Overseas Development Aid: Budget
Baroness Ritchie of Downpatrick
To ask Her Majesty’s Government what steps they will take to ensure the Overseas Development Aid budget is retained at 0.7 per cent of Gross National Income in (1) this financial year, and (2) future financial years.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I thank the Minister, the noble Lord, Lord Collins, from the Labour Front Bench, the noble Lord, Lord Purvis, and other noble Lords who are here this evening for this very important debate. I, for one, having voted on the legislation in the other place back in 2014 and 2015, believe that the international development or overseas aid budget should be retained at 0.7% of GNI. I do note that today, the Chancellor committed to UK aid getting back to 0.7% of national income in 2024. However, I believe that that is simply kicking the can down the road, because there is absolutely no commitment with that given undertaking, and it is what matters now. What is the UK going to do today for the people and communities who have been worst affected by the Covid pandemic and climate change?
On the impact of the cuts on people and the planet, the FCDO’s annual report highlights the costs of dropping the commitment to 0.7% of GNI. Between the 2020-21 financial year and 2021-22, aid to Africa fell by 51%, and funding to the Middle East was cut by 74%, including 80%-plus cuts to Lebanon, Syria and Yemen. There were also cuts to Asia. The lowest-income countries were hit hardest, experiencing £1 billion in cuts, compared with £209 million in cuts to middle and upper-middle-income countries. The scale of the cuts was so deep that even funding for strategic priorities such as education, humanitarian responses and the FCDO’s climate funding were not immune.
We have to consider the impact of the cuts on the UK’s reputation. Aid is widely acknowledged as a central facet of how a country is perceived, and its influence around the world. Our international partners and allies are rightly concerned about this Government’s continued commitment to international development, but also to internationalism more generally. That point was made by the previous Minister, the noble Baroness, Lady Sugg, when there was a Department for International Development. It is worth noting that ICAI’s latest review of the UK’s pandemic response illustrates the damage done by the cuts to the UK’s response and therefore to the international response.
I remind your Lordships’ House that the 0.7% commitment is enshrined in law. I can well recall, when I was a Member in the other place back in 2014-15, that we implemented that Act. It came to this House, and the noble Lord, Lord Purvis, brought forward that piece of legislation in this House at that time. That Act placed a statutory legal duty to ensure that the United Kingdom hit the target of spending 0.7% of gross national income on official development assistance every year. If the 0.7% target were missed in any year, the Foreign Secretary was required retrospectively to explain why in a Statement to Parliament.
Until Parliament changes that law on the statutory duty to meet the 0.7% target, the Government must aim to hit it. They cannot deliberately aim to spend 0.5% and miss the target. The announcement in today’s Budget definitely does not explain it at all: it simply kicks the can down the road. The Government think that, by doing that, they will get off the hook. I am absolutely sure that those countries that rely on aid from the UK Government will not be letting them off the hook, and those many charitable organisations and aid agencies that do enormous work on our behalf in all the developing countries will not be letting us forget it. In fact, they have recently written to the Chancellor and the new Foreign Secretary to ask that the following are in addition to the 0.5% ODA budget.
The list includes rechannelled special drawing rights, excess vaccine donations and Sudan relief aid, because earlier this year, the International Monetary Fund agreed to a special issue of $650 billion in special drawing rights to help lower and middle-income countries respond to the coronavirus pandemic. The UK’s allocation of this is more than that of all low-income countries combined. Many rich countries, including the UK, are working out how to rechannel their SDR allocation to LMICs where they can do the most good. This is done at no cost to the donor, who simply lends their reserves. When the 0.5% budget was first announced one year ago, it was not known that the UK would receive this additional finance. Channelling SDRs carries minimal costs to the UK and supports the objective of promoting global economic recovery. Therefore, I believe it is critical that SDRs be channelled to support the poorest countries, and that that is additional to the 0.5% ODA budget. I would like the Minister to address that particular issue this evening.
