British Foreign Aid Cuts Threaten Profitable Development Sectors

Summary: British funding cuts to Official Development Aid (ODA) risks losing ground in the global business development ‘soft power’, likely to be of increasing interest to Chinese influences.

On February 2025, Prime Minister Kier Starmer announced to Parliament the intention to cut “foreign development assistance” (also known as Official Development Aid – ODA) from 0.5% of Gross National Income (GNI) to 0.3% in 2027 in order to finance increases in defence sector spending, despite a commitment from the Labour government to return to the pre-COVID levels of 0.7% when ‘fiscal circumstances allow’ (UK Parliament, 2025). This represents the lowest commitment level to ODA since 1999 (Brien and Loft, 2025).

At the time of this article, there is scant detail nor published plans regarding the methodology these cuts will take, such as whether the cuts will be targeted to specific policy areas or across the board as a whole, and therefore it is redundant to speculate as to any specific regression in humanitarian or development terms. However, in taking the ‘broad brush’ cuts as an example, and placing the inevitable humanitarian aspects aside, reductions to ODA funding threaten British ‘soft power’ and influence within global business spheres and emerging economies – cuts to a development fund that is already beset by “mission creep” and burgeoning pressures that won’t just ‘go away’ if you stop budgeting for it.

ODA as an Investment Vehicle

Typically, ODA can be seen as foreign humanitarian investment, ‘charity’ abroad, or an instrument of ‘soft power’ over the recipient state (Blair et al., 2021) and is viewed increasingly negatively as economic crises or downturns develop (Bryant et al., 2016). However, the British perception of spending on these aspects is greatly over-inflated compared to the actualities. Official ODA spending in year-end 2023, the last available dataset published by the Foreign, Commonwealth & Development Office ((FCDO), 2024), totalled £15.34 billion – an increase of £2.55 billion (+20%) on year-end 2022. This would place the UK 4th-highest of donors within the 33-strong OECD’s Development Assistance Committee (DAC), behind the US, Germany, and Japan (Taylor, 2025). Of this total figure, £4.27 billion (28%) was spent on support to refugees and asylum seekers within the UK itself, an increase from 2022 figures of £583 million while remaining a similar percentage of the budget, but has massively soared from £628 million in 2020 (ICAI, 2025). This funding encompasses so much of the budget that it displaces other development expenditure as a percentage to their lowest spending level in 15 years (Ibid., pg. 9). In addition to refugee support, other expenditure within the UK includes £813 million (11.1%) on ‘in-donor expenditure’, which is a catch-all for aspects like administration costs and awareness campaigns (FCDO, 2024). In all, this accounts for circa £5 billion, nearly a third, of the £15.34 billion ‘foreign development assistance’ that is spent inside the UK. 

ODA, when it is used overseas as intended, is largely profitable for the donor country. LSE’s Trade Policy Hub in 2024 published a report on the economic impacts of UK ODA between 2013-2019. ODA results in an average return of 7.3% on the ODA investment – varying by sector (2.8-13.1%), recipient country (5-11.9%), and source region (4-10.2%) (LSE, 2024). Similarly, increased ODA expenditure is associated with an increase in export volumes, where a 10% increase in ODA represents an 0.39% increase in exports. In terms of geographic aspects, the generalised rates of returns as a percentage in Africa over this time period were the highest, followed by Oceania and South & Central America. This aligns with the most profitable industries that are prevalent within those regions, such as “mining and quarrying” (alongside strong front-runners in distribution, hospitality, and construction). In absolute terms “energy & water”, “manufacturing”, and “banking and finance” lead the list of yield averages. The British International Investment (BII) institution, the UK’s foreign financing vehicle funded by investment revenues and ‘topped up’ by ODA funding for new investments, in 2023 made around £1.3 billion in investments to emerging economies in Africa and Asia – with £449 million (37%) of this classified as climate financing in the energy sector (BII, 2024).

Despite the returns, when these industries are tracked against ODA spending (incorporated into their subsectors of Production and Economic Infrastructure and Services sectors, respectively) in the years following the report shown in Table 1, we can see a pronounced trend in reduced funding both in absolute terms and in the percentage share of the overall bilateral ODA, indicating a reduced importance within policymaker’s thoughts. A reduction to the overall ODA budget can only spell worse tidings for investment into these profitable sectors yet further if not ring-fenced appropriately.

Table 1 – UK Bilateral ODA Sub-Sector Funding 2019-2023.

Chinese Prominence

China’s Belt and Road Initiative (BRI), formed in 2013, is one of the world’s largest foreign investment mechanisms and arguably the world’s largest global infrastructure project, designed to connect China and the wider Asian continent to European and African markets primarily (Kirchherr et al., 2022), but also due to China’s export-oriented and over-invested economy needing an outlet (Huang, 2016; Hameiri and Jones, 2023). To assist this, China does not participate within the OECD’s DAC statistical systems on ODA in the same way as the UK, refusing to be bound by similar restrictions, frameworks, and governance as the voluntary OECD membership dictates (ODI Global, 2024), and is accused of exploiting the Global South in a predatory and imperialist fashion (Harris, 2024).

