0.7% Official Development Assistance Target
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The Chief Secretary to the Treasury (Steve Barclay)
Let me begin by acknowledging the words and the good intentions of my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell). He knows as well as I do that decisions such as this are not easy. In short, this is a hugely difficult economic and fiscal situation that requires difficult actions.
Responding to twin health and economic emergencies, the Government have acted on a scale unmatched in recent history to protect people’s jobs and livelihoods and to support businesses and public services, paying out £352 billion in support since the start of the pandemic last year. That is equivalent to 17% of GDP and one of the largest fiscal support packages of any country in the world.
Our plan is working. The economy grew by 2.1% in March alone, and the Bank of England now expects the economy to return to its pre-crisis levels by the end of this year—two quarters earlier than previously expected. At the beginning of the crisis, unemployment was forecast to reach 12% or more. The latest projections show that it is due to peak at 5.5%, meaning that almost 2 million fewer people will lose their jobs than was expected last spring.
As the House will note, however, much of that response has relied on borrowing. Last year saw the highest peacetime levels of borrowing on record—£300 billion of borrowing—and we are forecast to borrow £234 billion more this year and a further £109 billion the following year, so without corrective action, borrowing would continue at untenable levels, leaving underlying debt rising indefinitely. At our higher level of debt, the public finances are more vulnerable to changes in inflation and interest rates. Indeed, a sustained increase in inflation and interest rates of just 1% would increase debt interest level spending by over £25 billion in 2025-26. The goal of any Government should be sustainable finances, and the current level of borrowing is not sustainable.
My right hon. Friend the Member for Sutton Coldfield used a number of emotive terms around the morality of the context of these changes, but leaving the next generation vulnerable to the degree of fiscal threat that would be entailed with a high debt level is not itself morally sound. At the same time, loading ourselves with more debt now might well damage our ability to spend on aid later. There are some in this House who say that since we are already borrowing to protect jobs and businesses, what is £4 billion more? Indeed, that was the nature of the intervention from my hon. Friend the Member for Winchester (Steve Brine). Crucially, the only reason we were able to act during the pandemic in the way that we did is that we came into the crisis with strong public finances, and we believe it is our duty as the economy recovers to return to a sustainable fiscal position.
Harriett Baldwin (West Worcestershire) (Con)
I thank the Chief Secretary to the Treasury for giving way and I appreciate his fiscal stance, but can he explain to the House why the only manifesto pledge he has chosen to break is the one that forces the World Food Programme in South Sudan to choose between feeding hungry children and feeding starving children?
Steve Barclay
The point is that we have made a number of difficult decisions, and I will come on to that, but we are also continuing to spend £10 billion in response to the commitments that we have made. I am sure that my hon. Friend, as a former Treasury Minister, is well aware of the fiscal reality we face.
Strong public finances mean making difficult decisions, such as increasing corporation tax. That is one of the difficult decisions that my right hon. Friend the Chancellor has made, alongside the decision around overseas aid. Indeed, this is something that the International Development (Official Development Assistance Target) Act 2015 explicitly anticipates when it refers to the effects of one or more of the following:
“(a) economic circumstances and, in particular, any substantial change in gross national income;
(b) fiscal circumstances and, in particular, the likely impact of meeting the target on taxation, public spending and public borrowing;
(c) circumstances arising outside the United Kingdom.”
In other words, the 2015 Act clearly envisages situations in which a departure from the target may be necessary. It provides for the Secretary of State’s accountability to Parliament by way of the requirement to lay a statement before Parliament and, if relevant, makes reference to economic and fiscal circumstances, as well as circumstances outside the United Kingdom. Indeed, the Foreign Secretary has already committed to doing that, as required by the Act.
Sarah Champion (Rotherham) (Lab)
That accounts for the cuts in July, but surely it was a political decision, and potentially an unlawful one, to cut to 0.5% in November.
Steve Barclay
The provisional data shows that for the 2020 ODA figures, the 0.7% was met. The point is that the Act allows for the economic and fiscal instance that I just set out—it is in section 2. If the UK were to spend 0.7% of gross national income as ODA, it would cost the country an additional £4.3 billion this year. Given our commitment to fiscal sustainability, we could offset that either by raising taxes or by cutting public spending. [Interruption.] We can come on to that. To put that in context, it means a 1p increase in the basic rate of income tax or about a 1% increase in the standard rate of VAT at a time when taxes are at a historical high.
Mr Mitchell
The Treasury really must do better than that, because 1p on income tax is worth nearly £6 billion, so the increase would be much less than 1p.
Steve Barclay
In the context, it is £5 billion to £6 billion. My right hon. Friend did not set out in his speech how he would address that gap. Which fiscal measures was he suggesting? Was he suggesting a specific tax, in which case I did not hear that in his remarks? Was he suggesting more borrowing, in which case one needs to look at the impact on our stock? Was he, in fact, suggesting spending? [Interruption.] From a sedentary position, the right hon. Member for Ashton-under-Lyne (Angela Rayner) mentions Test and Trace. Given that 80% of the Test and Trace budget relates to testing, if she is saying that she wants to get rid of PCR testing or lateral flow testing, she needs to set that out in detail. That speaks to the lack of detail provided; it is strikingly absent from the alternatives put forward.
The fundamental point before the House is that the scale of our overseas aid remains significant. In fact, we continue to lead the world in overseas development. This year we will spend more than £10 million to improve global health, fight poverty and tackle climate change, including £400 million on girls’ education in 25 countries, and we are doubling to £11.6 billion our commitment to international climate finance for the period 2021 to 2026, with at least £3 billion for climate change solutions that will protect and restore nature and biodiversity. According to the OECD, in 2020 we were one of only two G7 countries to actually meet the 0.7% target and the only country to do so each year since 2013. Even after the change we are debating today, we are still the third largest donor in the G7 as a percentage of gross national income, and 0.5% is considerably more than the 29 countries on the OECD’s Development Assistance Committee, which average just 0.41%.
Importantly, the Foreign Office makes its aid spending choices based on maximum impact, coherence and value for money. The Integrated Review has reaffirmed our pledge to fight against global poverty and to achieve the UN sustainability development goals by 2030. We are the fifth largest contributor to the UN peacekeeping budget, the third largest bilateral humanitarian donor, the second largest member state donor to the World Health Organisation, and among the world’s largest donors to the COVAX advance market commitment—the global initiative supporting developing countries with access to vaccines. The funding we will continue to make available to countries all over the world is helping to educate young girls, boosting diversity, tackling climate change, vaccinating the needy against deadly diseases such as Ebola and malaria, and improving the nutrition of staple food crops—millions of lives improved, millions of lives saved.
This is a generous and outward-looking country whose impulse has always been to help others around the world. We do not and we will not shy away from making a determined contribution to addressing the world’s problems. But at the tail end of a huge economic emergency, we also have a responsibility to the British people. We are absolutely clear about our intention to return to 0.7% of our national income on overseas aid when the fiscal situation allows, but cannot do so yet. We will, however, keep the matter under careful and regular review. I know that Members on both sides of the House will make their cases cogently and passionately, but for now, the tough choice is the right choice.