It is welcome to see that the UK has committed to donate 100 million vaccine doses to the rest of the world, and that the Government promised that they would be additional to the financial year 2021-22 £10 billion aid budget. This recognises that vaccinating the world supports the UK’s ability to build back better from the pandemic and be protected from future variants. However, it is worth remembering that the UK and other wealthy countries have contributed to the global vaccine shortage by overordering and hoarding supplies. The UK has blocked a proposed TRIPS waiver at the World Trade Organization that would increase global vaccine production and address vaccine inequality faster. It is therefore critical that these vaccine doses are shared as quickly as possible to maximise their impact, and that any donated Covid-19 vaccine doses are additional to the 0.5% ODA budget in 2021-22 and in all future financial years.
Thirdly, Sudan has reached decision point under the Heavily Indebted Poor Countries initiative and received significant debt cancellation. While debt relief can be counted as ODA, it does not represent meaningful net benefit to Sudan and does not impose additional costs or effort on the UK. So it should have been written off years ago; its forgiveness comes at no real cost to the UK, so it is critical that debt relief for Sudan and other eligible countries be additional to the 0.5% ODA budget.
Finally, in the week before COP 26, it is important that the UK delivers on its wider international responsibilities by providing greater financial support to poorer countries already on the front line of climate breakdown. I urge the Minister to address these various aspects, whether climate change mitigation, debt relief for Sudan, excess vaccine donations or rechannelled special drawing rights. In this regard, I pay tribute to my noble friend Lord Collins on the Front Bench, who has led on this issue for the Opposition for several years. He has done a magnificent job in highlighting the plight of those who live in developing countries and pinpointing the need for the Government to do more and reinstate that budget to 0.7% of GNI.
The Lord Bishop of Bristol
My Lords, I am grateful to the noble Baroness, Lady Ritchie of Downpatrick, for initiating this short debate. Cuts to overseas aid continue to be of great concern to the Churches, which set the target of 0.7% at a meeting of the World Council of Churches in 1958. The target was then taken up by the United Nations in 1970.
The Government have now walked away from their own manifesto commitment to the 0.7% target and there are considerable concerns, as we have heard, that it may never be regained, despite the Chancellor’s announcement in today’s Budget. Meanwhile, as we have also heard, there are increasing needs for aid, not least because of Covid and climate change. As the most reverend Primate the Archbishop of Canterbury said in response to recent cuts:
“Reducing our overseas aid commitment at this critical time is morally wrong, politically foolish and an act of national self-harm.”
In my own diocese, there is considerable concern about the implication of cuts for our partner dioceses in Uganda, where Covid and climate change are threatening lives, livelihoods and lands. In recent months, the diocese raised £40,000, much of which came from the poorest communities in the diocese, knowing that, because of Covid, our friends were without food and aid-funded projects were at risk. It was a tiny commitment compared to lost aid funding, but it was received as a sign of hope.
I want to focus my remarks today, in the run-up to COP 26, on a recent initiative by the IMF to enable member countries to have finance available in a crisis. As the noble Baroness said, special drawing rights enable nations to boost global efforts in vaccinating their populations, tackling climate change and supporting global recovery by creating additional reserve assets. The vast majority of the rights issued, worth about $400 billion, has gone to richer countries. Poorer countries have gained just $21 billion.
The UK and other G7 countries have said they are exploring how they could use their SDRs to further support health needs, including vaccinations, and to enable greener and more robust recoveries in the most affected countries. However, at present, no G7 country has begun to redistribute its SDRs. It is likely that the US, France and the UK will lend some of their SDRs to the IMF’s Poverty Reduction and Growth Trust to support low or zero-interest loans and/or to the future IMF resilience and sustainability trust.
Some 250 civil society organisations from around the world have called for such SDRs to follow the principles of zero or close to zero interest rates, to avoid additional indebtedness; limited economic conditionality—for example, limiting austerity measures; and transparency. The need is great, particularly for COVAX, as we have heard, with its £12 billion estimated shortfall in funding for vaccinations, and for the Green Climate Fund, crucial to COP 26 implementation.
