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‘Development’ features as a central element of the November 2015 SDSR, with the prime minister asserting that ‘We will use our formidable development budget and our soft power to promote British values and to tackle the causes of the security threats we face, not just their consequences. This includes refocusing our aid budget to support fragile and broken states and regions to prevent conflict.’
In concrete terms, this means that the government has committed to spending 0.7% of Gross National Income (GNI) on Official Development Assistance (ODA) and investing at least 50% of the Department for International Development’s budget in fragile states and regions.
However, this valuable UK ‘export’ fails to achieve its full impact. Internationally operating charities are key to the successful delivery of this development strategy. But restrictions, particularly those created by the closure and constraint of financial services, reduces the ability of these organisations from operating as effectively as they might.
The Export Value of Development Aid
The UK has a long tradition of both government and individual charitable giving.
According to the OECD, at approximately £13 billion, the UK government is the second largest contributor of ODA (Official Development Assistance) amongst all Development Assistance Committee members. Out of the twenty-eight members of the committee, the UK is one of only five meeting the 0.7% of Gross National Income commitment.
Furthermore, individual giving in the UK was estimated to be £10.6 billion in 2014, with nearly 165,000 charities registered in the UK raising a total of £69 billion per annum. According to NCVO, the UK charitable sector contributes £12.1 billion of gross value added to the UK economy each year, comparable to a sector such as agriculture that contributes £8.3 billion.
Yet whilst on the one hand the government rightly champions the role international development aid from the UK can play, and the charitable sector in the UK represents some of the largest and farthest reaching global aid organisations, on the other it fails to provide the support framework that allows such a valuable UK export from playing as effective a role as it might. This failure not only reduces the humanitarian and development impact this aid might have, but also blunts the security and soft-power impact that the government hopes to achieve.
A Slow and Lacklustre Response
Much has been written of the banking frustrations faced by charities that operate internationally over the past two to three years as the financial sector, confronting a range of challenges, rids itself of clients and services (so-called ‘de-risking’).
As bank accounts are closed and international financial transactions are blocked, many more charities are being affected than those that choose to air their grievances publicly.
The government’s response has been generally lacklustre and slow, characterised by the Treasury’s view, outlined in the CAGE banking saga, that ‘Individual commercial decisions of financial institutions are informed by their own compliance and risk policies and are not ones that the Treasury or the regulator can or should determine’.
Some nascent steps to address these challenges have been taken by government.
Following the recommendation of David Anderson QC, the Independent Reviewer of Terrorism Legislation, the Home Office has co-ordinated intermittent contact with a small group of NGOs. This dialogue has led to recently published guidance, which provides useful information for charities.
This dialogue and guidance, along with further roundtable engagement over the past six months (convened at Chatham House and RUSI), are to be welcomed. However, they fail to address the fundamental issue that increasingly restricts charities from operating in the ‘fragile and broken states and regions’ targeted for support by the prime minister: ever-greater restrictions on banking. Thus, to the extent the government wishes to exert global influence via the use of development aid as soft power, reversing the financial frictions that increasingly disrupt this objective must be a key and urgent priority.
As the SDSR notes in the Draft Protection of Charities Bill, ‘British non-governmental organisations are highly respected. They promote human rights, the protection of civilians and good governance around the globe.’ The UK’s NGO community, backed by a broad and generous array of donors (including the UK government) that fund their activities, has the ability to contribute substantially to the UK’s soft-power mission. Yet this mission is handicapped by the increasing unwillingness of the financial sector to provide the services charities need in order to deliver their development aid to the fragile and broken states in most need. If the funds do get through they often travel via informal, high-risk, and opaque routes.
The government thus needs to act to support this leading British export, which brings with it benefits to both recipients and the UK. For example, funding could be channelled through a government-backed intermediary that allows banks to correspond with a known and trusted counterparty. Furthermore, the government could consider adopting statutory provisions similar to those already in place in Australia and New Zealand that clarify the ability of NGOs to operate in high-risk jurisdictions where terrorist groups operate.
In the SDSR, the government commits to publish a new strategy for UK Official Development Assistance, setting out its priorities in more detail and ensuring that aid is targeted to deliver more effectively for the world’s poorest citizens and for the UK national interest. Whilst this goal is worthy and right, unless the financial restrictions that frustrate NGO activity are addressed urgently, the government’s objectives will fail.
A version of this article was first published by the Charity Finance Group (cfg.org.uk) in the February edition of 'Finance Focus'