Where is UK development policy headed under the new government?

The recent £1.5 billion cut in the aid budget heralds an era of “less money, more policy”, with any return to spending 0.7% of Gross National Income a long way away, says Andy Sumner of King’s College London. As we await three reviews of development policy, early signs suggest climate change and diplomatic interests will drive priorities – and anyone hoping for the rebirth of DFID will be disappointed.

The recent UK budget has significantly cut the UK’s aid budget this year. In this blog, I examine this cut in the context of the new government’s commitments and explore how we might expect development policy to evolve.

Chancellor cuts the aid budget

The headline is that the UK aid budget was cut by £1.5 bn ($1.9bn).

Despite the flags, the Chancellor was unwilling or unable to provide extra funds to offset the billions being spent on supporting refugees inside the UK. This makes her the first Labour chancellor to cut aid below the levels of a prior Conservative government.

These within-UK refugee costs can be counted as Official Development Assistance (ODA), though this stretches both the spirit of ODA and claims that this government will restore the UK’s internationalist credentials. The last administration provided an additional £2bn towards the £4.3bn of refugee costs that were counted as ODA last year.

In the new budget, total UK aid, including in-country refugee costs, will drop from £15.3bn in 2023 to £13.9bn in 2024 and then rise to £14.3bn in 2025. So that’s respectively, 0.58 percent, 0.5 percent, and 0.5 percent of Gross National Income.

There is a commitment to bring in-UK refugee costs down so in principle that could release more non-refugee ODA funds. But of course, in reality, those costs may not come down, and could even go up, given increases in small boat arrivals this year.

Not surprisingly, it looks like the fiscal tests set by the last government for returning to spending 0.7 percent of gross national income on aid – that the country is not borrowing for day-to-day spending and the ratio of underlying debt to GDP is falling – won’t be met this parliament. In fact, they were rarely met over the last two decades. The Chancellor did not change the second of those tests, on falling debt, to match her new, more forgiving measure of debt, despite calls for her to do so.

The other crucial part of the financial mix is meeting the International Climate Finance (ICF) target, a central UK commitment under the Paris Agreement. Given so much ODA is now taken up by UK refugee costs, a lot of what’s left needs to be moved into, or rebadged as, climate finance. That has consequences for development policy priorities.

So, where is UK policy going on development?

Labour’s election win has come with a promise that “Britain is back”. As the party’s manifesto put it: “regaining Britain’s global leadership on development is a key part of our plan to reconnect with our allies and partners.” Prime Minister Keir Starmer promised at UNGA that his government was “returning the UK to responsible global leadership.” So, what does that mean? Speeches by Starmer at the UN General Assembly, the Foreign Secretary David Lammy at Kew Gardens and the Minister for International Development at the Foreign, Commonwealth & Development Office (FCDO), Anneliese Dodds at Chatham House provide some insights.

Starmer’s speech at the UNGA flagged UK support for reform of the international financial system so Multilateral Development Banks take on more risk guarantees; making sure the voices of the Global South are heard by getting permanent African, Brazilian and Indian representation on the UN security council; and a move from paternalism to partnership. That all sounds like good stuff.

Lammy’s remarks at Kew emphasised climate as central to foreign policy – so far, so good, though it’s not clear what that really means in practice. In contrast, Dodds’ talked about a “modern” approach: though again it’s not clear what that means exactly. Her reference points were largely around humanitarian aid, with an emphasis on her recent trip to Sudan.

Three reviews, with one more relevant than the others to policy?

Three reviews of development policy are underway: one seems more relevant to policy than the others, though all seem potentially significant.

Leading the set is the review by Nemat (Minouche) Shafik, formerly Permanent Secretary at the Department for International Development, who has also held senior roles at the Bank of England, World Bank and IMF, London School of Economics and Columbia University.

Dodds talked about Shafik’s review as ”the” development review” – not mentioning the other two. The Shafik review focuses on maximising the benefits of integrating development with diplomacy (let’s call it “dev-dip”) or “modernising” the UK offer (modernise here seems to mean making fit for our new geopolitical context). There is a tension here: the poorest countries may matter less to geopolitics (though more for geoeconomics and critical minerals for example). So it’s likely to be populous middle-income countries that matter more for a “dev-dip” approach. That has implications for policy beyond aid, which we’ll come back to in a moment.