I have concerns about both the apparent lack of progress in the use of SDRs to boost vaccines and climate finance and it appearing that the Government are seeking to count any use of SDRs to reduce even further the aid budget—already shamefully reduced. As a professed global leader in overseas aid, the UK Government have this opportunity to use the £20 billion in special drawing rights that they have just received from the IMF, which really are windfall funds, to offer additional aid for the world’s poorest communities and regain at least some of the moral ground they have lost.
Lord Londesborough (CB)
My Lords, I thank the noble Baroness, Lady Ritchie of Downpatrick, for bringing this important debate to the House. This is the first time I have risen to speak since I made my maiden-cum-valedictory speech back in 1999, just days ahead of the Lords reforms that saw all but 90 hereditary Peers excluded.
I am told that this interlude may be some sort of record, so I must thank noble Lords across the House who voted for me in the whole House by-election in June, thereby limiting my enforced silence to just 22 years. So, while this is not my maiden speech, I would like to briefly thank all noble Lords, and indeed all the staff in this House, for welcoming me back so warmly.
My perspective on overseas aid has been shaped by founding and running for 30 years an information company that reported on the economies of the developing world, where the vast majority of our aid is destined. I strongly urge the Government to restore the 0.7% of GNI contribution at the earliest opportunity and to abandon the onerous fiscal conditions, notably that underlying government debt as a percentage of GDP is falling. This may result in overseas aid being cut by more than 30% in real terms for the next four or even five years. I note that the OBR forecasts that net debt may not fall in the UK until fiscal 2026 and some regard even that as optimistic.
We are contemplating a potential £20 billion total reduction in overseas aid over five years at a time when need is greatest, as the poorest nations struggle to face off the pandemic without the defences—notably vaccines—that we all benefit from here. This strikes me as grossly disproportionate when set against the Bank of England’s view that the long-term scarring of the UK economy may be no more than 1% of GDP. This leads me to ask the Minister: what level of real-world impact assessment has been undertaken to measure the consequences of these cuts? Beyond the financial numbers and percentages, I refer specifically to the number of livelihoods that will be impacted if the UK cuts aid by £4 billion to £5 billion each year. I appreciate the challenge in producing such estimates, but these numbers matter.
According to the recent Bond report, Britain’s aid efforts reach well over 100 million people across the world, through humanitarian aid, immunisation, nutrition, education, clean water and basic sanitation. It follows, therefore, that for every year we apply such cuts, we may damage the livelihoods of tens of millions of men, women and children. As the noble Baroness said, we should also consider the damage to the UK’s reputation, our “generous donor” status and, indeed, the Government’s much vaunted, post-Brexit ambition to become “global Britain”. I conclude by calling on the Government to swiftly restore the 0.7% mechanism and, above all, scrap the contentious fiscal conditions that threaten to so drastically depress our contribution for years to come.
Baroness Hodgson of Abinger (Con)
My Lords, I congratulate the noble Baroness, Lady Ritchie, on securing this important debate. I am delighted to follow the noble Lord, Lord Londesborough, and congratulate him on his return to the House. As usual, I draw attention to my entry in the register of interests.
The issues around the decrease in overseas development aid from 0.7% to 0.5% have already been eloquently raised. While there was always going to be a natural decrease in ODA, as the economy shrinks due to the pandemic, the decision to cut to 0.5% at a time of global emergency is a double blow to the poorest in the world. At this time of worldwide humanitarian stress from the pandemic, development aid needs to reach the grass roots, which is usually much more effectively delivered by smaller organisations, rather than through large multilateral programmes. So can my noble friend please tell us what assessments Her Majesty’s Government have made in this regard and reassure me that the cuts have been made to the larger programmes, where others contribute, rather than to the small independent organisations?
Time and time again, it has been demonstrated that if we get it right for women and girls, we get it right for all. Tragically, women are disproportionately affected by this pandemic. Plan International and other NGOs have highlighted that analysis estimates that women and girls will suffer disproportionately from reductions in funding to critical sectors, resulting in a cut to programming for an estimated 20 million women and girls.
