Use of the aid budget to host refugees in the UK rises to £4.3bn

10 Apr 2024

• Aid spending on asylum seekers and refugees in the UK rose to £4.3bn in 2023, constituting 28% of the aid budget, as ICAI continues to raise concerns around value for money.
• Negative impact on FCDO’s development spending less than in previous years, in part due to gross national income being higher than forecast and increased flexibility from the Treasury.
• Some improvements in management of asylum accommodation and support contracts, but ICAI finds no signs Home Office is moving out of crisis mode towards long-term solutions.
• New arrivals stuck in limbo due to uncertainties around Illegal Migration Act 2023.

The amount of aid spent on hosting refugees and asylum seekers in the UK continued to rise last year to £4.3 billion – up from £3.7 billion in 2022 – amid continuing value for money concerns, the aid watchdog finds today (Wednesday 10 April). This amounts to 28% of all UK aid in 2023.

The Independent Commission for Aid Impact (ICAI) said that far from reducing as the costs of schemes for Ukrainian and Afghan refugees fell, the amount of aid spent within the UK was driven up further by the Home Office’s spending on hotel accommodation for asylum seekers.

In 2023, more than two thirds of all aid spending on refugees and asylum seekers in the UK was spent by the Home Office (£2.9 billion, of which £2.5 billion was on asylum accommodation). Other government departments also reported considerable costs, under areas such as health, primary education, housing and social benefits.

Under international aid rules, the first year of some of the costs associated with supporting refugees and asylum seekers who arrive in the UK qualify as official development assistance (ODA). This category of aid is referred to as ‘in-donor refugee costs’. The rationale is that supporting refugees with basic services and accommodation is a form of humanitarian assistance, wherever they are located, and can therefore be reported as aid.

In its latest report, following up on previous recommendations to see whether progress has been made, ICAI found serious questions remain over value for taxpayers’ money and alignment of this spending with the UK’s development objectives. And due to uncertainties around implementation of the Illegal Migration Act 2023, a significant and rising number of people are stuck in limbo with their asylum applications not being processed, at considerable human and financial cost.

ICAI Chief Commissioner Dr Tamsyn Barton, who led the review, said:

“We have long raised concerns that the way the government manages the aid spending target, cutting across the normal lines of accountability, can lead to poor value for money for taxpayers. Allowing the Home Office to spend an unlimited amount on hosting asylum seekers and refugees, with the costs falling to FCDO’s budget, sets the wrong incentives. What’s more, using so much of the aid budget on UK asylum hotels, rather than on supporting people nearer home, is inequitable and inefficient.

“The Illegal Migration Act has also caused a great deal of uncertainty as to whether people arriving via irregular routes are still eligible for UK aid to be spent on them at all, an issue we highlighted last year that appears still to be unresolved.”

In a 2023 review, ICAI pointed out major risks from the way in which the UK’s aid spending commitment – currently 0.5% of gross national income (GNI) – was managed, and how soaring in-donor refugee costs wrought havoc on the UK’s development work overseas. The review made six recommendations to help the government improve the quality of aid spending on refugees in the UK and minimise the disruption of this large and unpredictable spending to the UK’s international development programme.

Only two were accepted outright by the government: that the Home Office should strengthen its management of asylum accommodation and support contracts to drive better value for money; and that it should consider spending money on activities by community-led organisations and charities to strengthen support for new arrivals.

Today’s update finds that despite various Home Office initiatives to move away from hotel accommodation, almost the same number of asylum seekers were accommodated in hotels in December 2023 as in December 2022 (more than 45,700 people) although the Home Office reported a drop in the first quarter of 2024. The per person costs are fluctuating but have not reduced, while standards of support do not seem to have tangibly improved, according to the watchdog.

Despite some improvements being seen in management of the asylum accommodation and support contracts, ICAI says safeguarding concerns continue and there are no signs yet that the Home Office has found a route out of short-term crisis management towards longer-term solutions for housing asylum seekers.

The report adds that the negative impact on the Foreign, Commonwealth and Development Office (FCDO), which oversees the aid budget and has had to absorb the Home Office’s rising costs, had been less pronounced in 2023 than in 2022. This was partly because GNI for 2023 was considerably higher than forecast, in addition to an extra £2.5 billion over two years in ODA that had to be allocated by the Treasury to ease the pressures. This resulted in UK aid totalling 0.58% of GNI. ICAI finds that FCDO’s risk management and the Home Office’s sharing of data with FCDO have improved, but the underlying factors that severely affected FCDO’s aid programme in 2022 have not been tackled.

The Illegal Migration Act, passed into law in July 2023, is an “important unknown piece in the puzzle”, the watchdog adds. As ICAI reported in September 2023, if asylum seekers who arrive in the UK via “irregular routes” such as small boats are deemed illegal and due for removal by the Act – and so are barred from receiving asylum in the UK – they would not be eligible for ODA funding. The Act relies on the government’s ability to remove from the UK those arriving by irregular means. But this part of the Act is not in force and there are continuing uncertainties about plans for removal at scale even if the government’s plan to send some asylum seekers to Rwanda were realised.

This has left asylum seekers who arrived since the Illegal Migration Act began making its way through parliament in “limbo”, ICAI says, as this cohort has been allowed to enter the asylum claims system, and their accommodation in the first year continues to be reported as in-donor refugee costs, but the Home Office is not currently doing anything to progress their asylum applications. The report warns that this new backlog of cases is building up quickly, at considerable human and financial cost.

ICAI also remains disappointed that the UK government has not taken up the opportunity to revisit its methodology for reporting in-donor refugee costs or how these costs are counted towards the UK’s aid spending target, as recommended by the watchdog. ICAI continues to find that the UK’s approach to reporting in-donor refugee costs is more expansive than other donor countries.

Overall, ICAI found the UK government’s response to its 2023 recommendations to be inadequate and expects to carry out further scrutiny of the use of the aid budget for refugees and asylum seekers in the UK in the future.