Estimates Day debate: Official Development Assistance and the British Council

The topics for the Estimates Day debate were proposed by the Chair of the International Development Committee, Sarah Champion MP (Official Development Assistance spending) and the Chair of the APPG on the British Council, John Baron MP (British Council).

The Estimates Day debate is expected to focus on the Government's reduction in aid spending in 2021, and funding to the British Council. Many of the Council's programmes have been affected by the pandemic, causing a reduction in income.

This paper provides an overview of UK Government spending on aid and funding to the British Council in 2021, together with relevant Parliamentary and press material.

Reducing the UK’s aid spending in 2021

In the November 2020 Spending Review, the Chancellor announced a reduction in UK ODA spending in 2021 from 0.7 percent to 0.5 percent of Gross National Income (GNI). The Spending Review allocated £10 billion for ODA in 2021/22.

The Government cited the economic impact of the pandemic on the UK economy and public finances to explain the spending reduction.

During a debate on the aid target in June, the Chief Secretary to the Treasury described particular Government concern for the growth in government borrowing in order to fund the UK’s response to the pandemic. He forecasted borrowing would total £643 billion between 2020 and 2023, which he said was “unsustainable” and made the UK vulnerable to any future rise in inflation or interest rates.

The Government has said the reduction is temporary and that it will return to the 0.7 percent target when the “fiscal situation permits.” The Government has not set out what these conditions are.

Is legislation required to amend the target?

Under the International Development (Official Development Assistance Target) Act 2015, the Government must ensure the target of spending 0.7 percent of GNI is met in every calendar year.

There has been disagreement on whether legislation is required to amend the target. The Government has argued that because the decision is temporary, there is no requirement for amending the legislation. However, Parliamentarians such as the former Secretary of State for International Development, Andrew Mitchell MP, and former Solicitor General, Lord Garnier, have argued the Government cannot decide in advance not to meet the target set out in the Act.

On 7 June 2021, the Speaker said that he expects the House to have a “decisive vote” on maintaining the 0.7 percent target, and for the Government to enable this.

Further analysis of the Act’s requirements is set out in the Library paper The 0.7 percent aid target.

British Council in the FCDO’s Main Estimate

The British Council receives a relatively small proportion of its funding from the UK Government. In government funding terms, the FCDO’s funding to the British Council, as detailed in its explanatory memorandum, is split between Resource DEL (grants) and Capital DEL (loan funding).

In 2021/22, the FCDO’s initial budget for grant funding to the British Council is £189 million. This is broadly consistent with funding provided in recent years.

However, unusually, in both 2020/21 and 2021/22 the British Council received loan funding from the FCDO. The 2021/22 Main Estimate explanatory memorandum states that the UK Government “has committed to provide the British Council with up to £145m loan funding to help support their short-term cash flow. Of this, £70m has been provided”. It is possible that further loan funding may be drawn down at the Supplementary Estimate later in the financial year.

In the previous financial year, the FCDO’s 2020/21 supplementary estimate memorandum states that the Department provided a loan of £130 million to the British Council.

These loans are to provide the British Council to meet their financial obligations through the pandemic and undertake necessary restructuring. The FCDO has also issued a letter of comfort stating that it will provide further loans as necessary to allow the British Council to settle obligations incurred up until March 2022.

It is not clear when or if the British Council could generate sufficient income to repay the funding being provided by the FCDO.