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9 October 2018

Penny Mordaunt hints at cuts to foreign aid spending, but the reality is very different

The Dfid Secretary underlined her leadership credentials in a wide-ranging speech that will please people on both sides of the Conservative Party.

By Stephen Bush

Penny Mordaunt made a series of announcements about British aid policy in an impressive speech this morning, which strayed beyond her brief and underlined her leadership credentials.

She mixed the case for aid with the case for conservativism with a soundbite “compassion requires capital, and capital requires compassion” that could easily become the animating thinking, or at least the public slogan, of a Conservative government. And although she made loyal(ish) noises, she was equivocal in her backing of Theresa May’s Brexit strategy, talking up the need for the “best deal” and one that didn’t “fudge” the desires of the United Kingdom’s Leave votes. That will likely be the big headline out of her speech.

But the other big (or at least, superficially so) bit of news concerned a series of announcements about the future of UK aid spending under the Conservatives. The first is that the United Kingdom will seek changes to international rules on what counts as aid spending so that it is able to count the profits from the CDC Group – the development finance vehicle founded by the Attlee government back in 1948, which invests in businesses in the developing world – towards the 0.7 per cent target. (At present, returns made on development finance don’t count as additional money if they are re-invested into development spending, but they do count as deductions from the 0.7 per cent target if these returns are spent elsewhere on Whitehall.)  Mordaunt is pledging to seek to change these aid rules.

In theory, that could mean significant real-terms reductions in the amount of money that the British government and its finance arm (in addition to the CDC Group, the British government contributes multilaterally to several other similar bodies) as returns from successful investment in developing countries supplants direct additional funding from the British taxpayer.

In practice, however, the actual numbers are teeny-tiny as far as government spending goes. The CDC before the financial crisis was 11 per cent, and since the financial crisis it has averaged a 7 per cent return: in cash terms, a peak performance of a £600m return in 2016 and an all-time trough of a £359m loss in 2008. These are life-changing amounts if you gave them to, say, you or me, but they are peanuts as far as the international aid budget is concerned and they are even more derisory as far as overall government spending goes. Even should the CDC Group become a world-beating investment vehicle (a big if but let’s just roll with it for a moment) we are not talking about sums that are going to meaningfully alter how much the British government spends on UK aid, let alone free up any significant sums for the British state to spend elsewhere.

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But it’s a clever bit of politics in that the OECD tinkers with what counts as aid spending all the time and there is a good chance that Mordaunt will be able to get this policy win, which signals to aid sceptics in the Conservative Party that she is committed to value for money, private enterprise and so on, while not being an issue that supporters of development spending in the Tory party and elsewhere are going to get het up about.

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As far as the other big task in Mordaunt’s in-tray (growing support for UK aid spending) there were two announcements: the first is essentially a re-announcement of what Dfid is doing already to give taxpayers more control over how the aid budget is spent through match-funding and the like, the second is a “national conversation” around aid spending. That conversation will be a further test of Mordaunt’s ability to balance her party’s two camps on international aid.