Cutting UK overseas aid in the name of Covid fiscal prudence is pure nonsense | Business
Britain is on course to borrow the thick end of £400bn this year and so, according to Rishi Sunak, the aid budget has to be cut. The UK will always be a good global citizen, the chancellor said last week, but times are tough. There’s a pandemic going on and so hard choices have to be made.
This argument failed to convince Andrew Mitchell, a well-regarded international development secretary under David Cameron, who is organising a rebellion among like-minded Conservative MPs. Rightly so, because it is utter nonsense.
No question, there is a need to have a debate about aid. Sunak might have advanced reasons to explain why the UK should not indefinitely allocate 0.7% of national income to overseas financial assistance each year, not least that unless aid is time-limited it leads to a dependency culture. The idea behind rich countries channeling resources to poor countries is that they eventually stand on their own feet, which many of them have succeeded in doing.
But that wasn’t Sunak’s case. His argument was that economic collapse meant Britain could not afford it. “During a domestic fiscal emergency, when we need to prioritise our limited resources on jobs and public services sticking rigidly to spending 0.7% of our national income on overseas aid, is difficult to justify to the British people especially when we’re seeing the highest peacetime levels of borrowing on record”, he told MPs.
Let’s unpack that statement. For a start, there is no real sense in which Britain is facing a domestic fiscal emergency because while borrowing has surged this year the historically-low level of interest rates means that the cost of servicing the national debt has actually fallen. Nor is there any evidence that Sunak has worried about resources being limited as he has scaled up the government’s response to Covid-19 from £12bn in the March budget to £280bn at the last count.
The aid budget would have fallen next year anyway because it goes up or down depending on the size of the economy, and national output is on course to shrink by 11%. Cutting the target from 0.7% to 0.5% will save the Treasury an additional £3bn to £4bn but that is chickenfeed when the budget deficit is running at almost 20% of GDP. A cut in the aid budget is not needed to maintain the confidence of the financial markets; nor is it the difference between the public finances being sustainable and unsustainable. It is wrong to say that the government has to raid the aid budget to spend more on doing all the things it wants to do at home.
Sunak’s argument would be stronger were the government planning to make the cut to 0.5% permanent, but for now he is insisting that the UK intends to revert to 0.7% once the crisis is over. If that’s so, there will be no long-term impact on the public finances. By any token, this represents stupendously bad value for money as quite a few of Sunak’s colleagues on the Conservative benches pointed out. The result was that instead of being heaped with praise, the chancellor provoked Mitchell’s rebellion, which is potentially big enough to defeat the government.
That would be a well-deserved bloody nose for the chancellor and the prime minister. Why? Not because there is something sacrosanct about overseas aid. As Jonathan Glennie writes in his new book* it would be a good idea to rethink the idea of aid as global public investment for the common good. Instead of dividing the world into donor and recipient countries, Glennie’s idea is a system where everybody contributes something and everybody gets something out.
But the UK government is not really interested in rethinking development, although it ought to be leading the debate. For the past 25 years, governments of both left and right have gradually turned Britain into a development superpower. It is an area where the UK has enjoyed real global clout, and in part that’s due to having a separate and well-resourced department for international development. It was a text book example of the exercise of soft power.
Now all that is being tossed away in acts of wilful political vandalism. The past year has seen The department for international development (DFID) swallowed up by the Foreign Office, and the past month has seen a big increase in defence spending followed by a cut in the aid budget. The message to DFID’s staff could not be clearer: even though the logical extension of addressing the north-south divide at home is levelling up at a global level, the government has no real interest in international development.
There are two other reasons why the government’s approach is curious. The first is that – whatever its shortcomings – development assistance has never been more needed. Covid-19 has had a devastating impact on the world’s poorest countries, leading to more people going hungry, more children out of school, fewer infants being immunised. The World Bank says 2020 will see the first increase in extreme poverty in two decades. If Boris Johnson really wants to end Britain’s Covid-19 nightmare, then that requires money to be spent in other countries and not just our own.
The second reason is that the cut to the aid budget exposes the hollowness of the government’s “global Britain” line. Assuming he remains as prime minister, Johnson will be chairing both the G7 and the COP-26 climate change conference next year. Deals will need to be cut if progress is to be made and cutting the aid budget will make those deals harder, not easier. If ever there was an example of spoiling the ship for a happ’orth of tar, this is it.
*Jonathan Glennie: The Future of Aid; Routledge