Brexit causes value of U.K. foreign aid to drop by $1.4 billion

DfID worker checking supplies on a RAF C17 bound for the Philippines (Crown Copyright/ Sgt Ralph Merry ABIPP RAF/flickr)

The value of the British pound dropped 10 percent in the wake of the news that the U.K. voted to leave the European Union last night. It reverberated globally causing markets to decline by the start of morning trading in the U.S. There are too many losers to count as a result of the vote, but a big one are people not even living in the U.K.

In just one night, the value of British foreign aid fell by more than $1.4 billion.

The budget for the Department for International Development (DfID) for this year stands at £11.8 billion. When it looked like the vote would tip toward the U.K. remaining, the value of the pound rose to equal $1.50. That early confidence turned out to be wrong and the announcement of the loss saw the value drop suddenly to $1.32. Taking the value of the DfID budget at the high from last night and comparing it against the current value of the pound ($1.38) shows that the budget is worth $1.4 billion less than it was less than a day ago.

That is nearly as much as the entire £1.3 billion National Security Council-led Prosperity Fund created last year to support long-term aid work by the U.K. That money over the next five years was projected to get 11 million children in school, bring clean water and sanitation to 60 million people, save 1.4 million lives through immunizations, and improve nutrition for 50 million people. If the value of the pound does not recover, that impact is virtually lost.

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It potentially gets worse. The amount of money the U.K. spends on official development assistance is pegged to its gross national outcome. Leaders in both Northern Ireland and Scotland say referendums to leave the U.K. in order to remain in the European Union are likely. If those happen and the British economy continues to do poorly, the foreign aid budget will take another hit.

Additionally, the 2 billion euros in British aid that is channeled through the European Union is lost. It takes a significant chunk out of the average 16.4 billion euros committed annually through the European Union. In a February letter, development leaders and experts made the case that U.K. leadership on international development is strengthened by staying in the European Union.

“In our view, EU membership is a practical way to extend our reach and multiply our influence. Every pound of aid the U.K. spends through EU institutions is matched by £6 from other member states,” the letter, published in The Guardian, stated. “This larger pool delivers better lives for the poorest people. It also helps tackle problems in areas where the U.K. has no large presence, for example in the Sahel and parts of west Africa. EU aid complements activities that other aid agencies cannot undertake, like police and security missions in fragile hotspots.”

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The warnings about the potential negative outcomes of a Brexit were not heeded. It is now a matter of waiting to see how the process comes together and what the U.K. does after. Among the list of items to do will be renegotiating more than 100 trade agreements with African countries. If the value of aid declines and the economic problems are felt globally, the decision to leave will have significant negative impacts on developing countries.

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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.