Management of UK aid budget not always based on clear priorities or value for money, says watchdog

12 Mar 2026

• UK aid spending has been too focused on hitting a precise target while cross-government priorities were not always clear, says Independent Commission for Aid Impact.
• Combining the unpredictable costs of supporting refugees in the UK – £2.8bn in 2024 – with spending on overseas development in one budget distorts policy choices and undermines transparency.
• Independent scrutiny will be vital to ensure reforms drive better value for money, helping the UK make the most of a shrinking aid budget.

The system for managing the UK’s aid budget was not always based on clear priorities or evidence of good value for money over the past five years, the Independent Commission for Aid Impact (ICAI) finds today (Thursday 12 March).

A new report by the aid watchdog looks at how the government managed the aid spending target and shared out funding between departments from 2021-22 to 2024-25. It finds that the system for allocating aid budgets across government lacked a consistent, overarching strategy, with processes often focused narrowly on hitting the spending target rather than delivering against an agreed set of international development objectives.

UK aid spent on supporting refugees and asylum seekers in the UK – which absorbed a fifth of the total budget in the latest available figures – diverts funding away from the government’s priorities and, in the current climate, poses a serious risk to value for money, ICAI says.

Including this kind of ‘demand-driven’ spending – dependent on how many refugees and asylum seekers arrive in a given year – within the same budget as ‘policy-driven’ spending on development projects overseas, makes good financial management more difficult and undermines transparency, ICAI finds. The report adds that in 2024, £2.8bn was spent on hosting refugees and asylum seekers in the UK, £1 billion more than on humanitarian aid in a year that saw severe global crises including in Gaza and Sudan.

By law the aid target is set at 0.7% of UK gross national income (GNI), but the previous government announced a reduction in spending to 0.5% of GNI from 2021 as a “temporary measure” in response to the economic effects of the pandemic. In February 2025, Prime Minister Keir Starmer announced a further reduction to 0.3% of GNI in 2027 to fund increased defence spending. While the government has reaffirmed its commitment to return to the statutory target of 0.7% when fiscal circumstances allow, that is not expected to be in this parliament, and the Development Minister is on record as saying that she does not see the reduction to 0.3% as temporary.

ICAI recognises that the government has introduced reforms to the way the aid budget is managed from 2025, aiming to improve predictability and ensure the Foreign, Commonwealth and Development Office (FCDO) does not have to make last-minute cuts to its own programmes if other departments overspend.

But ICAI says it remains unclear how the changes will work in practice, especially given the unpredictability around costs of the UK asylum system in recent years. The watchdog says independent scrutiny in the coming years will be vital to ensure the reforms drive meaningful improvements to value for money and help the government make the most of the shrinking aid budget in an increasingly challenging global context.

ICAI Commissioner Harold Freeman, who led the review, said:

“The government has taken important first steps in reforming how it manages the aid target and we welcome its pledge to make funding more predictable. But reform must deliver real change and improved value for money. As the aid budget shrinks and Ministers have to make hard choices, independent scrutiny will be essential to ensure what remains of UK aid is delivering meaningful results for people who need it most.

“It’s also clear that the current practice of combining UK asylum support costs with overseas development spending within a single budget is not logical or transparent. Asylum costs serve a distinct purpose and are driven by domestic pressures, rather than the UK’s priorities overseas. We recommend that treating these costs separately could help restore clarity and public confidence in how the UK uses its aid budget.”

Under international aid rules outlined by the Organisation for Economic Cooperation and Development (OECD), some of the costs of supporting refugees and asylum seekers in their first year in the UK can be counted as official development assistance (ODA).  In recent years, the focus on hitting a target has meant that when asylum costs rose, money was directly taken away from overseas development programmes, regardless of whether this represented the best use of aid funding.

FCDO says this will no longer be the case from the current financial year, but ICAI finds the changes lack transparency about how they will work in practice. It is not clear, for example, how the government will respond if costs to the ODA budget for support to refugees and asylum seekers – which the government has pledged to bring down – turn out to be higher than expected and the 0.3% target is breached, nor what will happen if costs fall faster than expected.

This pressure has been compounded further by the UK’s broad approach to charging domestic asylum costs to the aid budget. When comparing this with approaches in the Netherlands and Sweden, ICAI found that the UK has consistently opted to interpret guidelines to enable the inclusion of more of its UK asylum costs across different ODA categories, choosing to not follow OECD advice to take a “conservative approach” to minimise the impact on overseas development spending.

The UK’s policy means that, for example, the Home Office has used ODA to cover most of the cost of renting entire hotels, despite some rooms remaining empty. ICAI’s analysis of the limited data available suggests that nearly £50 million in ODA went towards unoccupied hotel rooms in December 2023 alone, or £600 million for the year.

ICAI welcomes the re-establishment of a ministerial-level, cross-government Board bringing together all main ODA-spending departments, noting this as a positive step towards driving cooperation and value for money. It stresses the importance of the government setting out clear priorities for its approach to “modernising” development without delay, to ensure that as the budget is reduced, remaining spending is being delivered against clear, coherent objectives.

ICAI’s recommendations in full:

Recommendation 1: The UK should put in place a strategic, evidence-based, comprehensive and transparent approach to the allocation of ODA budgets across government departments, based on a viable framework for achieving long-term value for money.

Recommendation 2:  The UK should confirm a permanent end to the FCDO’s role as spender and saver of last resort and ensure that any ODA spending target is no longer treated as both a ceiling and a floor.

Recommendation 3: The UK should take measures to increase the medium-term predictability of ODA allocations, for example by establishing multi-year rolling commitments.

Recommendation 4: The UK should separate the allocation, management and public reporting of in-donor refugee costs from other forms of ODA, in recognition of the distinct purpose and demand-driven nature of asylum support.

Recommendation 5: The UK should work with the OECD Development Assistance Committee and other OECD members to reduce the impact of different in-donor refugee cost reporting practices on the coherence and comparability of international ODA statistics.