Wendy Chamberlain hits out on cynical tests for overseas aid cuts

Wendy Chamberlain, MP for North East Fife attacked the government’s commitment to reducing the overseas aid budget below 0.7% in the House of Commons today.

It is a straight choice: do we return to 0.7%, as we were all elected to this place to do, or do we fail to be the global leader on this issue that the UK has been to this point?… the poorest will be hardest hit by these cuts. The reality of the covid pandemic is that no one is safe until everyone is safe… The fiscal tests for development spending presented today are the height of cynicism. They are designed never to be met.

The government, which has a majority of 80, won the vote by 35.

Chamberlain told the House this afternoon:

When the Government announced last summer that the Department for International Development would merge with the then Foreign and Commonwealth Office, I and my fellow Liberal Democrats warned of the risk to overseas development assistance and funding. I asked an urgent question to the Foreign Secretary I wrote to the Secretary of State for International Development on those very issues. The Secretary of State said at the time:

“We are committed to the 0.7% of GNI commitment…We want the aid budget and the development know-how and expertise that we have in DFID—it has done a fantastic job…at the beating heart of our international decision-making processes.”—[Official Report, 18 June 2020; Vol. 677, c. 947.]

But here we are, just one year later…

Economic circumstances caused by covid are not the fault of the world’s poorest, and we and the many charities and NGOs that contacted me in advance of today’s debate know that the poorest will be hardest hit by these cuts. The reality of the covid pandemic is that no one is safe until everyone is safe. At the heart of this is the sharing of urgently needed vaccines around the world, but it is not only that. We know that global inequalities and poverty mean that people around the world cannot take precautions to protect themselves. We cannot expect those without access to clean water—785 million at the last count in 2017—to be able to wash their hands for 20 seconds.

Slashing development spending is deeply harmful to the notion of global Britain and to us at home. The cuts to this funding also mean cuts to spending within the UK, a fact that I think is sometimes lost. ODA funding goes to many places, including our universities that are doing research into how best to tackle the entrenched causes of global inequality and how to support developing countries to be self-sufficient. St Andrews University in my constituency is looking at up to 50% cuts to some of its active projects, which will impact on the poorest today. These cuts harm not only those in need around the world but our own research and innovation industries, which are vital to our response to Brexit and to facing the climate crisis…

The fiscal tests for development spending presented today are the height of cynicism. They are designed never to be met. As others have said, we have met these tests only once in this century. Conservative MPs must know that supporting today’s motion means not returning to 0.7% in this Parliament, and that means that every one of them who supports the Government today will be breaking their manifesto promise for five years in a row. It is a straight choice: do we return to 0.7%, as we were all elected to this place to do, or do we fail to be the global leader on this issue that the UK has been to this point?

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10 Comments

  • The governments rationale for the cut in ODA from 0.7% of national income to 0.5% seems to be two-fold. Firstly, the stated reason on straightened economic circumstances and secondly the belief that there is popular public support for the cut.
    On the latter, the BBC reports that public opinion may be changing on this issue Foreign aid: Is public opinion shifting on cuts? noting that
    A research organisation called the Development Engagement Lab – based at University College London and the University of Birmingham – has been tracking public opinion on aid for many years. And each time it asks the same question: “Do you think that the government should increase or decrease the amount of money that it spends on overseas aid to the poor?”
    “The numbers for those who said aid spending should increase or stay the same had been largely stable, settling in the mid to low 40% range.
    Over the last two years, from September 2019 to January 2021, the number fell from 46% to 43%.
    But since January, that number has risen to 53%. And that striking increase has been bipartisan, spread across both left and right-leaning respondents.”

    The Government has said it will return to 0.7% but only when the Office for Budget Responsibility (OBR) forecasts that:
    – the government is not borrowing money for day-to-day spending (a current budget surplus)
    – underlying debt is falling as a percentage of national income
    In March, the OBR forecast that the underlying debt as a percentage of national income will not start falling until 2024-25. Former international development secretary Andrew Mitchell said the tests to restore funding had only been met once in the last 20 years. However, with a robust post-covid economic recovery it is possible these tests could be met earlier and pressure brought to bear for a restoration of the cuts.
    If these tests are to be the fiscal rules for future budgets, they are not so different to the LibDem 2019 manifesto, albeit before the impact of Brexit:
    A good government should responsibly manage the nation’s finances: taking advantage of opportunities to borrow to invest in key infrastructure while making sure that day-to-day spending does not exceed the amount of money raised in taxes. We will:
    Use the £50 billion Remain Bonus to invest in services and tackle inequality, giving a major boost to schools and combatting in-work poverty.
    Ensure that key services are properly funded and responsibly manage their budgets so that they rise year-on-year.
    End the continual erosion of local government funding and commit to a real increase in local government funding throughout the Parliament.
    Ensure overall national debt continues to decline as a share of national income.
    Protect the independence of the Bank of England and keep the inflation target of two per cent.