The first of the other two reviews, led by Ngaire Woods of Oxford University, is on the UK’s global impact, relationships and shared objectives. The second is led by Michael Donnelly, a former Permanent Secretary at both Business and International Trade departments. He is focusing on trade, investment, economic capabilities in diplomacy, and – perhaps more surprisingly – on ensuring UK jobs and UK growth are at the heart of UK foreign policy. So, one read of this could be it’s now part of FCDO officials’ jobs to grow the UK economy. All three reviews are expected to report by the end of the year.

So, what does all that add up to so far?

0.7 is a long way away

The much-discussed return to the 0.7 percent ODA target feels forever on the horizon, though the government remains committed to 0.7 as soon as UK finances “allow”. There’s been little said about the fact that over half of all UK bilateral aid is now spent in the UK. The optimistic take is that in-UK spend should come down over time gradually releasing funds for other things. But it could of course also go up or take some years to fall. Further, as noted above, much of what is not refugee costs will need to be rebadged as climate investment given the ICF commitment.

R.I.P DFID 2.0

As it stands, and in the context of our geopolitical shifts, Lammy seems to be leaning strongly towards full integration of diplomacy and development in the existing FCDO, rather than returning to an independent development department (a DFID 2.0). Even the notion of ring-fencing a dedicated development “bit” within the FCDO seems off the table. Of course, the reviews could change all this (though the details about the reviews suggest not). Perhaps the chorus calling for a new DFID has triggered some annoyance and digging in at the top of the FCDO.

Climate, diplomacy and UK jobs: the new frame for policy

Climate change appears to be the central theme, shaping development priorities across the board. At the same time, development-diplomacy integration seems already baked in, as does the idea that FCDO is now responsible for creating UK jobs and UK growth. The UK-centric drive for domestic jobs does jar a bit with internationalist ideals.

Many FCDO civil servants previously working outside climate action may well have pivoted already, reframing what they do through a climate lens. That will be quite easy for many: essentially doing the same stuff but reframing and talking about it differently. But it is a bit unclear how UK jobs will result directly from FCDO policies, other than through investment and procurement opportunities from climate cooperation. Pure speculation: development policy as a way of promoting green economic development, is about to make a strong comeback.

What has happened to local leadership and ending extreme poverty?

There seems little talk of the locally-led development we heard about from previous development lead Lisa Nandy just before the election. The previous government had committed to a new localisation strategy in a White Paper, and the Labour pre-election manifesto talked about “genuine partnerships” with developing countries. So it may make a comeback but for now, seems to have been supplanted by a message that “we are listening” (though perhaps only listening to priorities that are climate related?). There has also been a lot of talk of providing UK expertise and knowledge to the world, which sits uneasily with the listening thing.

Ending extreme poverty seems to have slipped down the agenda too, despite its affordability at a global level. There has also been very little emphasis on the UN’s Sustainable Development Goals (either now or post-2030), possibly because of the dire outlook on this. And no discussion of something post-2030. There has also been much less talk of fragile states.

Less money, more policy?

If there’s less money, what will the UK government do to restore its international leadership? Policies beyond aid is one answer (often referred to by the unappealing wonk label of ”policy coherence for development”). An alternative is to call it attending to “transnational spillovers” but that’s not much better. But this needs serious focus across Whitehall. A concerted effort in some of these areas would be helpful.

What could that mean in practice? Here are some questions policy makers could ask (and the new International Development Select Committee or the Independent Commission for Aid Impact (ICAI) could mull over these too):

How can we link the flagship five ‘missions’ for UK matter to development policy (i.e. looking at what’s good for the UK and also good for development priorities)? What’s the development policy angle in the Green Prosperity Plan or the talk of a Supply Chain Commission? What do non-cash reparations for slavery and colonialism mean? (I have a feeling the reparations discussion will become more of a big deal globally in the near future, as it was at the Commonwealth Heads of Government Meeting recently). Could UK law that governs the City of London, and hence the framework for a lot of Global South debt, be changed to make restructuring national debts easier? How about a development angle to the proposals for an UK-EU security pact?

What we can say for now is that such policy questions will become more important, especially if we have now entered an era of ”more policy, less money” for UK development priorities, at least for this parliament.

This post is adapted from one on the Center for Global Development blog.