The problem with Cameron's plan to raid the aid budget to pay for defence

If the aid budget becomes a means of plugging the shortfall in defence spending, aid campaigners will feel they have been misled.

Perhaps no position David Cameron has adopted is more unpopular with Conservative MPs than his decision to increase aid spending while cutting defence. The former is rising by 37 per cent in real-terms, while the latter is falling by 7.5 per cent. And the trend is set to continue. Having once assured his party that defence spending would increase from 2015, Cameron now makes it clear that the department will not be protected from cuts in this summer's Spending Review. With the ever-more hawkish Prime Minister talking of a "generational struggle" against African jihadism, Tory MPs and armed forces chiefs understandably ask how he expects to wage this campaign on a shrinking budget. 

But his Cameron now found a way of squaring this circle? Speaking to reporters on the final day of his Indian trip, the PM suggested that aid spending could be used to fund peacekeeping and other defence-related projects. He said: 

We have to demonstrate that the aid budget is being used wisely.

We should be thinking very carefully about how we help states that have been riven by conflict and war. I think it’s obviously true that if you can help deliver security and help provide stability then that is the base from which all development can proceed.

He added: "Can we do more, can we build on this approach? I am very open to ideas like that." Early estimates suggest that around £100m a year could be could be diverted from the Department for International Development to the Ministry of Defence. 

Downing Street is keen to emphasise that the spending would be compliant with international aid rules and would not be used to fund combat missions or equipment. "You can be sure that we are not going to use this money to buy any tanks," one source tells the Guardian.

But there are at least two problems with this approach. The first is that it will free up resources for precisely this kind of combat expenditure. Using the DFID budget to pay for "nice" defence spending leaves the MoD with more for "nasty" defence spending. Those aid campaigners who have applauded the government's plan to meet its pledge to spend 0.7 per cent of GNI on international development are uncomfortable with the thought that the money could be used to indirectly subsidise armed interventions. The second is that it sets what many view as a negative precedent. What is a £100m now could become far more later. If the aid budget becomes a means of plugging the shortfall in defence spending, the PM will be seen to have broken the spirit, if not the letter, of that 0.7 per cent pledge. 

David Cameron meets British soldiers based at Lashkar Gah in Helmand Province. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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George Osborne's mistakes are coming back to haunt him

George Osborne's next budget may be a zombie one, warns Chris Leslie.

Spending Reviews are supposed to set a strategic, stable course for at least a three year period. But just three months since the Chancellor claimed he no longer needed to cut as far or as fast this Parliament, his over-optimistic reliance on bullish forecasts looks misplaced.

There is a real risk that the Budget on March 16 will be a ‘zombie’ Budget, with the spectre of cuts everyone thought had been avoided rearing their ugly head again, unwelcome for both the public and for the Chancellor’s own ambitions.

In November George Osborne relied heavily on a surprise £27billion windfall from statistical reclassifications and forecasting optimism to bury expected police cuts and politically disastrous cuts to tax credits. We were assured these issues had been laid to rest.

But the Chancellor’s swagger may have been premature. Those higher income tax receipts he was banking on? It turns out wage growth may not be so buoyant, according to last week’s Bank of England Inflation Report. The Institute for Fiscal Studies suggest the outlook for earnings growth will be revised down taking £5billion from revenues.

Improved capital gains tax receipts? Falling equity markets and sluggish housing sales may depress CGT and stamp duties. And the oil price shock could hit revenues from North Sea production.

Back in November, the OBR revised up revenues by an astonishing £50billion+ over this Parliament. This now looks a little over-optimistic.

But never let it be said that George Osborne misses an opportunity to scramble out of political danger. He immediately cashed in those higher projected receipts, but in doing so he’s landed himself with very little wriggle room for the forthcoming Budget.

Borrowing is just not falling as fast as forecast. The £78billion deficit should have been cut by £20billion by now but it’s down by just £11billion. So what? Well this is a Chancellor who has given a cast iron guarantee to deliver a surplus by 2019-20. So he cannot afford to turn a blind eye.

All this points towards a Chancellor forced to revisit cuts he thought he wouldn’t need to make. A zombie Budget where unpopular reductions to public services are still very much alive, even though they were supposed to be history. More aggressive cuts, stealthy tax rises, pension changes designed to benefit the Treasury more than the public – all of these are on the cards. 

Is this the Chancellor’s misfortune or was he chancing his luck? As the IFS pointed out at the time, there was only really a 50/50 chance these revenue windfalls were built on solid ground. With growth and productivity still lagging, gloomier market expectations, exports sluggish and both construction and manufacturing barely contributing to additional expansion, it looks as though the Chancellor was just too optimistic, or perhaps too desperate for a short-term political solution. It wouldn’t be the first time that George Osborne has prioritised his own political interests.

There’s no short cut here. Productivity-enhancing public services and infrastructure could and should have been front and centre in that Spending Review. Rebalancing the economy should also have been a feature of new policy in that Autumn Statement, but instead the Chancellor banked on forecast revisions and growth too reliant on the service sector alone. Infrastructure decisions are delayed for short-term politicking. Uncertainty about our EU membership holds back business investment. And while we ought to have a consensus about eradicating the deficit, the excessive rigidity of the Chancellor’s fiscal charter bears down on much-needed capital investment.

So for those who thought that extreme cuts to services, a harsh approach to in-work benefits or punitive tax rises might be a thing of the past, beware the Chancellor whose hubris may force him to revive them after all. 

Chris Leslie is chair of Labour's backbench Treasury committee.