  • Peter Martin 14th Jul '21 - 3:46pm

    @ Joe,

    There may well be popular support for cutting foreign aid. Whether or not we should do that is a political decision rather than an economic one. Those who think that ‘charity begins at home’, and that as a matter of principle we shouldn’t be quite so generous in helping out others, are at least being intellectually honest. Those who wrap up their arguments in neoliberal mumbo-jumbo, such as debt falling as a percentage of national income etc etc , certainly are not.

    The cut is actually worse than a simple calculation of 0.7% of GDP to 0.5% might indicate. Its not just 28.6%. GDP has fallen by 10% over the last year too and this fall also needs to be factoredi n.

  • Peter Martin,

    the BBC report suggests support for maintaining UK aid spending has risen sharply this year to 53%. And that striking increase has been bipartisan, spread across both left and right-leaning respondents.
    It is entirely possible that the fiscal tests may well be met. The ratio of Debt to GDP reached a low point of 29% 20 years ago and has been rising steadily since then – to 40% before the financial crisis, 83% by 2017 after which it began to fall prior to the Pandemic. The OBR suggests the current level of public sector debt will begin to fall by 2024-25. That may happen faster if the economy rebounds faster than forecast. The current budget was in balance from 2017 with deficits funding capital spending. With robust economic growth, a high level of capital spending budgeted (around 3% of GDP) and corporation tax increases in 2023 it is perfectly feasible that these tests will be met and the ODA budget restored to a commitment of 0.7% of GDP.
    A LibDem administration would not have cut it at all. Neither, I expect would a Conservative government led by David Cameron. But if this is to be the criteria then the focus should turn to economic recovery and an early restoration of overseas aid.
    If you want to put it in MMT terms. As the sectoral balances reverse i.e. savings are drawn down for consumption and consumer credit expands; tax receipts will increase closing the current budget deficit and government borrowing will reduce as a % of an increased GDP.

  • Peter Martin 14th Jul '21 - 7:36pm

    @ Joe,

    You could be right that the economic conditions for a reversal of the policy will be met sooner than Wendy Chamberlain is suggesting they could. Nevertheless, I would say she is correct in saying that the motivations for the creation of such rules are cynical and the expectation of the Government is that they won’t be met anytime soon.

    It’s always good to view the position in MMT terms, of course. So, well done for having a stab at that. If the conditions of rising taxation revenues, and so falling government deficit do arise, as spending in the economy picks up it will also be a sign that the economy will have more supply and excess demand problems and inflation could start to pick up again. In other words, what might look to be the start of “a restoration of the nations finances”, to put it in neoliberal terms, might be the start of some economic difficulties to follow.

    So it wouldn’t be the best time to increase Govt spending. Another way to look at the issue is to say that what we produce in our factories, or in our laboratories, is the real contribution we make in foreign aid. It’s better to divert some production now when there is still some spare capacity than leave it until that disappears and the economy starts to overheat.

  • Peter Martin,

    Rising taxation revenues, and so falling government deficit from current levels of spending as the economy picks up are a virtual certainty post-pandemic. Government spending won’t be increasing from current levels, it will be reducing as emergency pandemic support falls away.
    The BofE has a large stock of debt on its books to prevent any demand driven Inflation with quantitative tightening should the need arise and interest rate increases can address imported inflation/foreign capital outflows.
    The fiscal rule stated is ex-ante i.e forecast budgets, not ex-post. Current OBR forecasts for 2021-22, expect a large deficit of £233.9 billion due to the ongoing costs of the pandemic. Because receipts are forecast to rise faster than spending, the total deficit is expected to fall over the next 5 years to reach £73.7 billion i.e. approximately equal to the net investment spending that delivers a current budget surplus.
    The pre-pandemic fiscal rule in use was to have the current budget in balance no later than the third years of the forecast period Fiscal Rules
    “The rule therefore allows the government to borrow for capital (investment) spending – but not to cover day-to-day costs, such as staff salaries or the running costs of public services (except when the economic situation necessitates larger current budget deficits for longer).
    The UK ran a current budget surplus in 2018/19. That was the first time it had done so since 2001/02. The UK has run a budget surplus in 33 (or 46%) of the last 71 years, which is as far back as comparable data go. However, most of these (26) came in the period following the second world war, with the government running current budget surpluses in every year from 1948 to 1973. It has only repeated this in seven (or 16%) of the 45 years since then.”
    What the post-war period reflects is that when investment spending is a significant element of the budget, current budget surpluses are more common.
    A large part of foreign aid will employ staff and services overseas rather than domestically and is a current transfer in the balance of payments (similar to the effect capital transfers for imports) rather than utilisation of domestic output.

  • Peter Martin 15th Jul '21 - 9:18am

    @ Joe,

    You could, just possibly, be right that the Government has introduced a set of rules, in perfectly good faith, to ensure the restoration of the 0.7% GDP level happens sooner rather than later. But, Wendy Chamberlain clearly doesn’t think you are. She thinks it’s all a cynical exercise. I’d add it’s a cover to stifle any opposition by those, who might be well meaning, but who don’t really understand how the economy works.

