The UK government’s decision to use the overseas aid budget to pay for supporting refugees in Britain is “wreaking havoc” with the Foreign, Commonwealth and Development Office’s development partnerships, an official government watchdog said on Wednesday after it was revealed that £4.3bn was diverted to support refugees in 2023. Official statistics show 27.9% of the total UK aid budget in 2023 was spent on supporting the first-year housing and food costs of refugees in Britain, an increase of £600m. The Independent Commission for Aid Impact (ICAI), which oversees foreign aid, said the system of loading the housing costs of UK asylum seekers on to a budget set aside to alleviate poverty abroad was creating “perverse incentives”, adding that the FCDO in effect “has to take the financial hit” for the Home Office’s overspending. Its report says: “We find that donor refugee costs, far from reducing, have actually increased. Value for money risks have not been reduced, given that the same number of asylum seekers are accommodated in hotels as of 31 December 2023 (45,768 people) as there were on 31 December 2022 (45,775), at extremely high costs to the UK taxpayer, much of which is covered by the official development assistance (ODA) budget.” It accuses the government of a “maximalist approach” that differs from those of other major donors. It “leads to the aid budget being spent in a manner that is not good value for money nor in line with UK international development strategic priorities. As a result, such a maximalist approach undermines the integrity of the ODA concept, which is about supporting development and reducing poverty in developing countries.” The report found the Home Office’s spending on hotel costs for asylum seekers had risen to £8.2m a day – all drawn from the aid budget – even though the number of hotels used by the Home Office had fallen by a quarter. The statistics show the FCDO was the largest spender of UK ODA, spending £9.47bn, while the Home Office spent £2.96bn of ODA. In 2022 the Treasury provided an extra £2.5bn over two years to help the FCDO subsidise the rise in refugee costs eating into the aid budget, but that injection of funding by no means covers the full cost of the rising cost of housing and feeding domestic refugees. Overall ODA spending was £15.4bn in 2023, representing 0.58% of gross national income, compared with 0.51% in 2022. Aid analysts said the refugee spending was only part of a wider long-term trend, whereby UK aid spend was increasingly being spent inside the UK rather than as promised in locally led projects operating inside recipient countries. Ian Mitchell, from the Centre for Global Development in Europe, said: “Headline figures showing the government spent 0.58% of the country’s income on aid are masking a bigger problem. “There has been huge expenditure within the UK – the new figures show record spending on refugee-hosting, which, with other domestic spend, means the government is now spending over 50% of the £9.9bn bilateral aid budget within the UK.” Mitchell said: “Over the last decade, every year has seen the UK spend a greater share of its bilateral aid within its own borders: rising from a low of 6% in 2013, to the 48% figure in 2022.” He said the rise in domestic spending preceded the big increase caused by refugee housing costs. For instance, the share spent domestically on administration doubled between 2013 and 2022 (now 7% of the bilateral total), while it rose by almost three-quarters for research (to 2.7%) and more than tripled for students. ICAI highlights the limbo status of the cohort of 55,000 asylum seekers who have arrived since 20 July 2023 by irregular routes and after the passage of the Illegal Migration Act. It says once the act is implemented the first-year housing costs of such asylum seekers will not be eligible for ODA funding since under British law they are not entitled to protection by the UK as refugees or asylum seekers. A UK government spokesperson said: “The UK spent over £15bn on development last year, including on life-saving humanitarian aid in Gaza, in Sudan following the coup, and in Türkiye and Syria after the earthquake. “We will continue to ensure our aid budget delivers value for money for British taxpayers.”