Chinese statistics are difficult to gather, especially ones where a degree of confidence can be held, and the stated goals of the BRI have been malleable at best over its lifespan (Kirchherr et al., 2022; Kitano and Miyabayashi, 2024). What we can infer is unfortunately extrapolated from published white papers every few years and official data after 2019 is unavailable. However, aggregate research would suggest that while ODA-equivalent Chinese investment is somewhere around $5 billion (2020) that BRI investment in 2021 totalled $59.5 billion, with a pronounced interest in construction and infrastructure spending (65%) in energy or energy-adjacent projects (Nedopil Wang, 2022). Interestingly, BRI investment pivoted into an increasingly large proportion towards Africa and the Middle East at 38%, up from 8% in 2020, with construction investment up by 116% on spend.

China would have absolutely no issues with servicing any reductions from the UK’s expected vacuums in both financing and influence from 2027, especially if those retractions occur in highly-profitable sectors or its targeted geographic regions. Data would suggest UK contributions in regions of interest also coincide with enhanced Chinese investment already.

References

• BII. 2024. Annual Review 2023: Creating impact together. Available at: https://www.bii.co.uk/en/annual-review-2023-creating-impact-together. (Accessed: 24th March 2025).
• Blair, R. A., Marty, R., Roessler, P. (2021). ‘Foreign Aid and Soft Power: Great Power Competition in Africa in the Early Twenty-first Century’, British Journal of Political Science, Vol. 52(3), pp. 1355-1376.
• Brien, P., Loft, P. 2025. UK to reduce aid to 0.3% of gross national income from 2027. Available at: https://commonslibrary.parliament.uk/uk-to-reduce-aid-to-0-3-of-gross-national-income-from-2027/. (Accessed: 24 March 2025).
• Bryant, K. A., Heinrich, T., Kobayashi, Y. (2016). ‘Public Opinion and Foreign Aid Cuts in Economic Crises’, World Development, Vol. 77, pp. 66-79.
• FCDO. 2024. Statistics on International Development: Final UK ODA Spend 2023. Available at: https://assets.publishing.service.gov.uk/media/67055997080bdf716392f012/Statistics_on_International_Development_Final_UK_ODA_Spend_2023.pdf. (Accessed: 24th March 2025).
• Hameiri, S., Jones, L. (2023). ‘Why the West’s alternative to China’s international infrastructure financing is failing’, European Journal of International Relations, Vol. 30(3), pp. 697-724.
• Harris, J. (2024). ‘Is China an imperialist power?’, Race & Class, Vol. 66(2), pp. 63-87.
• Huang, Y. (2016). ‘Understanding China’s Belt & Road Initiative: Motivation, framework and assessment’, China Economic Review, Vol. 40, pp. 314-321.
• ICAI. 2025. How UK aid is spent. Available at: https://icai.independent.gov.uk/review/how-uk-aid-is-spent/. (Accessed: 24 March 2025).
• Kirchherr, J., Schulhof, V., van Vuuren, D. (2022). ‘The Belt and Road Initiative (BRI): What Will it Look Like in the Future?’, Technological Forecasting and Social Change, Vol. 175.
• Kitano, N., Miyabayashi, Y. (2024). ‘China’s foreign aid as a proxy of ODA: preliminary estimate 2001-2022’, Journal of Contemporary East Asia Studies, Vol. 12(1), pp. 264-293.
• LSE. 2024. The Economic Impact of Outward Direct Investment. Available at: https://cdn.prod.website-files.com/6729f14ccc3b7b1d62c45191/67810e6e62454d17170e3e73_the-economic-impact-of-outward-direct-investment.pdf. (Accessed: 24th March 2025).
• Nedopil Wang, C. (2022). China Belt and Road Initiative (BRI) Investment Report 2021. Available at: https://media.bhrrc.org/media/documents/Nedopil-2022_BRI-Investment-Report-2021.pdf. (Accessed: 24 March 2025).
• ODI Global. 2024. Levelling the playing field: OECD responses to China’s overseas finance. Available at: https://odi.org/en/insights/levelling-the-playing-field-oecd-responses-to-chinas-overseas-finance/. (Accessed: 24 March 2025).
• Taylor, L. 2025. Britain’s foreign aid: Where does the money go?. Available at: https://www.context.news/socioeconomic-inclusion/britains-foreign-aid-where-does-the-money-go. (Accessed: 24 March 2025).
• UK Parliament. 2025. Development Aid – Question for Treasury, UIN 25236. Available at: https://questions-statements.parliament.uk/written-questions/detail/2025-01-21/25236. (Accessed: 24 March 2025).