    We’ve seen it all before with the austerity program of the post GFC period. We had to have cuts to councils and the NHS etc because we couldn’t afford to carry on. The kitty was empty, our credit card was maxxed out, we had to cut our clothes according to our cloth, we couldn’t carry on spending like a drunken sailor etc etc.

    So what were the chances of the Tories ever saying, even before the Covid crisis gave them yet another excuse, that the crisis was over and we could get back to normal?

  • Peter Martin 15th Jul '21 - 11:16am

    @ Joe B,

    Just one more point:

    “A large part of foreign aid will employ staff and services overseas rather than domestically and is a current transfer in the balance of payments (similar to the effect capital transfers for imports) rather than utilisation of domestic output.”

    If , we pay someone overseas in ££ they have three choices. They can swap them for another currency. But, then the person or entity who ends up with the ££ has to decide what to do with them and this effectively reduces the number of choices to just two. They can spend them in the UK economy or they can save them. by buying Govt bonds or perhaps just stashing notes in a safe. If they save them they can be said to be increasing government debt but otherwise they are having no economic effect.

    If they spend them on whatever products we make, or services we supply, they are imposing a real cost on us. So any arguments that foreign aid is cost free are clearly incorrect. This, though, is entirely consistent with saying “what we produce in our factories, or in our laboratories, is the real contribution we make in foreign aid.”

  • Peter Martin,

    Aid includes bilateral aid, from donor to recipient, and multilateral aid, that’s channelled through a development agency like the UN.
    It is true, not all aid money gets spent overseas. The UK, includes money spent on refugees within their own borders during the first 12 months of their stay as official development assistance. Also, as Wendy Chamberlain writes, UK University research programs are recipients of aid.
    However, it is not so much what we produce in our factories, or in our laboratories, that is the real contribution we make in foreign aid. It is largely enabling UN and Charities or NGO’s in-country workers on the ground to provide aid services including food, water and medical services as well as infrastructure development and educational services.
    Sterling transfers overseas (including from migrant workers here) find their way into the foreign exchange markets and ultimately to either the acquisition of UK financial assets like stocks and bonds or real property and/or currency exchange rate adjustments. Aid for economic development (such as the Post-war Marshall aid) can be mutually beneficial in developing overseas markets for UK exporters.
    At a time of multi-sector labour shortages and bottlenecks in supply chains, as now, there will be little spare production capacity. That is likely to come when those bottlenecks have been resolved by ramping up of supply to meet growing demand. But spare capacity is needed on the ground where aid is delivered or food supplies are grown.
    Liberal Democrat economic policy includes a much greater focus on long-term investment, particularly with respect to the transition to green energy supply and the provision of public housing. This comparatively high proportion of capital spending requires higher levels of borrowing for investment and higher levels of taxation to increase the level of government spending in areas such the commitment to a real increase in local government funding throughout the Parliament.
    The so called Brexit dividend in the 2019 manifesto is no longer available Brexit: Eight in 10 businesses believe leaving EU will cause long-term hurt for UK economy. This too may have to be made up by additional borrowing for a time making it more difficult to sustain low debt services costs going forward.

  • Peter Martin 16th Jul '21 - 8:40am

    @ Joe,

    I’d just make three points re all this.

    1) I’m not sure why you’re making excuses, based on some spurious economic thinking, for this Government. The Tory right have never liked the idea of foreign aid. and have seized on the recent economic difficulties to do what they’ve always wanted to do. If you agree with them why not just say so?

    2) The P in GDP stands for Product. The concept of a percentage rate is that countries with the most production contribute the most. Our GDP has fallen by 10% or so due to the Pandemic. So 0.7% of 2020 GDP is less than 0.7% of 2019 GDP. This a natural reduction to reflect those difficulties. There is no economic justification to make a further reduction to 0.5% of GDP.

    3) If our aid contributions are paid in ££ then it doesn’t really matter, in a narrow economic sense, how they are spent. Except we would want them spent wisely. That’s more important than insisting that a substantial fraction is spent back in the UK. The only place those ££ can be spent is in the UK, the Isle of Man, Gibraltar etc. So they’ll always end up back here anyway. If you don’t believe me, try buying a cup of coffee with a £5 note in Berlin or New York!

  • There are two cuts to be reversed with respect to ODA.
    The first is related to the fall in Gross National Income which includes overseas income obtained from other countries (dividends, interests etc). The UK commitment is for a % of GNI not GDP. The fall in this part of ODA is corrected by restoring the economy to pre-pandemic levels.
    The second is a political decision. The 0.7% committment was in the manifesto of all parties in 2019 including the present government. It is doubtful, the cut it is a matter of the Tory right never liking the idea of foreign aid in the first place. I think it is more likely a belief within the Conservative party that there is popular public support for the cut among Brexit leaning constituencies. As i wrote earlier, that belief may be wrong.
    Aid contributions for overseas spend requires exchange of sterling for local currency or dollars. Selling sterling to buy other countries currencies always has some level of impact on the value of sterling. That is why, for example, some countries intentionally sell their domestic currency on FX markets to lower the exchange relative to the dollar or other traded currencies.

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