The House Article | Private investment is vital to effective aid spending

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Our nation is facing serious challenges: war in Europe, chaos in the Middle East, and a cost-of-living crisis that is hitting households and businesses hard.

Tough choices had to be made. Fiscal discipline and defence of Britain’s interests must be the order of the day.

This does not mean that the profound challenges faced by other countries around the globe no longer exist, particularly for those facing the impacts of extreme weather events. The government is therefore right to try to create a smarter, more streamlined aid budget, but it must leverage more private investment to make up the shortfall.

Last year at COP30 in Brazil, I heard firsthand about the damage wildfires are causing to both the Amazon rainforest and farmers’ livelihoods. But wildfires, floods, and droughts happening in faraway lands are not without consequences for the UK.

Although I would much rather British farmers feed our nation, we still import up to 48 per cent of our food, including products even the best British farmers would struggle to produce at scale, such as bananas, coffee, and cocoa. Britain still imports over 110,000 tonnes of tea annually, mainly from Kenya (36 per cent), which is on the frontline of extreme weather events.

If these crops are damaged or destroyed abroad, food shortages and price increases in the UK are inevitable.

But extreme weather events won’t just drive up the price of tea. When crops fail, and whole regions become uninhabitable, migration levels will continue to increase as people look to escape the harsh consequences of food systems failing.

Britain has to come first. We need to fix our own economy, increase defence spending, and keep inflation under control.

But we should remember that putting Britain first also means a role, even if it is much smaller, for strategic climate finance.

This spending has too often been used to fulfil some misplaced sense of moral obligation that makes us feel better. Instead, it should be about making a tangible difference that boosts Britain’s own security by protecting food prices and reducing migratory pressures.

Fortunately, even with tighter fiscal restraints, we still have levers we can pull to help mitigate these disasters, particularly from private finance.

That is why the government’s decision to cut funding for British International Investment (BII) by 70 per cent is such a damaging blow to our interests overseas, as this finance institution is the best vehicle for the UK to leverage private investment.

BII should be a core part of what a smarter aid budget looks like. It currently manages a £1.5bn portfolio, investing in aid opportunities globally with a mandate to make a return on its investment.

Due to its rate of success — a 5.1 per cent return in 2024 — private investors can see first-hand the value of investing with BII. For every $100 of public money invested, private investors add an extra $71, making this one of the most efficient ways that the government can spend our aid budget. The returns are then reinvested, creating an even larger portfolio to support developing countries by investing in climate-resilient crops, nature-based defences for flooding, or heat-proofing technologies.

Instead of cutting funding for BII, ministers should have at least protected it. BII is an overlooked organisation that strategically invests taxpayers’ money, grows aid spending organically via the returns it makes, and encourages private investment to serve our interests without burdening taxpayers. It’s an efficient, common-sense approach to spending public money.

While reducing the aid budget is necessary, the £300m cut to BII is a huge mistake. If we want to continue tackling the impact that extreme-weather events overseas have on us here in Britain, we have to incentivise private investment, not just rely on public money, and BII does precisely this.

Now more than ever, we have to build a more efficient and affordable aid budget, living within our means and ensuring that it serves Britain’s interests first. BII and private investment should be the cornerstone of this approach. Before it is too late, the government must reconsider its funding priorities and once again back the BII.

Blake Stephenson is Conservative MP for Mid Bedfordshire