The UK spent a third of its international aid budget on refugees in the UK – what it’s paying for, and why it’s a problem

The Conversation

A third of the UK’s international aid budget was spent supporting refugees in the UK in 2022. A new report by the Independent Commission for Aid Impact (ICAI) details the £3.5 billion expense, a threefold increase on 2021, and about 12 times the amount spent in 2015.

An enquiry by a parliamentary committee published in February expressed concerns about the government’s increased spending on refugees in the UK. The committee called it a “political choice” that comes “at the expense of
vulnerable and marginalised people living in the world’s poorest countries”. But the ICAI report is the first to provide a detailed analysis of how much is being spent.

The ceiling on the UK’s Official Development Assistance (ODA) budget was cut from 0.7% to 0.5% of gross national income in 2020. This means that as the overall budget is shrinking, the share spent in the UK is growing. This is bad for international development, since programmes supporting some of the poorest people in the world have been cut.

The Organisation for Economic Co-operation and Development (OECD)‘s development assistance committee (DAC) defines ODA as “government aid designed to promote the economic development and welfare of developing countries”.

Supporting refugees in a wealthy nation does not fit this definition. But under current rules countries “can count the costs of assisting refugees on their soil” (known as in-donor refugee costs).

According to the ICAI report, most of the in-donor refugee costs are accounted for by the Home Office, which has been especially profligate, especially in the use of hotels to house thousands of asylum seekers. The daily cost of this is £120 per person, much more than the £18 per person that longer-term accommodation would cost.

But the Home Office has, so far, had no financial incentive to move refugees out of hotel accommodation.

Current rules allow these costs to be taken from the ODA budget, but only for the first 12 months after arrival. The increase in refugees to the UK over the last year, and the massive backlog on applications, means that people are now staying in emergency accommodation for over a year while they await their asylum decisions.

Once the duration of stay exceeds a year, the costs must be paid from other Home Office budgets. As the Home Office now has to pick up a bigger bill for hotels, they are focusing on finding cheaper alternatives, such as ex-military bases.

The ICAI also found that the government did not appropriately oversee “value for money” in the private contracts used to arrange accommodation.

Hotel costs

This vast expense – a daily cost of £6.8 million in October 2022 – is also bad for refugees in the UK, who face tremendous uncertainty and very poor treatment in asylum hotels. The use of hotels has also exacerbated hostility to refugees, particularly in the cost of living crisis.

UK government ministers have fuelled this hostility, with Dominic Raab, the deputy prime minister, calling hotel accommodation a “pull factor” encouraging people to come to the UK, and Robert Jenrick, the immigration minister, blaming these soaring costs on “illegal” immigrants themselves. In-donor refugee costs can, as the title suggests, only be spent on refugees. This includes asylum seekers awaiting a decision on their application, but not those whose claim has been rejected and are asked or forced to leave the country.

The parliamentary committee report highlighted how much more effectively this money could be spent overseas. Our work at the Protracted Displacement Economies project at the University of Sussex illustrates this clearly, showing how flourishing economies develop in situations of mass displacement in some of the poorest countries in the world. The UK’s development aid could be far more effective supporting refugees in these economies rather than on hotel accommodation in the UK.

Phantom aid

The reporting of in-donor refugee costs as part of development budgets has always been controversial. In 2005, the charity ActionAid coined the term “phantom aid” to refer to aid that had no effect on improving the lives of poor people. This category included in-donor refugee costs. The OECD itself has also criticised the practice.

In the face of significant pressure from European donors, in 2017 the DAC issued five “clarifications” stipulating who and what can be covered. One of these is an emphasis on “the need for a conservative approach” when it comes to recording costs, which the UK appears to be stretching.

Before 2010, the UK simply did not include in-donor refugee costs as part of ODA. In 2014, the UK’s reported in-donor refugee costs exceeded 1% of ODA for the first time and grew sharply from there, reaching 10% in 2021,more than double the average figure for all 31 DAC countries. When confirmed, the 2022 figure of a third of the budget spent in the UK will far outstrip that of other members.

Some countries, such as Australia and Luxembourg, do not count in-donor refugee costs as part of ODA at all. Others, like France, report only direct costs incurred to support refugees. The UK is unusual in also reporting estimated costs, such as costs to the NHS (which are impossible to work out exactly).

To solve this, the ICAI recommends the government set an enforced upper limit on using the overseas aid budget for refugees in the UK. Even better would be to return to the situation of a decade ago when the UK set a principled example, recognising that in-donor refugee costs should not be part of overseas aid.

Michael Collyer receives funding from Economic and Social Research Council (grant number ES/T004509/1). He is chair of Sanctuary on Sea, Brighton's City of Sanctuary group.