When compared to any other point in history the world, we are astonishingly rich. Thanks to the interlinked miracles of expanding trade, free markets and improving technology, the world has a GDP per capita of over $13,000, a tenfold increase in real terms over the last 50 years. That said, far too many areas of grinding poverty remain. Development aid from richer countries is supposed to alleviate the worst effects of this, yet significant sums of British aid are going to regions that are much richer than the world average and in some cases richer even than parts of the UK.

A report published this week by the Institute of Economic Affairs highlights British aid spending in regions which are richer than at least one local authority in the UK. These projects, all from within the last five years, include £244,061 on a project to alleviate traffic congestion in Kuala Lumpur (GDP per capita £21,199, in line with Sefton), £332,783 on climate change adaptation in Mexico City (GDP per capita £19,292), and £258,630 on improving earthquake readiness in Ordos, a prefecture in northern China with a GDP per capita of £27,500 which puts it in line with Swansea and richer than 69 regions in the UK.

Another example which has attracted press attention is the £200,165 spent on a project to encourage traditional all-female Yue opera in Shanghai. Assuming this isn’t some sort of MI6 front operation to infiltrate the strategically vital opera scene, it is reasonable for taxpayers to question why they should be footing the bill for cultural enrichment in one of the richest cities in the world’s second largest economy.

It is important to keep these stories in proportion. Certainly all of these projects make up a small share of the UK’s overall aid budget which stood at £15.4 billion in 2023. The majority of bilateral aid goes to regions that are far poorer than anywhere in the UK. It’s also worth noting that all of these projects pale when compared to the 28% of the aid budget which is now spent in Britain on ‘In-Donor Refugee Costs’ i.e. support and accommodation costs for asylum seekers and refugees which according to international rules can be classed as aid spending. Defenders of the FCDO may say that in the context of a £15bn aid budget a few hundred thousand pounds here and there isn’t worth any attention. But I think this attitude is mistaken.

Firstly, in the context of the most impoverished regions of the world, a relatively small amount of money can go a long way – certainly much further than it can in the wealthiest cities of upper middle-income countries. For example, the money spent on encouraging female opera in Shanghai would have been sufficient to buy around 100,000 doses of the R21 malaria vaccine, which prevents 75% of severe malaria cases and reduces overall healthcare costs in affected regions. What economists call the Penn Effect (goods and services are generally cheaper in poorer countries) means that aid spending is likely to go further if restricted to regions that are poorer than the global average.

But beyond this, the fact that these projects were approved highlights a structural problem in the way the foreign aid budget is set in the UK. The Government has a statutory commitment to spend 0.5% of UK GNI on aid. As GNI growth can be difficult to predict, this can sometimes lead to projects of dubious merit being approved in order to hit the target if growth is higher than predicted.

Conversely, if growth is lower than expected or some area of spending expands in response to a crisis (like In-Donor Refugee Spending as a result of increasing channel crossings), dramatic cuts have to be made elsewhere in the budget. As the IFS has recently pointed out, this leads to inefficiency and makes long-term planning extremely difficult. Setting aside a fixed budget based on clear objectives and the FCDO’s capacity to deliver rather than a spending target based GNI would reduce some of these problems.

Ultimately, if we want to make Britain’s foreign aid budget work, we have to decide what it’s for. If its purpose is to ease consciences by spending a certain percentage of GNI on projects that just about meet the international definition of aid, then it’s already doing a pretty good job. If however, we want to target aid to alleviate the worst effects of poverty in the most efficient way possible there is clearly still room for improvement.

This article was first published on CapX.