I have long welcomed the Prime Minister’s personal support for girls’ education. Education programmes are vital because investing in girls has profound effects on their future well-being, delaying marriage, improving health and increasing women’s participation in society. However, it is hard to square how this commitment is being met when the overall budget for girls’ education is estimated to have been cut by at least 40%, with 700,000 fewer girls being supported between 2019 and 2022 compared to 2015 to 2018. It should be recognised that education cannot succeed without development input on women’s health, contraception, security, access to justice and women’s empowerment. Does the Minister agree that gender must remain central to our international development policy?
War zones create poverty. The UK has led the world with its work around women, peace and security and the Preventing Sexual Violence in Conflict Initiative. They were always going to be a marathon, not a sprint, and I hope that the Minister can reassure me that these areas will remain front and centre of security and conflict work and that resources for them will not be cut.
The situation in Afghanistan is catastrophic. The humanitarian crisis there is now spiralling out of control. While I welcome the announcement of extra funding, how will we get that to people starving on the ground and not into the pockets of the Taliban? If we give it to be delivered through the UN, can the Minister reassure me that it will not take a huge percentage for doing so? I very much hope that the UK, holding the pen for women, peace and security at the UN Security Council, will ensure that the Taliban will never get a seat at the UN without changing its stance on women because there can be no peace and security there with half the population denied their rights. Please can we ensure that in future there is always at least one woman present at any UK talks with the Taliban?
To conclude, this is the worst time to cut the percentage of aid, when the aid budget has already shrunk and when developing and conflict countries are feeling the strain of the pandemic. The pandemic has also rolled back women’s and girls’ rights. Surely, by supporting gender-focused programmes, instead of cutting them, we will enable women to help to contribute to their economies. So I hope that Her Majesty’s Government will restore overseas development aid budgets to 0.7% as soon as possible.
Baroness D’Souza (CB)
My Lords, I, too, thank the noble Baroness, Lady Ritchie, for introducing this important topic. The drop in the money available for ODA, together with the IMF special drawing rights windfall, raises questions again about a strategic approach to development programmes, as the right reverend Prelate the Bishop of Bristol has already pointed out. This is a useful moment to ask ourselves what are the most likely trends that will cause severe hardship to local communities and ourselves in the near future?
There are at least two major trends: first, the impact of climate change and its relation to food availability and, second, the massive outpouring of people from drought or flood-stricken regions to more temperate developed nations, including the UK. The emigration is already apparent, but it is likely to become unmanageable within the next few years. Surely this calls for a combined effort to use the moneys available to shore up programmes to deal with these two related crises. The temptation—already a rumour, as has been pointed out—is to use some of the 20 billion of these SDRs as additional ODA, thereby silencing, or hopefully silencing, critics of the reduction to 0.5% of GNI and juggling the continuation of many existing programmes.
However, there is much more at stake. The world is facing almost unimaginable catastrophes. I cite just one, which was mentioned by the noble Baroness, Lady Hodgson. How is the international community going to feed most of Afghanistan this winter, which begins next month—less than a week away? How is Europe going to cope humanely with the potential onslaught of environmental refugees? Are our current ODA theories and practice fit for purpose, or do we need radically to rethink what kind of assistance, for what, to whom and how will help to alleviate the disasters that we inevitably face?
If we accept that climate change and population movements are the key life-threatening events that we face, what kind of plans do we have to work with other donor nations in the leverage of significant sums of money for synergistic effect in order to make a real difference: massive, well thought-through and coherent programmes of strategic impact to limit the effects of climate change and limit the movement of people? Instead, we are still tinkering with funding fossil-fuel developments, such as the Mozambique liquid natural gas project, funded by the UK Government to the tune of £1.15 billion. Incidentally, this will increase Mozambique’s emissions by some 10%. Why are we not withdrawing from expensive projects such as these in favour of renewable energy sources? We urgently need much smarter ODA.
The time-honoured traditions of development and humanitarian aid, carried out bilaterally, multilaterally and by thousands of NGOs and INGOs, have to be rethought in a spirit of international co-operation to save our planet and millions of lives. There is no longer a choice, and I challenge the Government to set a pathway and take courageous decisions on how best to use SDRs for the international good.
