they come from within the 0.5%. Planned debt relief for Sudan is currently paused due to the coup in Sudan, but the Freedom of Information response secure by Jubilee Debt Campaign appears to confirm that if it happens, it will come from within the 0.5% envelope.
|ODA to Departments|
£12.3bn (not including £5.2bn)
This year’s spending review commits to 0.5% GNI on ODA for 2022. For future years, things are murkier. The spending review states that the amounts budgeted will ‘enable the UK to spend the equivalent of 0.5% of GNI on current forecasts’. The word ‘equivalent’ is used here because the GNI commitment is for a calendar year and the budgets are for financial years, and the use of ‘current forecasts’ muddies the commitment, leaving room to spend a different amount should the forecasts change.
The review also outlines development priorities as supporting women and girls (girls’ education clearly still a priority), humanitarian assistance, clean and green infrastructure financing, nature and tackling climate change. There is a commitment to providing £2.4 bn to ‘unlock’ finance for green growth, but it is unclear how it will be spent or where it will sit. The government’s development finance institution, CDC, is the most obvious option and the government have confirmed in their recent COP26 announcement that at least some of it will come from their budget.
What we don’t know:
As outlined above, we still do not know for certain whether SDRs and vaccine doses will come from within the 0.5% ODA budget. We also do not know the departmental split of ODA, how much non-departmental ODA has been allocated or how ODA will be allocated against the various government priorities.