The Government have acted on a scale unmatched in recent history in responding to the twin health and economic emergencies, with over £400 billion of total support for the economy since the start of the pandemic to protect people’s jobs and livelihoods, and to support businesses and public services.
But the damage inflicted on our economy and the public finances by coronavirus has been immense. We have suffered the biggest recession in 300 years. Last year we borrowed nearly £300 billion—equivalent to 14.3% of GDP—the highest since world war two. Debt as a percentage of GDP reached nearly 100%, the highest since 1962. This year we are forecast to borrow the second highest amount on record during peacetime—second only to last year. This is clearly unsustainable, and the economic damage of coronavirus cannot be fixed overnight.
That is why we have had to take difficult decisions to get borrowing down and restore the public finances—including by increasing corporation tax, freezing income tax personal thresholds and maintaining public sector pay at current levels.
As part of these difficult decisions, we took the decision last year to temporarily reduce the ODA budget to spend 0.5% of gross national income on overseas aid in 2021. The International Development (Official Development Assistance Target) Act 2015 clearly envisages situations in which a departure from spending 0.7% of GNI on ODA may be necessary: for example in response to “fiscal circumstances and, in particular, the likely impact of meeting the target on taxation, public spending and public borrowing”.
Spending at 0.5% of gross national income for this year means we will still spend more than £10 billion to improve global health, fight poverty and tackle climate change. In 2020 we were one of only two G7 countries to meet the 0.7% target, and the only one to do so each year since 2013. Based on the latest OECD data, spending 0.5% GNI as ODA in 2021, as we plan to do, would mean that the UK is still the third largest donor in the G7 as a percentage of GNI.
As we have made clear since that decision, this is a temporary measure and the Government are committed to the 2015 Act and to spending 0.7% of GNI on ODA once the fiscal situation allows. That is why we are today setting out the responsible fiscal circumstances under which we will return to 0.7%.
Consistent with the fiscal principles set out at March Budget 2021, and with the principles contained within the Conservative Party 2019 Manifesto, the Government commit to spending 0.7% of GNI on ODA when the independent Office for Budget Responsibility’s fiscal forecast confirms that, on a sustainable basis, we are not borrowing for day-to-day spending and underlying debtis falling, as explained in more detail below.
At the upcoming Spending Review the Government will set the ODA budget for 2022-23—and provisionally for later years—in line with these tests and the latest fiscal forecast.
Each year over this period, the Government will review, in accordance with the 2015 Act, whether a return to spending 0.7% of GNI on ODA is possible against the latest fiscal forecast. If it expects to meet the fiscal tests described above in the following financial year, the Government will increase overseas aid spending above 0.5% of GNI to 0.7% of GNI and such that these tests are still met. Once the Government have spent 0.7% of GNI as overseas aid in a given year, these tests will no longer apply to overseas aid spending and the Government will return to spending 0.7% of GNI on ODA year on year.
The Government will continue to act compatibly with the International Development (Official Development Assistance Target) Act 2015, under which accountability is to Parliament. The Secretary of State will lay a statement in Parliament in accordance with section 2 of the Act in relation to each calendar year in which the Government do not spend 0.7% GNI on ODA.
A motion will be tabled by the Government alongside this written ministerial statement asking the House of Commons to consider this approach, for debate tomorrow. If the House approves the motion, recognising the need to manage the public finances responsibly and maintaining strong investment in domestic public services like the NHS, schools and police, then the Government will continue with the approach set out in this statement. However, if the House were to negative the motion, rejecting the Government’s assessment of the fiscal circumstances, then the Government would consequently return to spending 0.7% of GNI on international aid in the next calendar year, and with likely consequences for the fiscal situation, including for taxation and current public spending plans.
 By fiscal forecast, we refer to the final post-measures official forecasts by the independent Office for Budget Responsibility (OBR) as published in their Economic and Fiscal Outlook.
 By “not borrowing for day-to-day spending”, we mean when the fiscal forecast shows a sustainable current budget surplus. The current budget deficit counts all receipts and all current spending, but excludes spending on net investment.
 By “underlying debt” we mean public sector net debt—excluding the Bank of England—as a % of GDP. PSND ex BoE is the amount of debt the public sector owes to private sector minus the amount of cash and other short-term assets it holds excluding the liabilities and the liquid assets held on the Bank of England’s balance sheet.