Foreign Aid Reimagined

Rachel Reeves plans to cut almost £2 billion from the foreign aid budget. The Chancellor is preparing to let spending on aid fall to 0.5 per cent of gross national income after two years, a drop to a 17-year low. This has aroused Cabinet opposition.

The Adam Smith Institute has already told the Chancellor how to deal with this, but it seems she might not have been paying attention. In my Overton Window piece I pointed out that in addition to the aid publicly provided by the government, the UK should calculate the amount of aid sent in remittances by people to their families in the countries they originally hailed from. 

This frequently exceeds public sector aid as a proportion of total aid. The UK’s foreign aid should thus be declared as the sum of public and private aid.

The US is often criticized for giving relatively little in government aid, but the inclusion of private aid makes it clear that it is among the most generous nations in helping those in poorer countries.

The UK could increase the amount of private aid that is remitted to families in poorer countries by allowing it some measure of tax deductibility. This would increase the number sending it, and probably the amount that they send.

Private foreign aid is better in one important respect in that it goes directly to people instead of being filtered through governments and bureaucracies. Private aid is less likely to go to fund space programmes, or to fund gold bathtubs in presidential palaces or to buy tanks. Remittance has been shown to circumvent corruption-induced deadweight loss.

The Chancellor should include private aid in addition to government aid and strive to increase the former by giving some tax breaks to that given through reputable and regulated agencies that transfer funds internationally. It should prove to be an attractive prospect to a Chancellor who is no stranger to redefining things.