Lord Balfe (Con)
My Lords, I join in thanking the noble Baroness, Lady Ritchie, for initiating this debate. The fact of the matter is that over the past half-century the state of the world has become successively better. More people are living longer and in better circumstances today than they were 50 years ago. Remembering that is a good starting point because, sometimes, if you listen to people, you imagine that things are going in the opposite direction.
Mention has been made of impact assessment, which I would like to see because in my travels around the world looking at aid projects, I have often come across them and walked away wondering, “Are they doing any good at all, other than to the people in the Land Rovers who are driving people like me to see what they are doing?” We need an impact assessment on quite a lot of the work that is being done.
We also need to rethink the word “aid”. It has become a rather grubby word, because people associate it with charity. Our overseas efforts should be to promote a better world and a better standard of society in it.
It is no achievement if we just move people from living in abject poverty to living in poverty. We have to help build up the countries. I remember talking to David Cameron about this and he said, “The big argument for the aid budget is to make the world worth living in so that all of its citizens don’t want to come and live in the West. We need to make their countries and their societies worth living in.” I totally support that.
We therefore need to look at our aid budget and consider whether an approach not the same as but not dissimilar to the Chinese belt and road initiative would not be a sensible way forward; in other words, we want to use the money that we disburse abroad in such a way that we build up the infrastructure of countries. Too much money disappears. We need to be in a situation where, like the Chinese, we say, “We will provide this”, and we provide it; we do not hand over large dollops of money which often disappear—or some of them disappear. Many years ago, I was the rapporteur in the European Parliament on aid to Bangladesh, which had been a particular difficulty for us. I remember being in an interview with the Minister in Bangladesh who was responsible for the aid budget. When I put it to him that money disappeared, he said to me, “But commission is paid on everything, isn’t it?” I said, “Well, that’s not exactly the idea. You don’t just skim off the money.” He said, “Well, this is the way we do it here.”
I say to the Minister in closing that we need to look at the structure of the aid budget, we need to help with money and expertise, but now is also a very good time to rethink the strategy of what we are spending the money on and how we could spend it to the betterment of both its recipients and the British taxpayer.
Lord Purvis of Tweed (LD)
My Lords, I too commend the noble Baroness, Lady Ritchie, for bringing this debate to us and introducing it so powerfully. She gave a perfect testament to the consensus that existed in Parliament during the passage of that Bill, a consensus which unfortunately has been dashed. This is not the only debate in which the only Member who speaks in favour of the unlawful ODA cut will be the Minister, so a degree of consensus remains, and we will still campaign for its restoration.
Bringing the target down to 0.5%, which has no basis in law, will see a further £15 billion of cuts before its potential or possible restoration in 2025. Can the Minister confirm whether what the Chancellor said today or whether the Written Ministerial Statement from the previous Minister is the basis on which 0.7% will be restored? That Statement said that the OBR forecast in the immediate previous year would be the trigger for restoration in the following year. The impression that we got from the Chancellor today is that he is using the long-term forecast. So which is it?
If it is the long-term forecast, are we able to start planning now for what could well be an extra £5 billion in one year towards the end of this Parliament? There is no reference, of course, to the weasel word in the Written Ministerial Statement—“sustainable”—because that means that there is a get-out clause for the Government when it comes to this.
The cuts of partnership and assistance from one of the richest countries in the world to the poorest is a scarring and shaming stain on this Government. As the noble Baroness, Lady Hodgson, said, the disproportionate impact on women and girls is perhaps the most scarring. The figure of 20 million women and girls affected by this struck me. Nine million of those are girls who will not have access to clean water and sanitation. In 2018, the UNICEF and World Health Organization report said that 620 million children lacked adequate or any toilet facilities at all. I think any parent who sends their children to school will see the relevance of the impact of this when they imagine the UK cutting 9 million opportunities for children to have proper sanitation in their school life.
