Opinion: Why aid spending’s impact must be measured before instead of after committing funding

The UK prime minister Keir Starmer has slashed the UK’s development aid budget – a lifeline to countries affected by climate disasters, war, and economic uncertainty. The decision is reprehensible, but it does offer an opportunity: to fix Britain’s wasteful and ineffective aid strategy.

The UK’s £6bn cut to official development assistance (often abbreviated to ‘ODA’) reflects a broader retreat from the country’s responsibility to fight global poverty. It’s understandable that some question the efficiency of aid spending. But cutting funds entirely does more harm than good – it weakens Britain’s global standing and undermines progress towards a more equal, sustainable and stable world. 

Britain has long benefitted from the wealth and resources of other nations, especially during its colonial era. It has a moral obligation to contribute meaningfully to global development. As the climate crisis worsens, experts warn that wealthy nations should increase aid contributions, not reduce them. Yet the UK’s latest cuts bring aid spending to just 0.23% of national income, the lowest level since records began in 1960, according to the think tank, the Centre for Global Development. This severely limits Britain’s ability to support the UN’s Sustainable Development Goals, particularly the fight against extreme poverty.

Even before these cuts, Britain’s aid strategy was failing. At the previous 0.5% of gross national income, there was already insufficient funding for the most desperate crises. While the UK has responded to humanitarian emergencies in Ukraine, Afghanistan, and Sudan, resources for long-standing crises, like those in Syria and Yemen, have dwindled.

To make matters worse, the UK increasingly views foreign aid through the lens of national security, much like the US does. The recent decision to increase defence spending while cutting aid makes this clear.

Aid spending needs a complete overhaul

The UK’s aid spending isn’t just low, it’s also inefficient. Starmer has promised a review to ensure “every pound delivers the most impact”. But in reality, the system needs a complete overhaul, not just another review.

The Independent Commission for Aid Impact (ICAI), the independent body which scrutinises government aid spending, has repeatedly warned that the UK is failing to allocate resources where they are needed most. Its latest report found that Britain’s ability to respond to humanitarian crises has been significantly weakened. Worse still, global finance is increasingly moving away from the poorest countries.

The structure of aid spending is also deeply flawed. Responsibility for overseas aid is split between multiple government departments, including the Foreign, Commonwealth & Development Office, the Home Office, and the Department for Environment, Food & Rural Affairs. This fragmentation makes it nearly impossible to measure the impact of aid spending. 

When the UK cut aid from 0.7% to 0.5% of national income in 2021, an independent review warned that the government lacked a long-term development strategy and was failing to ensure value for money. The result? A wasteful, unfocused approach that undermines aid effectiveness.

Spending money where it’s needed most

The solution shouldn’t be to cut aid, it is to spend it more effectively. Starmer must simplify the aid process, refocus spending on high-impact areas, and ensure money goes where it’s needed most.

The ICAI, despite its vague government mandate to “create a world free from poverty on a liveable planet”, has outlined key priorities: job creation, financial system reform, gender equality, conflict prevention, and climate action. But with fewer resources, it needs a radically new approach to measuring impact.

Currently, the ICAI commissions external reviews to evaluate aid projects, a process that can take up to ten months. By the time a programme is deemed ineffective, millions of pounds may have already been wasted. This slow, reactive approach is no longer viable after Starmer’s cuts.

Instead, the UK should adopt impact forecasting to measure the likely effectiveness of an investment before funding it. The private sector is already embracing this model, which allows decision-makers to predict impact before committing resources.

Predicting the impact of an investment on a big problem, such as extreme poverty, is incredibly complicated – but it can be done. Complex problems have many causes that interact with each other. So, first, you need to build a ‘complexity network’, a map that helps you understand the root causes of extreme poverty, why it is persisting, and why it has been resistant to change for so long.

After that, you conduct a systemic analysis to identify the ‘pressure points’ in that complexity network. These are the few intervention points that, if you target your investment towards, have the greatest ability to move the needle on the overall challenge.

For example, a lack of demand for unskilled labour is one of the main pressure points for the poverty challenge. So, if an impact investor, venture capital firm, or government agency wants to alleviate extreme poverty, it should target upskilling initiatives that connect people to jobs as a key priority.

Finally, we calculate the impact per dollar for investments. In other words, we identify the investments that target the most important pressure points, in the most effective ways, with the least amount of capital.

This differs from most investment approaches because it allows investors to estimate the impact upside of investment A v B, and focus on the challenges they are best placed to solve.

Targeting the root causes

I think this type of investment is desperately needed in public sector aid investment. In 2023, the ICAI published a largely negative review of UK aid-funded programmes. Specifically, how it addresses binding constraints to trade and promotes poverty reduction and inclusion. It revealed the UK is not doing enough to ensure that its aid for trade interventions benefits the poor – helping smallholder farmers, small businesses and employees in developing countries. This is exactly the type of issue that should be identified before spending begins, not years later in a review.

The UK must reach a place where they reach this conclusion before a single penny has been spent. If we want to alleviate citizens from extreme poverty, you need to find out the handful of root causes of extreme poverty that – if you target your resources towards – have the greatest impact on the overall challenge. The data tells us that lack of adequate income is a hugely important root cause that requires aid intervention. In 2019, 659m people struggled on less than $2.15 a day. As a result, the UK should fund infrastructure and transport initiatives that help people get to school and work.

The ICAI should commission a consultancy that takes this approach – either as a replacement for, or in addition to, the consultancy that has already been appointed by the ICAI. The next generation of children will face a world shaped by climate change, instability and widening inequality. Now is the time for bold, innovative approaches, not retreat. 

Cutting aid is not a strategy. It’s a failure of leadership. Starmer must fix Britain’s aid programme for the long term, not just turn the aid tap on and off for political convenience. If the UK turns its back on the world’s most vulnerable now, it may find the world ignoring its calls when it needs allies most.

Gilad Tanay is the founder and chair of social impact research and consultancy firm ERI Institute

Header image: British Royal Marine Commandos unload food aid for people affected by Hurricane Irma on the British Vigin Island of Tortola in 2017, photo by DFID/Russell Watkins, published under a Creative Commons licence