UK to reduce aid to 0.3% of gross national income from 2027

London: On 25 February 2025, the Prime Minister, Keir Starmer, announced that the UK would raise its defence spending to 2.6% of gross domestic product (GDP) in 2027 (including spending by the intelligence services) and set a target for defence spending to reach 3% of GDP in the next Parliament.

Both Conservative and Labour governments had previously committed to raise defence spending to 2.5%.

The Prime Minister said the government would “fully fund our increased investment in defence” by reducing aid spending from 0.5% of gross national income (GNI) to 0.3% in 2027.

The Institute for Fiscal Studies think tank estimates that further taxes or spending changes would be required to increase defence spending to 3% of GDP.

The move to 0.3% will represent a further drop in the value of UK aid. UK aid spending was previously reduced from 0.7% to 0.5% of GNI in 2021 in response to the effects of the covid-19 pandemic on the UK economy.

The Labour government had intended to return to 0.7% when fiscal circumstances allowed, though it does not expect this to happen during the current Parliament.

During the announcement, the Prime Minister said he remained committed to returning to 0.7%.

The International Development (Official Development Assistance Target) Act 2016 introduced the duty to spend 0.7% of GNI on aid. The UK spent 0.7% of GNI on aid every year from 2013 to 2020.

If the target is not met, the act requires the government to explain to Parliament why this is the case. This is the act’s only accountability mechanism.

UK aid spending in 2023, the most recent year for which figures are available, was £15.3 billion. This was 0.58% of GNI in that year; although the policy of the government at the time was to spend 0.5% of GNI, it actually spent more than this, largely because of spending on refugees and asylum seekers in the UK.

Based on the most recent forecasts for GNI, reducing the aid target to 0.3% of GNI would mean that the aid budget in 2027 would be around £9.2 billion. Keeping the aid target at 0.5% of GNI would mean that the aid budget in 2027 would be around £15.4 billion. Based on these estimates, the 0.3% target would provide about £6.1 billion less than the 0.5% target.

As the chart below shows, the last time that aid was at or below 0.3% of GNI was in 1999. It was last below £9.2 billion in cash terms in 2012.

The Prime Minister said that savings will be made from reduced spending on refugees in the UK and some efficiencies, but acknowledged the move “remains a cut”. He cited Sudan, Ukraine, Gaza, climate finance and global health as areas the UK would continue to support.

Anneliese Dodds, in her resignation letter as International Development Minister on 28 February, said that it will “be impossible to maintain these priorities given the depth of the cut”.

As the chart below shows, the savings from this cut will be enough (based on current forecasts) to fund the increase in defence spending to 2.5% of GDP. NATO estimates (based on its own definition of defence spending, which is not the same thing as funding to the Ministry of Defence) that the UK currently spends about 2.3% of its GDP on defence. Increasing defence spending to 2.5% of GDP in 2027 would cost a further £5.9 billion, less than the proposed aid cut of £6.1 billion.

oBar chart showing UK defence spending (under NATO’s definition) since 2014 and the additional spending required to reach 2.5% of GDP. Spending has been between 2.0% and 2.5% of GDP throughout this period. If it were held at its 2024 level (2.3% of GDP) over the next few years, raising it to 2.5% of GDP in 2027 would require a further £5.9 billion.

This would not, however, cover the extra 0.1% of GDP required for the proposed increase in spending on the intelligence services (which isn’t covered under the NATO definition), or the longer-term intention to spend 3% of GDP on defence.

According to data from the Organisation for Economic Cooperation and Development (OECD), in 2023 the UK gave the fourth highest level of aid in absolute terms, and the tenth highest as a percentage of GNI.

If the UK had given 0.3% of GNI in 2023, it would have been the 25th most generous donor as a percentage of GNI. However, because of its relatively large economy among major aid donors, it would have fallen only one place in absolute terms, dropping below France to fifth.

The Leader of the Opposition, Kemi Badenoch, welcomed the rise in defence spending and backed the decision to reduce the UK’s aid budget to finance it.

Liberal Democrat Leader Ed Davey supported the increased defence spending, but said “deeper cuts” to aid will “leave a vacuum for Russia and China to fill”.

International Development Committee Chair, Sarah Champion, said the cut was “deeply shortsighted” and “our finances should be spent on preventing [conflict], not the deadly consequences”.

The International Development Minister, Anneliese Dodds, announced her resignation after the decision. She said the cut will “likely lead to a UK pull out from numerous African, Caribbean and Western Balkan nations” and reduced commitments to multilateral bodies at a time when Russia and China are increasing their actions abroad.

Bond, an umbrella group for UK civil society groups, said the reduction “will have devastating consequences for millions of marginalised people worldwide”. Other aid charities have expressed criticism.

Global aid spending was at record levels in 2023, with aid representing 0.37% of total donor country GNI. Ukraine was the largest recipient.

However, France, Germany, Sweden and the United States are among those with plans to review or reduce spending from 2024/25.

Following the announcement of the Trump administration’s review of US aid spending, Foreign Secretary, David Lammy, told the Guardian that “in the absence of development [aid] … I would be very worried that China and others step into that gap”.

However, the Prime Minister has said the UK had to take a “necessary” decision.

Multiple international agencies and funds have current funding appeals, and reductions will mean increased competition for donor funding.

Pressures on aid spending are likely to place renewed emphasis on reforming the international financial system to help low-income countries raise their own finance and manage external debt. Aid spending pressures may also lead to calls for new private and government donors.