Cutting international aid to pay for defence is Starmer’s first spending review trade-off

The Labour manifesto committed to “set out the path to spending 2.5% of GDP on defence”, and Keir Starmer has now outlined how he plans to meet this target by 2027/28 – three years earlier than the previous government’s target, and funded by cutting the aid budget from 0.5% of GNI to 0.3%. 

Meeting the 2.5% target while sticking to the fiscal rules was going to require spending cuts elsewhere or tax rises, and Starmer has opted to take the money from the development budget to avoid further strain on public services. The move has been welcomed by Conservative leader Kemi Badenoch as one which reflects her own proposals, and was a policy choice advocated by Reform at the last election. It will be dismissed as populist by its opponents, with criticism coming from Labour backbenchers and from well organised NGOs outside parliament, some of whom see this as a missed opportunity to justify raising taxes in order to pay for the increase in defence spending.  

The former Department for International Development was, of course, a New Labour creation, and at the autumn budget the government re-iterated its manifesto commitment to return to spending 0.7% of GNI on aid – which it said aims to “save lives and support the most vulnerable, whilst tackling key global challenges such as climate change, conflict and epidemics" – when “fiscal circumstances allow”  ⁷ HM Treasury, ‘Autumn Budget 2024, 30 October 2024, https://assets.publishing.service.gov.uk/media/672b9695fbd69e1861921c63/Autumn_Budget_2024_Accessible.pdf  . Aid spending is also often seen as an important aspect of the UK’s soft power, and many of those who depend on UK aid have just seen US aid cut off as Donald Trump and Elon Musk dismantle USAID. The reprioritisation may earn Starmer plaudits from the White House on Thursday, but the real beneficiary could be China if it expands to fill the vacuum. 

The government hopes that some of the aid cuts will come from reducing the £4.3bn (28%) of the aid budget spend on asylum and refugees in the UK in 2023  ⁸ https://icai.independent.gov.uk/review/icai-follow-up-2022-23/review/ , but that ballooning bill was putting pressure on a budget which the Conservatives had already squeezed from 0.7% to 0.5%. If the hoped-for savings on asylum cannot be found, then the cuts to overseas aid programmes will be even more significant. 

There must be accountability for spending this extra defence budget effectively 

In the focus on inputs, for both defence and aid, there has so far been less attention paid to where the additional defence money will be spent, or aid cuts found.  

Ramping up spending quickly is hard. There are long-standing problems in the MoD with programme management, market competition and contract delivery. Many defence procurements are complex, with time horizons stretching well beyond the next spending review period, and cannot be easily rescheduled. The ability of the UK to ramp up defence spending will also depend on the capacity of the defence industry to deliver.   

And, by the defence secretary’s own admission, there is an accountability problem in the MoD. John Healey has set out plans to address that issue, but his reformed MoD will need to up its game if the extra resources are to be spent well. 

That means transparency. The government got off to a poor start yesterday, by aping the previous government’s trick: it inflated the spending increase by comparing how much it now plans to spend in 2027/28 against the unlikely assumption that defence spending would remain flat in cash-terms, rather than remaining flat as a share of GDP. As the government trumpeted a £13.4bn increase in defence spending per year from 2027/28, it simultaneously claimed that was being funded with an implied £6bn reduction in aid spending. Going forward, a more clear and consistent approach to articulating spending choices is needed. 

Difficult domestic decisions still remain for the spending review 

Assuming the aid decision sticks, it means that the government can pencil in an increase in defence spending without making an already difficult spending review any harder for public services. The spending plans set out at the budget for the spending review period (2026/27 to 2028/29) were already tight, with over £6bn real-terms cuts per year to unprotected departments pencilled in and setting up difficult decisions for the chancellor across the board. The decisions Rachel Reeves must take, however, will be marginally easier than they could have otherwise been: maintaining aid at 0.5% of GNI and hitting the 2.5% defence spending target over the spending review period would have implied real-terms cuts of £8.7bn per year to unprotected departments. 

In the past, budget cuts have often come from setting out efficiency ‘savings’ without a clear articulation of what government will do differently, or stop doing altogether, to find them. This approach has damaged public service performance. The government has, at least, made a clear choice – and a difficult trade-off. But announcing a deep cut to the ODA budget is only the headline figure. 

The government now needs to set out how it will limit the damage to existing aid programmes, using any announcement as part of a move towards greater clarity on where exactly government expects savings to be found in other areas.