In the debate we had on 24 June, the noble Baroness, Lady Sugg, I and others called for a public impact assessment on this. The Deputy Leader, the noble Earl, Lord Howe, said of the gender impact assessment:
“The Foreign Secretary is considering carefully whether to put the central overarching assessment into the public domain.”—[Official Report, 24/6/21; col. GC 156.]
That was a long time ago, so can the Minister clarify whether that assessment is being made public for us to see?
We have also debated the impact of Covid on the developing world. In that debate, a number of noble Lords asked the Minister—the noble Lord, Lord Parkinson of Whitley Bay—about the Government’s intentions on the draw-down rights they have from COVAX. The UK Government have draw-down rights of 27 million doses which would then not be available for developing countries. I asked whether the Government intended to use this draw-down, which would be shameful in the current situation when so many developing countries are struggling to vaccinate their populations. The noble Lord, Lord Parkinson, said to me in the debate in September that
“I will certainly take his questions and those from other noble Lords back to the Vaccine Taskforce and will ensure that all noble Lords who have taken part in the debate get the answer to that.”—[Official Report, 9/9/21; cols. 1049-50.]
We have not had the answer to that, so will the Minister provide the answer or, if not today, ensure that we do get a response? It is not just the case that we ask questions in these debates, which is their purpose; it is that we should get answers and, at the very least, receive the courtesy of ensuring that we get the relevant answers when those questions relate to the most deprived and poorest people in the world.
Lord Collins of Highbury (Lab)
My Lords, I too thank my noble friend for initiating this very timely debate, certainly as the Chancellor has spoken today. I also reflect on the consensus that the noble Lord, Lord Purvis, referred to, because there has been consensus across this Chamber on this issue. I would also like to praise David Cameron because he set the framework for our development support—the SDGs and the 2030 agenda—which this Prime Minister has completely ignored. We should reflect on that.
Days before COP 26 and when aid is needed most to recover from the pandemic, the announcements today reveal that the world’s poorest and most vulnerable face at least three years of vast and deadly cuts to life-saving aid. As the right reverend Prelate said, today is also confirmation that the Government are knowingly and willingly continuing to break a Conservative manifesto promise and continue to ignore the UK’s legal aid spending obligation of 0.7% of GNI. As noble Lords have pointed out, maintaining 0.7% would have resulted in substantial cuts, but to impose 0.5% without any plan, impact assessment or clear objectives is reckless.
As my noble friend Lady Ritchie highlighted, even funding for the strategic priorities was not immune: education was cut by 58%, humanitarian responses by 49% and the FCDO’s climate funding by 35%.
In March, Rishi Sunak praised the new IMF special drawing rights allocation for giving additional financing to low-income countries to help their pandemic response and recovery. Many rich countries, including the UK, have been working out how to rechannel their SDR allocations to low to middle-income countries, where they can do the most good. As my noble friend Lady Ritchie said, this can be done at no cost to the donor, who simply lends their reserves. However, the Treasury has confirmed that it will score some of this to the ODA budget. We are the only major donor to do so. Such a move will not leave low-income countries better off, as it will be matched by cuts to other parts of the aid budget. The only impact of UK commitments to recycle SDRs will be to reduce spending on other priority areas, such as health, education, water and nutrition—areas that have already been heavily cut as a result of the shift from 0.7% to 0.5%. I ask the Minister what assessment has been made of the impact of such further cuts.
On climate change, we heard today that the Government have committed £6.6 billion for the next three financial years. Given that this comes out of the ODA and makes up about a sixth of the budget for each year, what other priorities will suffer? Whatever priorities Liz Truss espouses, she will be held back if she must cut her department’s activity every time a Treasury accounting exercise reduces the real ODA budget. It is in this context that we have to see today’s announcement that the ODA fiscal tests are forecast to be met in 2024-25, which will see potentially a return to 0.7%.
Today, what we have heard from the Chancellor is that he gives with one hand and takes with the other.
