UK Aid and Infrastructure

This is a shorter piece today, but will likely form part of a longer piece on the UK’s energy-related foreign policy and how the FCDO and trade promotion budgets can better achieve diplomatic and aid goals abroad using energy and infrastructure spending, while also supporting British businesses.

The UK’s Department for International Development (DFID) was historically a world leader in innovative and effective international aid. In part, this was because of a significant funding commitment to aid (0.7% of Gross National Income (GNI) per year), but also by governmental design. DFID’s separation from the UK’s diplomatic arm of government, the Foreign and Commonwealth Office (FCO) allowed it to focus on making the most productive investments for development outcomes. Despite its global prowess, this department was absorbed into the FCO in 2020, creating the “Foreign, Commonwealth & Development Office” (FCDO), as Canada and Australia both did in 2013.

Ostensibly, this was so that the UK could “have even greater impact and influence on the world stage” by making sure its development and diplomatic efforts were more aligned. At least in an excel spreadsheet, it’s not clear from spending data that the UK has shifted their aid budget to serve this new goal, particularly in the infrastructure sector.

Firstly, the UK is spending less on aid, or “overseas development assistance” (ODA). Since the merger, the commitment to spend 0.7% of GNI on aid was relaxed, averaging 0.5% from 2021 to 2023, equivalent to £15.3 billion in 2023.

Even this figure is a generous representation of overseas development assistance. Since 2021, a significantly higher amount of other department’s budgets has been added to the UK’s ODA accounts, namely the cost of housing and processing asylum seekers in the UK. From 2017-2020, 3.2% of ODA was an allocation of domestic refugee support costs. This share tripled to 9.2% in 2021, and more than tripled again to 29% in 2022 and 28% in 2023. If the cost of accommodating refugees in the UK were stripped from the ODA accounting, the UK’s international aid contribution would lower to 0.4% of GNI from 2022-2023.

When aid is spent abroad, comparatively little is spent on hard infrastructure, even since the DFID/FCO strategic merger. Despite the importance of electricity, roads and internet connectivity for business operations, the UK’s ODA spending on infrastructure has remained consistently low. Over the same period (2017-2022, as detailed data for 2023 has not been published), around £430 million, or 3% of the aid budget, was spent on infrastructure per year, versus 9% on each of health and humanitarian relief. A further £140 million, or 1% of the total, was spent on supporting policies and adjacent sectors like industrial development and construction. The UK’s private sector development arm, British international Investment, spent £330 million on infrastructure in 2022, or around one quarter of its investment deployment, even less than the aid budget.

One reason to boost spending on infrastructure is to address climate change, by supporting the energy transition and resiliency to extreme weather events. Another is to strengthen the UK’s influence. Both the US and China have ramped up infrastructure investment in developing countries through China’s Belt and Road Initiative, a major infrastructure lending project, and the US’s push for infrastructure investment via its own aid and development organisations (USAID and Development Finance Corporation).

The UK also has an advantage in infrastructure policy and investments. It is one of the few markets globally to operate a significant carbon pricing scheme in its electricity system, and is a veteran of privatising and regulating infrastructure, with some of the most sophisticated electricity and utility markets regulation in the world. The UK is also a leader in offshore wind and battery deployments and is developing industrial decarbonisation options through hydrogen and carbon capture and storage investments. These strengths could be emphasised through the ODA budget, while also helping other countries to decarbonise faster and support the growth of local business.

In follow-up posts, I’m planning to look into more statistics on the UK’s foreign spending, for example its trade support budget; a deeper dive on ways it could support other countries’ infrastructure sectors; and how the UK can be differentiated from strategies of the US, China and the EU. If you have any questions you think would be interesting to look into, please do send them my way.