Watchdog warns UK refugee costs could absorb one-fifth of reduced aid budget

15 Jul 2025

• Asylum support costs expected to continue to consume significant portion of reduced UK aid budget in 2027-28, leaving as little as 0.24% GNI for overseas development, ICAI calculates
• ICAI highlights need for improved cross-government coordination to make the most of reduced funding
• In-depth review of how government manages the aid target will be published early 2026

UK asylum costs could continue to absorb a significant portion of the reduced aid budget if they are not brought under control, leaving as little as 0.24% of national income for overseas development, the aid watchdog reports today (Tuesday 15 July).

A new Independent Commission for Aid Impact (ICAI) report projects that by 2027-28, when the aid budget is set to reduce to its lowest level since 1999 of 0.3% of gross national income (GNI), one-fifth will be spent on supporting refugees and asylum seekers in the UK.

The report describes the UK’s management of its aid spending target – the percentage of UK gross national income (GNI) the UK commits to providing each year for international development – following the government’s announcement in February that it would reduce from 0.5% to 0.3% GNI in 2027 to fund increased defence spending.

It notes that the government has already sought to address some issues with the management of the target identified by the watchdog in recent years – such as the fact budgets could be unpredictable when GNI figures fluctuate – but says focus on value for money will be crucial as funding is reduced.

ICAI will publish an in-depth review in early 2026 making recommendations for how government can improve the way the target is managed to make the most of every pound.

ICAI Commissioner Harold Freeman, who led today’s report, said:

“The UK’s development programme is at a turning point, with budget reductions coming against a backdrop of increasing global conflicts, climate threats and rising humanitarian needs. At the same time, UK asylum costs are likely to continue to absorb a significant proportion of our aid funding.

“The government has already taken steps to address some of the flaws in the system for managing aid identified by past ICAI work. But further changes will likely be needed to maximise the impact and value for money of the remaining development budget.”

Today’s report draws on latest figures from the 2025 Spending Review, which suggest a progressive reduction of expenditure on asylum-related costs to the aid budget over the next three years.

However, ICAI warns that they will still absorb a significant portion of the total, with as little as 0.24% of GNI (approximately £7.1 billion) available in 2027-28 for poverty reduction and humanitarian assistance abroad. This would be the lowest percentage of national income in more than 50 years of aid statistics, matched only in 1999.

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 known 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.

The report also suggests substantial improvements to the coordination of aid spending between different government departments will likely be needed, to increase the strategic coherence of the UK’s offering and support the government to deliver its commitment to ‘modernise’ development cooperation.

ICAI concludes that, to maximise the impact of future aid, the government must better manage the interaction between the budgetary systems used to allocate aid, processes for planning the effective delivery of aid, choices on the overall level of aid spending and external shocks to the system.

ICAI’s report sets out the nature and origins of the ODA spending target and outlines how the government’s interpretation and management of the target affects value for money in UK aid spending, highlighting several issues requiring further scrutiny.

The report highlights several critical challenges facing UK aid effectiveness. Budget uncertainty in recent years has hindered effective forward planning by the Foreign, Commonwealth and Development Office (FCDO), damaging the UK’s reputation as a reliable partner. Meanwhile, cross-government processes have in the past often focused too narrowly on meeting spending targets, with limited ambition shown towards ensuring strategic coherence or monitoring the achievement of development objectives.

Of particular concern is the rapid growth of in-donor refugee costs – which rose from £628 million in 2020 to £4.3 billion in 2023 (although provisional statistics indicate a reduction to £2.8 billion in 2024).

In 2023, the UK spent three times as much aid per asylum seeker as other major European donors, due mainly to the use of expensive hotel accommodation, which ICAI has found represents poor value for money. The government has repeatedly said it will address the issue by bringing costs down in the asylum system.

Changes announced in the 2025 Spending Review mean FCDO’s ODA budget will be protected from volatility caused by fluctuations in the UK’s GNI and asylum-related costs – an issue previously raised by ICAI.

However, FCDO will not automatically receive funds back to spend on development if other departments’ ODA spend is unexpectedly low or if the economy grows unexpectedly quickly.

ICAI has identified several priority areas for scrutiny as the government implements its planned reduction to 0.3% GNI, including how departments are allocated funding based on their capacity for effective development cooperation, approaches to meeting statutory requirements on poverty reduction and gender equality, and the handling of spending on in-donor refugee costs.

ICAI will publish a comprehensive review of how the UK has managed its ODA spending in early 2026 as part of its ongoing oversight of UK aid effectiveness, with recommendations on increasing impact, value for money and transparency.