Spending will fall to around £10billion next year for the first time in almost a decade as the Chancellor struggles to fill the black hole in the nation’s finances.
Rather than making it a one-off cut, ministers will introduce legislation to allow spending to be kept at a reduced level for several years – or even permanently.
The Daily Mail revealed earlier this month that Mr Sunak wanted to axe the commitment to spend 0.7 per cent of national income on aid as he battled with the impact of the coronavirus crisis on the economy.
He will announce in his spending review this afternoon that the target enshrined in law will be lowered to 0.5 per cent in 2021, with the option of keeping it at this level thereafter.
Whitehall sources insisted the decision on how long it will stay will depend on the economic recovery. The Government was last night consulting legal experts on the exact form of the legislation that will be used to make the change, which it plans to bring forward in the middle of next year.
It is understood Mr Sunak made the decision after coming under pressure from MPs in former ‘Red Wall’ seats won by the Tories from Labour at the last election.
Last night he faced last-minute calls to change his mind from senior figures including former Scottish Tory leader Ruth Davidson and ex-foreign secretary Jeremy Hunt.
The Government may encounter difficulty getting the legislation through the Lords because it goes against its election manifesto commitment to spend 0.7 per cent of gross national income abroad.
Foreign aid spending has more than doubled in the past decade, with the Government reaching the 0.7 per cent target for the first time in 2013, before enshrining it in law two years later. The budget rose £645million to reach £15.2billion for the first time last year.
Both China and India saw their funding increase, even though they can both afford their own space programmes.
An average of 0.29 per cent GDP is given by the G7 nations, which include Germany and the US.
The aid budget was already expected to fall this year because of the reduction in the size of the economy. Foreign Secretary Dominic Raab had earmarked £2.9billion of cuts, reducing the expected spending from £15.8billion to £12.9billion.
According to official economic forecasts, aid spending would go back up to £14billion next year if the 0.7 per cent target was kept. Reducing it to 0.5 per cent will see spending slashed to £10billion.
Miss Davidson yesterday branded the proposed cut as a ‘counterproductive choice – morally, economically and politically’.
Mr Hunt warned: ‘This year, according to the World Bank, 100million more people will fall into extreme poverty. The Britain I know and love does not turn it back on such people – whatever our challenges at home.’
Nobel laureate and anti-poverty campaigner Kailash Satyarthi told the Prime Minister the rumoured reduction would be ‘immoral’.
David Cameron, Tony Blair and Archbishop of Canterbury Justin Welby have already opposed the move. In the Commons yesterday, Mr Raab insisted: ‘Our aid budget will remain at the absolute centre of the work we do as a force for good.’
The Chancellor’s spending review today will also reveal that pensioners will be billions of pounds poorer under an overhaul of inflation.
Around £1trillion worth of pension money is invested in Government bonds tied to the retail price index (RPI) measure of inflation.
More than 10 million pensions also rise in line with the rate every year. But RPI is expected to be abandoned in favour of a lower measure that would wipe £100billion off the nation’s retirement money.
It is thought that the consumer prices index including housing costs (CPIH), which is around 1 per cent lower, will replace RPI. Experts say the shake-up is an ‘inevitable catastrophe’ that will cost individual pensioners tens of thousands of pounds.
And a big leg-up for 1m jobless
Rishi Sunak is promising to spend almost £3billion to help a million unemployed people back into work as he unveils his first spending review today.
The Chancellor last night said his ‘number one priority’ was to protect jobs and livelihoods after the economic havoc wreaked by the pandemic this year.
His spending review will include £2.9billion over three years for a new ‘Restart’ scheme for a million unemployed people.
Under the programme, the Treasury said those who have been out of work for more than 12 months will be provided with intensive and regular support that is tailored to their circumstances. There will be a further £1.4billion of funding to increase capacity in the Government’s Jobcentre Plus to provide additional assistance to those looking for work.
The Chancellor will also confirm funding for the next stage of his Plan for Jobs – including £1.6billion for the Kickstart scheme, which the Treasury has said will create up to 250,000 state-subsidised jobs for young people.
The programme, launched in August, offers employers £2,000 for every apprentice they take on. It will now be extended to the end of March. Mr Sunak is also setting aside £375million for a skills package. That includes £138million of new funding to deliver Boris Johnson’s Lifetime Skills Guarantee, which funds college courses for adults without A-levels or similar qualifications.
Speaking ahead of his statement, Mr Sunak said: ‘My number one priority is to protect jobs and livelihoods across the UK.
‘This spending review will ensure hundreds of thousands of jobs are supported and protected in the acute phase of this crisis and beyond, with a multi-billion package of investment to ensure that no one is left without hope or opportunity.’