Viscount Younger of Leckie (Con)
My Lords, I thank, first of all, the noble Baroness, Lady Ritchie, for introducing this important debate. We have heard many passionate and eloquently made arguments today on this subject, and I will do my best to address the many questions raised. However, we are united, I believe, on one fundamental point: the belief that the UK should dedicate 0.7% of our GNI to official development assistance. As the Prime Minister himself said in July:
“This is not an argument about principle. The only question is when we return to 0.7%.”—[Official Report, Commons, 13/7/21; col 173.]
I start by welcoming back the noble Lord, Lord Londesborough. As the House will know, he replaces the redoubtable noble Countess, Lady Mar, who has retired. How extraordinary it is that it has been 22 years since the noble Lord addressed this House last; even more so perhaps that, as he mentioned to me before this debate, he spent a mere 10 days here in this House before the exit of so many hereditary Peers in 1999—well before my time. I applaud his remarks in his—how shall I put it?—non-maiden speech, and we look forward to hearing from him a lot in the future, I am sure. I will address the question he has raised later in the debate.
Temporarily reducing the aid budget was not an easy path to take. But, as a Government, we do not have the luxury of avoiding difficult choices. In fact, the reverse is true; we face them head-on. Given the hugely difficult economic and fiscal situation, this was a decision that we were quite right to take. Coronavirus is an unprecedented crisis, and in turn it has required an unprecedented response. That is why decisions taken by this Government have provided around £400 billion of direct support to the economy this year and last year—considered one of the largest and most comprehensive packages globally. I am sure the House will acknowledge that.
Our strong recovery, combined with necessary tax rises, has strengthened our public finances. However, let me remind your Lordships that our national debt this year is set to pass £2.3 trillion or, to put it another way, 98.2% of gross domestic product—the highest level as a percentage of GDP since the early 1960s. Indeed, a sustained increase in interest rates and inflation of one percentage point would cost £22.8 billion by 2026-27.
High debt leaves us vulnerable to shocks and we need to rebuild a cushion, if you will, to safeguard the economy against future challenges. In just over a decade, the UK has faced two major economic shocks: the 2008 financial crisis and the 2020-21 pandemic. Developing fiscal buffers ensures that Governments will be able effectively to support the economy in future crises, and provides space to allow the Government to address long-term challenges.
It is fiscally responsible for us to bring debt under control and rebuild so-called fiscal space. We have already made the tough decisions needed to get debt under control through a small number of focused and progressive tax rises. As I mentioned earlier, this has meant some difficult but necessary decisions, including temporarily reducing ODA spending from 0.7% to 0.5% of GNI.
Let me address a question asked by the noble Baroness, Lady Ritchie, about our legal commitments—an area also touched on by the noble Lord, Lord Purvis. I reiterate that we are acting in line with the International Development (Official Development Assistance Target) Act 2015, which explicitly envisages that there may be circumstances where the 0.7% target is not met. The decisions we are taking and our approach to the spending review and annual reviews, based on clear fiscal tests, are all in line with that Act.
Section 2 of the 2015 Act envisages circumstances in which the 0.7% target is not met due to
“economic circumstances and, in particular, any substantial change in gross national income”
and
“fiscal circumstances and, in particular, the likely impact of meeting the target on taxation, public spending and public borrowing”.
The Act provides for accountability to Parliament in the form of a Statement in the event that the Government do not meet the 0.7% target.
I turn to the specific circumstances for the return to 0.7%; I would like to be more positive. We have always been clear in our commitment to international development, and that the UK would return, as I said earlier, to spending 0.7% of GNI when the fiscal circumstances allowed. As your Lordships will recall, earlier this year we said that this would happen when the independent Office for Budget Responsibility confirmed that, on a sustainable basis, we are not borrowing for day-to-day spending and underlying debt is falling. I remind noble Lords that the House of Commons voted in support of these fiscal tests for returning to 0.7%.
