UK to slash overseas aid in Budget as asylum seeker costs rise

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The UK Treasury is preparing to slash spending on overseas aid in the Budget after refusing to match Tory-era top ups to compensate for development cash spent on asylum seekers in the country, said people familiar with the matter.

The decision comes despite warnings that without an emergency cash injection, UK international aid could slump to its lowest level in 17 years — at just 0.36 per cent of gross national income — and undermine the government’s ambitions on the global stage.

The Financial Times first reported last month that UK foreign secretary David Lammy was pushing for additional money, as a ballooning proportion of the development budget was being spent on housing asylum seekers in hotels.

Jeremy Hunt, the former Conservative chancellor, awarded an extra £2.5bn to the aid budget in the past two years to partially offset this domestic expenditure.

Official data showed the government spent £4.3bn hosting asylum seekers and refugees in Britain in the last financial year, more than a quarter of its £15.4bn overall overseas aid budget.

The government is expected to argue that a top up is not needed because the Home Office is planning to bring down expenditure on asylum accommodation in Britain, people familiar with the situation told the FT.

It has pledged to accelerate processing of asylum claims to bring down a huge backlog of people awaiting decisions on their cases, and reduce the cost of housing them in hotels. But the backlog stands at nearly 120,000, according to official data.

Anneliese Dodds, UK development minister, gave a keynote speech at the foreign affairs think-tank Chatham House last week in which she highlighted asylum costs had “spiralled in recent years . . . which the home secretary is now taking action to rectify”.

Her intervention came after the Treasury engaged in a tough round of negotiations with departments ahead of the Budget on October 30, in which chancellor Rachel Reeves has said she faces difficult decisions.

In her July 29 speech outlining the dire fiscal straits that Labour inherited from the previous Conservative government, Reeves projected the cost of the asylum system would rise to £6.4bn this year. Labour is hoping to cut this by at least £800mn.

Bond, the UK network for organisations working in international development, has predicted that without any extra cash, spending on overseas UK aid programmes will slip to 0.36 per cent of GNI this year — the lowest level since 2007.

While former Tory prime minister David Cameron in 2013 set a global benchmark by ringfencing the UK aid budget at 0.7 per cent of GNI, it was later cut to 0.5 per cent by Boris Johnson in 2021.

It is within OECD rules for donor countries to spend some aid money domestically on support for refugees and asylum seekers because it counts as humanitarian assistance.

However, the UK far outstrips other OECD members in the amount of aid it is spending in this way at home, according to Bond.

Gideon Rabinowitz, policy and advocacy director at Bond, said: “We’re alarmed that overseas UK aid spending could hit a 17-year low if the government fails to act in the autumn Budget.”

He urged the government to “stop diverting UK aid funds to the UK’s broken asylum system” and refocus the development budget back on its intended purpose of “tackling global poverty and crises”.

Former Tory international development secretary Andrew Mitchell said he would be “very worried” if the Treasury agreed no extra aid funding in the Budget claiming the estimate of expenditure from the Home Office has gone down.

“The Home Office has never managed to get its figures right and there is no reason to believe the costs will go down,” he said, warning that no additional cash would mean “a significant cut from Conservative levels to UK spending on international development overseas”.

A government spokesperson said: “Government spending plans for 2024-25 and 2025-26 are part of the spending review and will be announced at the Autumn Budget.”