UK chancellor Rishi Sunak must ensure the cut to foreign aid is temporary
Opinion: As the UK retreats from its pledge to spend 0.7% of GDP on overseas aid, the public finance professionals’ body CIPFA is urging ministers to revive the commitment as soon as possible. The organisation’s chief economist Jeffrey Matsu makes the case
This week’s Spending Review in the UK was a significant step towards recognising the economic damage wrought by the pandemic. The forecasts cited by Chancellor Rishi Sunak were bleak, as he painted a picture of a national financial situation not seen outside of wartime.
As we start to feel the impact of a recession heading into 2021, it is clear that the government must take urgent action to mitigate its effects. So it seems sensible for the chancellor to prioritise the domestic situation, but he must stand firm in his resolve to ensure the cut to foreign aid is only temporary.
The economic outlook
The UK economy will shrink by 11.3% this year, the largest contraction since 1709, according to projections by The Office for Budget Responsibility (OBR), the UK’s independent fiscal watchdog. This is accompanied by an expected rise in unemployment to 7.5% by the middle of 2021, representing 2.6 million people out of work as the repercussions of the pandemic are felt across many sectors.
With such projections in mind, the spending review included a range of funding announcements to support public services and frontline efforts to combat the virus. Another major focus was tranches of central government spending as part of the “levelling up” agenda.
A £100bn (US$133bn) overall investment in infrastructure is intended to support growth and address inequalities, particularly across regions outside of London and the South-East of England. This was accompanied by additional funding for the devolved administrations in Scotland, Wales and Northern Ireland.
However, the unveiling of these large sums was balanced by the confirmation of a public sector pay freeze. Pay rises are paused for all public sector workers except for NHS nurses and doctors.
Overseas aid
More controversially, it was also confirmed that the overseas aid budget will be reduced from 0.7% to 0.5% of GDP. It was deemed necessary to temporarily reduce international commitments due to the urgent need to stimulate growth in the UK economy. As foreign aid is calculated as a share of GDP, securing a strong and rapid economic recovery will ultimately pay out in a higher level of long-term funding.
In the light of OBR estimates that GDP in the UK is unlikely to recover to its pre-crisis level until the end of 2022, it seems sensible that the chancellor prioritised domestic conditions first and foremost.
This decision has understandably received criticism from many influential voices, however, including key figures across the charity sector and international campaigners. The chancellor emphasised that this measure is only intended to be temporary, with a restoration of the 0.7% commitment once the country has recovered enough to no longer be in an “emergency” situation. At CIPFA, we are keen to see Sunak hold firm to this commitment.
Cutting the aid budget restricts funding for vital work in developing countries such as vaccination and public health initiatives, and programmes to support women and girls continuing in education. Well-targeted international aid has positive trickle-down effects on growth in developing economies, producing lasting benefits.
Britain has historically held a strong leadership role on the international stage, contributing a greater proportion of its GDP than any other G7 country. Turning away from countries in greatest need does little for the image of “global Britain” as we approach the end of the Brexit transition period, so it is to be hoped that we will soon be able to return to this world-leading position.
Jeffrey Matsu is the chief economist at CIPFA
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