UK Chancellor of the Exchequer — foreign aid cut because of threats to Europe

British Prime Minister Keir Starmer. (Photo: EPA-EFE /Tolga Akmen / Pool)

26 Feb 2025

UK Chancellor of the Exchequer Rachel Reeves, in SA for the G20 finance ministers’ meeting, says the private sector will need to help fill the gap in foreign aid cuts.

Britain is cutting its foreign aid from 0.5% to 0.3% of gross national income (GNI) to increase its defence spending because of new threats to Europe since Russia invaded Ukraine, says UK Chancellor of the Exchequer Rachel Reeves.

Private sector investment would need to be leveraged to step in and help fill the gap in funding development, Reeves told South African journalists in Cape Town where she is attending the G20 finance ministers and central bank governors meeting.

starmer British Prime Minister Keir Starmer. (Photo: EPA-EFE /Tolga Akmen / Pool)

Prime Minister Keir Starmer announced on Tuesday that the UK would cut foreign aid spending from 0.5% to 0.3% of GNI to increase defence spending to 2.5% of GDP (from about 2.3% now).

Would that cut in foreign aid not jeopardise many of South Africa’s G20 priorities, Daily Maverick asked Reeves? Those priorities seem to require more development financing – for funding disaster relief and reconstruction, debt relief and just energy transitions, for example.

“So the world has changed profoundly since Russia’s illegal invasion of Ukraine three years ago, and Europe has to step up and respond to those threats on the continent of Europe,” Reeves replied.

“And so it is important that we’ve been able to find money and prioritise defence because a strong country and a strong economy depends on having strong security and strong defence.

“So we made that decision to re-prioritise money from overseas development assistance to that defence priority, and that’s the right decision for our country.”

Reeves said Britain remained committed to reducing poverty overseas, including by working through the World Bank, International Monetary Fund and other multilateral institutions.

“But I think there’s also massive opportunities – and I said this in the G20 this morning – to leverage in more private sector investment to support development priorities.”

She noted that trade between the UK and SA, for example, was worth about £30-billion a year and the UK was the biggest international investor in South Africa.

“That is the most important way to drive up living standards right across the world in a way that’s mutually beneficial for both of our countries.”

‘We must work with Trump’

Reeves was asked if she was concerned that the G20 could be at risk of being “juniorised” since both US Secretary of State Marco Rubio and US Treasury Secretary Scott Bessent had decided to skip the foreign ministers’ and finance ministers’ meetings.

Reeves said she was really pleased that SA was hosting and chairing the G20 this year.

“It is an historic moment, the first African country to ever chair the G20, and it’s the opportunity for South Africa to set the priorities for the G20 this year” and to showcase the country. She noted that UK Foreign Secretary David Lammy had been at the foreign ministers’ meeting last week and she was here this week. Starmer would attend the summit in November.

Hosting the G20 was also an opportunity for SA to expand trade and investment “and I know that South Africa are taking that opportunity as well”.

Reeves noted there was always a reason why a minister wasn’t able to attend a G20 meeting. She said Bessent was only a few weeks into his job but that Jay Powell, chair of the US Federal Reserve, was attending the G20 meetings and had spoken that morning. The US Treasury was also represented.

“So the US voice is round the table, as is every voice from the G20, and also South Africa has invited some countries outside of the G20 to participate, which is also important to hear those voices.

“So I think that the G20 is well attended, certainly this week for the finance ministers’ meetings, and we’re having interesting and useful conversations this morning, we’ll continue to do so for the rest of today, this evening and tomorrow.”

Read more: US not boycotting G20, says Ramaphosa in taking a confident stance on finding solutions with Trump

Reeves was also asked if she believed that the G20 should be “Trump-proofed”, bearing in mind that the US would take over the presidency of the club from South Africa.

“I think we need to work with President Trump, democratically elected as president of the United States and his new government. When he was president last time, global trade increased and global investment flows increased.

“We need to work together, I believe, as I said before, in multilateralism, working together. I think that trade and investment are mutually beneficial for the country hosting and the country making the investment and the country exporting and the country importing and we will continue into the UK to make that case.”

Shifting priorities

Reeves was asked if the UK would specifically cut back on its financing SA’s Just Energy Transition Partnership to which it has pledged a large part of the total of the $8.5-billion pledged by the European Union, France, Germany, the US and others.

Reeves replied that the UK was reducing, not ending, its spending on international development.

Read more: Ramokgopa warns of risk of US pulling its Just Energy Transition funding

She noted that over the past few years, a lot of UK international development money had been taken up with the hotel costs for asylum seekers in the UK.

“As we reduce that backlog, as we’re processing the claims, we are reducing that spending so more of the international development will actually be able to be spent on what it was supposed to be spent on, which is development in some of the poorest countries in the world.”

She said that she had been working very closely with, for example, the European Bank for Reconstruction and Development, to leveraging in more private sector finance for development.

She said World Bank President Ajay Banga and IMF managing director Kristalina Georgieva were also trying to get more private investment into some of the poorest countries in the world to fund both the energy transition and development projects.

Daily Maverick asked her what concrete proposals were being put on the table at the G20 to realise one of SA’s priorities – to help African countries in particular manage what was becoming unsustainable debt.

Reeves said both the World Bank and IMF had been doing a lot of work on that important problem as some countries were in financial distress because of rising interest rates over the past few years.

“I very much believe in multilateralism and countries working together, including to help those heavily indebted countries. That work will absolutely continue.”

Reeves shrugged off the question of whether it was an embarrassment for a country to have had a budget process that had failed as South Africa’s had last week. Would that deter investors?

“I am a finance minister. I know that budgets are challenges and my party has a big majority in Parliament. We don’t have to act in a coalition. I have every confidence that South Africa will be able to get a budget through. As a finance minister, I recognise the challenges – difficult economic circumstances.

“Countries around the world need to get inflation down and to boost economic growth. The number one priority for my government under Keir Starmer’s leadership is to grow the economy. We haven’t fulfilled our growth potential in the last few years. That is similar in many countries around the world. The best way to improve living standards and lift people out of poverty is to grow the economy.

“That is what we are determined to do at home and also to make that case in the G20 and other fora too.” DM

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