I hope to provide some reassurance to the noble Baroness, Lady Ritchie, and the noble Lord, Lord Purvis, on the return to 0.7%. Given the Government’s careful stewardship of the public finances and the strength of the recovery, as the Chancellor outlined today, the ODA fiscal tests are now forecast to be met in 2024-25, which is earlier than the OBR forecast in March. As such, the 2021 spending review provisionally sets aside additional unallocated ODA funding for 2024-25, on top of departmental ODA settlements, to the value of the difference between 0.5% and 0.7% of GNI. This delivers on the Government’s commitment, made to Parliament, to return to spending 0.7% of GNI on ODA when it can be on a sustainable basis.
Of course, the Government will continue to monitor future forecasts closely and, each year over this period, will review and confirm, in accordance with the 2015 Act, whether a return to spending 0.7% of GNI is possible against the latest fiscal forecast. Should future forecasts deteriorate, however, decisions on the provisional ODA funding for 2024-25 will be made through the annual review of the ODA budget.
Lord Purvis of Tweed (LD)
I am grateful to the Minister for giving way. No matter how many times Ministers assert, from the Dispatch Box, that they are acting in accordance with the legislation that I took through this House, it does not mean it is the case. Can the Minister refer to the other element of the Act which says that if, in the preceding year, the target had not been met, the statement has to indicate what measures will be taken to meet the target in the following year? That is still the law. That the Chancellor is now putting unallocated funds four years down the line is an absolute breach of the legislation.
Viscount Younger of Leckie (Con)
The noble Lord interprets it as he does, but I have been clear that we are acting within the law. I will write to the noble Lord with chapter and verse on why we are stating the position that we are.
As time is short, I will move on to the implications of the temporary reduction, because this was raised in particular by the noble Baroness, Lady Ritchie. I stress that we remain an open nation that is globally engaged. As the Chancellor outlined earlier today, departments have been provided with an ODA budget that rises to £12.3 billion in 2024-25, which is a 23% increase compared to the £10 billion allocated at the spending review last year.
I will address the point raised by the noble Lords, Lord Londesborough and Lord Collins, and my noble friend Lord Balfe about impact assessments. Officials considered any impacts on women and girls, the most marginalised and vulnerable, people with disabilities and people from other protected groups when developing advice to Ministers. We carried out an equalities impact assessment, which looked at our bilateral country spending. This central assessment showed no evidence that programmes targeting those with protected characteristics are more likely to be reduced or discontinued. I reassure the House that, as we move through this spending cycle, we will review the impact of projects and our spend to inform future spending decisions and policymakers.
The noble Baroness, Lady Ritchie, asked about the world’s poorest, and the right reverend Prelate the Bishop of Bristol indicated that we might be turning our backs on the poorest. We have a difficult balance to make, but I do not believe that that is what we are doing, because, by spending 0.5% of GNI, we will be spending over £10 billion this year, making us one of the largest ODA donors in the world and the second highest in the G7. We are committed to leading the global fight against poverty.
The noble Baroness, Lady Ritchie, and the right reverend Prelate also talked about vaccines, on which I have some brief comments. The spending review provides continued support for Covid and global health, in line with the UK’s ground-breaking role, providing equitable access to Covid-19 vaccines, therapeutics and diagnostics. It funds the donation of the remaining 70 million doses of Covid-19 vaccines to meet the Prime Minister’s commitment to donate 100 million doses by June 2022. These vaccines are being rolled out to countries beyond our borders on a non-profit basis.
I will answer the brief point raised by the noble Baroness, Lady Ritchie, about Sudan. The departmental ODA budget is already increasing significantly, from the £10 billion that was allocated to over £12 billion in 2024-25, but I acknowledge the point that she made about Sudan.
To answer the noble Baroness, Lady Hodgson, we are increasing funding for women and girls to help achieve the global target to get 40 million girls into school and have 20 million more girls reading by the age of 10. I will write to the noble Baroness, as there is more that I can say about this.
Time is running out and I know that I have a long letter to write, because I have not managed to address a number of questions. In winding up, I thank noble Lords for their important contributions to what is, I acknowledge, and as the noble Baroness said at the beginning of the debate, an important subject. I reiterate that the Government remain committed to international development and the return to spending 0.7% of GNI on ODA, but when the fiscal situation allows us to.