Asylum costs set to take up fifth of UK's shrunken aid budget, watchdog warns
Despite the June spending review suggesting a reduction in such costs over the next three years, they are still on course to absorb a 'significant portion' of total aid funding, according to the watchdog.
Chancellor Rachel Reeves has announced plans to end the use of hotels to house asylum seekers by the end of this Parliament after the National Audit Office said accommodation costs could hit £15.3 billion over a 10-year period.
But progress in bringing down aid spending on so-called in-donor refugee costs remains 'slow', the ICAI said.
International OECD rules allow governments to use their aid budgets to cover some of the costs of helping people claiming asylum in the first year of entering a country, such as housing and food.
According to ICAI calculations, asylum costs are expected to take up £2.2 billion of total UK official development assistance (ODA) funding for 2026-27, £1.8 billion the following year and £1.5 billion by 2028-29.
The Government slashed Britain's aid budget earlier this year from 0.5% of gross national income to 0.3% in order to pay for increased defence spending.
Total ODA spending is now expected to fall from £10 billion in 2026-27 to £8.9 billion the following year before increasing slightly to £9.4 billion in 2028-29.
This means a fifth of the total aid spend in 2027-28 is expected to go towards asylum costs, before dipping to around a sixth in 2028-29.
ICAI commissioner Harold Freeman, who led the new report, acknowledged the Government had already taken some steps to address 'flaws in the system' but said further changes would be likely to be needed.
He said: 'The UK's development programme is at a turning point, with budget reductions coming against a backdrop of increasing global conflicts, climate threats and rising humanitarian needs.
'At the same time, UK asylum costs are likely to continue to absorb a significant proportion of our aid funding.
'The Government has already taken steps to address some of the flaws in the system for managing aid identified by past ICAI work.
'But further changes will likely be needed to maximise the impact and value for money of the remaining development budget.'
The Government has been contacted for comment.
Last year, the watchdog raised 'value for money' concerns after some 28% – or £4.3 billion – of all UK aid in 2023 was spent on hosting refugees and asylum seekers in Britain under the previous Conservative government.
The amount of ODA spending on in-house refugee costs has risen dramatically since 2020, in part due to visa schemes for Afghan and Ukrainian people but largely linked to lengthy stays in so-called asylum hotels, the ICAI said.
In response to its latest report, the Tories said the 'eye-watering cost' of housing asylum seekers was 'utterly indefensible, particularly when so many people are struggling to get by'.
Shadow Home Office minister Katie Lam said: 'This broken system rewards delay and indecision, while the British taxpayer foots the bill.
'Those who have no right to stay here should not be languishing in hotels; they should be detained and deported within days – not years.
'We need a migration system that is firm, fair, and fast.
'Over the past 12 months, Keir Starmer has systematically dismantled every deterrent, while his joke of a migrant deal agreed with France last week will do nothing to stem the flow of migrants risking their lives to cross the Channel.'
The One campaign, which aims to reduce poverty in Africa, said the report confirmed that UK aid had been 'stretched to breaking point'.
Executive director Adrian Lovett said: 'While it's right that refugees are housed in safe accommodation, paying for this from the diminished international aid budget means there will be even less support for the world's most vulnerable people at a time of growing global need.'
Mr Lovett added: 'The UK is at its best when it delivers a strong and growing aid budget, but also uses its political and diplomatic muscle to help create the conditions for sustainable solutions.
'We look to ministers to be creative and ambitious on both fronts in the months and years ahead.'
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