Now is the time to end Home Office ‘free ride’ on UK aid budget, IPPR report urges Treasury

The Treasury should impose a steadily tightening cap on how much the Home Office can take from the foreign aid budget to support asylum-seekers, to drive down spiralling costs and ensure maximum aid impact abroad, a report urges today. 

The report, published jointly by the IPPR think tank and the Center for Global Development (CGD), follows this week's government decision to cut the foreign aid budget further – a 40 per cent reduction – to pay for increased defence spending. 

It says the aid cut makes it urgent to rethink how the Home Office is funded for the first-year cost of supporting asylum-seekers. While the government has indicated it intends to reduce these costs, a limit on how much it can recover from the aid budget for each asylum-seeker would reinforce this intention, increasing incentives to drive down costs, the report says – or risk sacrificing other Home Office priorities. 

The report calculates that with the much smaller aid budget announced this week, spending at current rates on asylum and refugee costs could take up well over one third of UK aid in future. Spending this much aid at home would damage the UK's standing, reduce its impact and influence around the world, and also make the UK an unreliable partner, it says. 

The overall size of the foreign aid budget (known as ‘official development assistance', or ODA) peaked at 0.7 per cent of gross national income but was reduced to 0.5 per cent in 2020 and after this week's change will soon fall to 0.3 per cent.  

In recent years, large and unpredictable asylum costs have meant that the FCDO's budget – at least 80 per cent of which was foreign aid - has fluctuated dramatically and unpredictably, making it challenging for it to plan work and act as a reliable ally to partner governments. Proportionally much larger budget fluctuations within a smaller budget could become impossible to manage. 

The report finds that: 

• The UK spends on average two and a half times as much ODA on each asylum seeker as any other country within the G7 group of advanced economies – a total of £4.2bn in 2023
  
  
• Last year's annual ODA cost per asylum-seeker in the UK is estimated to have soared to five times the level spent in 2017 

• IPPR and CGD estimate that last week's defence spending decision will mean a cut to the total aid budget of around £6.1bn by 2027, to £9.2bn. Even if anticipated falls in asylum seeker arrivals reduced the costs by £1bn compared to 2023, Home Office ODA spending would still soak up more than one third of the aid budget. 

The previous government began using ODA to subsidise asylum and refugee costs in 2010 and spending on this has risen dramatically since.  

The report examines five options for improving the situation, including various combinations of floors and ceilings on the use of foreign aid for asylum and refugee costs.  

It recommends that the government uses the forthcoming spending review to introduce a limit on the per head asylum costs that can be counted as ODA, and then bring this down each following year. 

It says this would focus the Home Office clearly on making savings in areas under its control, and bring greater certainty to the UK's aid budget, while still sharing some of the budget risk with the FCDO if asylum numbers fluctuate unexpectedly. 

Laura Chappell, IPPR associate director for international policy, said: 

“The current policy means that the FCDO pays for basically any asylum support related costs (in year 1) that the Home Office can identify, giving them a free ride with reduced incentives to bear down on costs.  

“In the wake of yesterday's announcement on aid spending, this must change. The current approach now risks fatally undermining the UK's international objectives.  

“This lowest common denominator policy is already harming the UK's ability to build strategic relationships with the countries of the ‘Global South', and with a much reduced aid budget this objective risks being impossible to achieve. The government can do better, and this is the moment to do so. A cap on how much can be spent per head on asylum from the foreign aid budget would be a simple first step to delivering better value for everyone's money.” 

Ian Mitchell, co-director (Europe) and senior policy fellow at the Center for Global Development, said: 

"The last Government created a system where one department can drain another's budget—undermining basic principles of good public financial management. That has led to the UK spending 2.5 times as much as any other G7 country on each asylum-seeker it supports. 

“Even if the number of arrivals fall, bringing costs down by £1bn, over a third of the UK's aid budget will still be spent on British soil. Labelling this domestic spending as ‘international aid' makes the UK look deeply dishonest at a time when international credibility is critical. 

“Now that the Government has slashed aid, it must fix this broken system. A cap on how much the Home Office can take from the aid budget, per asylum-seeker would be a simple step toward better value for taxpayers and a more effective aid budget."